Warsh and the Fed's Balance Sheet
Kevin Warsh, a Fed chair hopeful, argues that shrinking the Federal Reserve’s balance sheet will free up stimulus that can be redirected into lower fed‑funds rates. The piece challenges that view, noting that reserve balances—about $3 trillion, roughly 9% of U.S. GDP—are demanded structurally by banks and regulation, not as economic stimulus. When the Fed trims its holdings, it merely satisfies that structural demand, leaving no excess stimulus to replace with rate cuts. Consequently, Warsh’s logic risks misguiding policy and market expectations as the Fed moves toward a post‑QE operating framework.
The ECB and the Euro's Global Role
The European Central Bank has broadened its euro‑repo liquidity facility (EUREP) to offer funding to any central bank that provides high‑quality euro‑denominated collateral. This move underscores the ECB’s growing geopolitical role as the euro seeks to become a more prominent...
Dispatch€s From Frankfurt - ECB: Graduated Response
The European Central Bank’s annual Frankfurt conference highlighted a sober mood as policymakers grapple with the lingering energy‑price shock and geopolitical risks from the war in the Middle East. President Christine Lagarde’s keynote outlined a "graduated response" strategy, emphasizing scenario‑based...