US Fed taps this Indian economist to help rethink its $6.7 trillion balance sheet
Former RBI chief joins a panel reviewing how the US central bank manages its assets
Dubai: Former Reserve Bank of India Governor Raghuram Rajan has been selected to help review how the US Federal Reserve manages its $6.7 trillion balance sheet, as the central bank considers changes to its monetary policy operations.
Rajan will serve alongside former Fed Governor Jeremy Stein and economist Karen Dynan on the Balance Sheet Policy Task Force, one of five independent panels established by Federal Reserve Chairman Kevin Warsh.
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The panel will examine the costs, benefits and institutional implications of the Fed’s current balance sheet regime, including the level of reserves held within the banking system and the composition of the central bank’s assets.
Recommendations due by year-end
Warsh said the five task forces have been given six months to complete their work, with initial findings expected from September and final recommendations due by the end of the year.
Policy decisions will remain with the Federal Open Market Committee, while the panels will provide recommendations across communications, balance sheet policy, economic data, productivity and jobs, and the Fed’s inflation framework.
“I reached out to 15 people who I have known and trusted with a diversity of views,” Warsh said. “It’s a move towards transparency and new ideas.”
He said the review was intended to improve monetary policy decisions following more than five years of inflation remaining above the central bank’s target.
“Our purpose here is to make better decisions in the conduct of monetary policy and put these years of high inflation behind us,” Warsh told senators.
Competing views welcomed
Senate Banking Committee Chairman Tim Scott praised Rajan’s inclusion during Warsh’s first semiannual monetary policy hearing before Congress, saying the balance sheet panel brought together economists with differing views.
“It seems like you have Jeremy Stein... as well as the former governor of the Indian Central Bank, Mr Rajan. They have very nicely put competing approaches and philosophies about the balance sheet, but if you’re going to be intellectually honest, you need to have a serious debate about what direction to go and, frankly, how to get there,” Scott said.
Warsh said the Fed’s balance sheet should be “as small as practicable to conduct operations”, while adding that the central bank would remain open to changes and give financial markets sufficient time to adjust.
Rajan led the Reserve Bank of India between 2013 and 2016 and previously served as chief economist and director of research at the International Monetary Fund. He is currently a finance professor at the University of Chicago Booth School of Business.
- With inputs from IANS.
