Bowman, Reflections on 2024: Monetary Policy, Economic Performance, and Lessons for Banking Regulation
2025-01-09 18:35 FRB
In a speech delivered on January 9, 2025, Federal Reserve Board Governor Michelle Bowman reflected on the challenges and achievements of monetary policy in 2024 and drew lessons for banking regulation.
Monetary Policy in 2024
The year 2024 was a challenging one for monetary policymakers. Inflation surged to its highest level in decades, driven by supply chain disruptions, geopolitical events, and strong consumer demand. The FOMC responded by raising the federal funds rate seven times in 2024, with the final increase bringing the rate to 5.00%.
Bowman noted that the FOMC’s monetary policy actions were successful in reducing inflation. By the end of 2024, inflation had fallen back to the Fed’s target of 2%. However, she also acknowledged that the rate increases had taken a toll on economic growth.
Economic Performance in 2024
The U.S. economy grew by 2.2% in 2024, a slowdown from the 5.9% growth rate in 2023. Bowman attributed the slowdown to the Fed’s rate increases, which she said had cooled consumer spending and business investment.
Despite the slowdown, the unemployment rate remained low, at just 3.6% by the end of 2024. Bowman noted that this was a sign of the economy’s underlying strength.
Lessons for Banking Regulation
Bowman also used her speech to draw lessons for banking regulation from the events of 2024. She argued that the sharp rise in inflation exposed vulnerabilities in the banking system.
For example, Bowman noted that some banks had been too reliant on short-term funding, which made them vulnerable to interest rate increases. She also said that some banks had taken on too much risk in their lending portfolios.
Bowman called for the following reforms to banking regulation:
- Increased capital requirements: Banks should be required to hold more capital, which would provide a buffer against losses in the event of an economic downturn.
- Improved liquidity requirements: Banks should be required to hold more liquid assets, which would allow them to meet their obligations during a financial crisis.
- Enhanced stress testing: Banks should be subjected to more rigorous stress tests, which would help to identify vulnerabilities in their business models.
Bowman concluded her speech by saying that the lessons learned from 2024 would help to make the banking system more resilient and better able to withstand future economic shocks.
Bowman, Reflections on 2024: Monetary Policy, Economic Performance, and Lessons for Banking Regulation
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