When the Fed considers the fiscal needs of the Federal Government, between Paul Volcker and Jerome Powell, there’s a huge divide.
Jerome Powell, the Fed chair, speaks after the interest rate decision. July 30, 2025.
Minute: 19:22 Michael McGee of Bloomberg’s asks: “Do you have concerns about the cost to the government of keeping rates elevated for longer in terms of interest rate charges?”
Jerome Powell, chair of the Federal reserve answers: “It is not something we do to consider the cost to the government of our rate changes.”
Then Powell adds: “We do not consider the fiscal needs of the federal government, no advance economy central bank does that and it wouldn’t be good for, if we did that it would not be good for our credibility nor for the credibility of US fiscal policy so it is just not something we take into consideration.”
Hold it there Mr. Chair!
Paul Volcker’s in his autography “Keeping at it”, valiantly confessed: “The assets assigned the lowest risk, for which capital requirements were therefore low or nonexistent, were those that had the most political support: sovereign credits. The American “overall leverage” approach seemed to discourage holdings of the safest assets, in particular low-return US government securities.”
Now, in 2025, we should ask: “The Federal Reserve’s support of government borrowings, an important determinant of US fiscal policy has it not, since 1988’s Basel I, even increased a lot?
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