When Parsing the Banking Crisis, Don’t Forget Easy Money
Sometimes the Fed has to get creative to support the economy. But it must consider the risks, too.
Responsible party.
Photographer: Kevin Dietsch/Getty ImagesHaving presided over America’s first banking crisis since 2008, Federal Reserve officials are rightly focused on reforming regulation. That said, they should keep in mind some lessons for monetary policy, too.
The Fed has promised to complete a review of the recent rash of bank failures by May 1. No doubt, it will address issues such as the need for tougher oversight of mid-sized institutions, more proactive supervision, more diverse stress tests and greater scrutiny of how long-term investments are funded. It will probably remain silent, however, on the extent to which the Fed’s monetary stimulus and subsequent tightening might have contributed to the crisis. That’s unfortunate, because the topic deserves attention.