As the U.S. economy continues to recover from recession, “this is a good time in my view to ask what worked and what didn’t,” said Jerome H. Powell, a Federal Reserve governor, at the Global Finance Forum in Washington on Thursday.
With a “much stronger” financial markets infrastructure in place, “the themes to guide us in the next phase” include raising capital thresholds for small institutions, finding the right level of transparency for supervised firms and revisiting regulation because “the new rulebook is excessively complex,” Mr. Powell said, adding that regulators are “at the halfway mark” of addressing President Donald Trump’s executive order to re-evaluate all financial regulations. Firms have made a lot of progress since the recession, when “it was clear that firms didn’t have the ability to know their risk. Firms ought to be able to stand up and say they can withstand a severe shock,” he said.
Mr. Powell said regulators and Congress “need to take another look” at the Volcker rule, which prohibits banks from proprietary trading. “It’s just too complicated,” he said.
Catherine L. Mann, chief economist at the Organization for Economic Co-operation and Development, said monetary policy accommodation around the world “has reached the end of its policy time,” which will create gaps in markets. “That says to us that there is a lot of volatility in the markets. It is going to be a bumpy ride,” Ms. Mann said.
The International Monetary Fund, earlier this week in its semiannual report on the state of the global economy, increased its forecast for world growth in 2017 a tenth of a percentage point to 3.5%. The report also projects 3.6% growth in 2018, instead of last year’s expectation for 2018, which was 3.1% growth. The global economy is vulnerable to protectionist trade policies, the IMF report warned.