Gary Cohn, former president of Goldman Sachs Group Inc (NYSE:GS). and current vice chairman at International Business Machines Corp. (NYSE:IBM), has expressed concerns about the Federal Reserve's monetary policy. On Friday in an interview on Bloomberg Radio, Cohn criticized the central bank's strategy of increasing interest rates to counter inflation, arguing it might be causing more harm than good.
Cohn attributed this year's series of bank failures to the heightened interest rates, which he says have depreciated the value of long-term assets and prompted deposit withdrawals. He fears that these events will push the Federal Reserve to raise capital requirements for America's largest banks, a measure whose efficacy he questions.
Despite the Federal Reserve's recent decision to maintain the federal funds rate between 5.25% to 5.5%, Jerome Powell, chair of the central bank, has indicated a potential rate hike later this year. Cohn expressed concerns over this unprecedented situation where the Federal Reserve is tightening monetary policy to curb inflation while the federal government is simultaneously boosting spending.
He pointed out that government initiatives like the Chips Act and infrastructure programs will continue to stimulate labor market demand, even as higher interest rates put pressure on the housing market. In an ideal scenario, were Cohn given an opportunity to converse with Powell, he would advise him that enough measures have already been taken by the Federal Reserve.
Cohn's critique of the current monetary policy underscores a significant concern about its impact on regional banks and its potential effect on broader financial stability. His comments highlight a debate about how best to manage interest rates in a complex and changing economic landscape.
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