Ex-Fed executive sees interest rate changes tied to political pressure
With the Federal Reserve cutting the federal funds interest rate for the second time this year, a former employee of the Federal Reserve and Miami-based banker said the move has more to do with political pressure and less to do with monetary policy.
“For the first time I’ve seen, I think they’re bowing down to political pressure,” said Juan Del Busto, who worked for the Federal Reserve for nearly 40 years and was the regional executive of the Federal Reserve branch in Miami from 2008 to 2012. He is currently on the board of directors of Ocean Bank and is chairman of Del Busto Capital Partners.
Until now since he departed, he has been reticent to talk about matters at the Federal Reserve.
He said that based on employment and consumer confidence, there was no need for the Federal Reserve to lower rates. The Federal Reserve, he said, was doing monetary policy “in a vacuum.”
In July, the Federal Reserve lowered the federal funds rate by a quarter-point, and once again lowered the rate by a quarter-point earlier this month. The federal funds rate is currently at 1.75% to 2%. Federal Reserve Chair Jerome Powell has cited weakening global growth and trade policy uncertainty as reasons for the cuts.
In a tweet, President Donald Trump called for the Federal Reserve to cut interest rates to zero or to negative interest rates.
According to the US Bureau of Labor Statistics, employment rose by 130,000 in August. The unemployment rate for August was at 3.7% for the third month in a row, with 6 million people unemployed in the nation.
Mr. Del Busto said that cuts would place added stress on bankers. He said many financial institutions had predicted one or two interest hikes this year, and now long-term planning is out the window because the direction of the Federal Reserve is unpredictable. Banks had gone out for more money and will now get less return on the loans they provide.
“Banks have a lot of cash. There are not as many deals, so we’re competing heavily for deals, so the customer is in the driver’s seat,” he said, adding that in an ideal scenario, bankers and customers would work as partners.
While Mr. Del Busto indicated it was a good time to borrow, he cautioned about similar borrowing behaviors to those prior to the Great Recession. Despite recessionary indications, Mr. Del Busto said he does not see a recession occurring this year.
“I predicted a mild recession for 2021,” he said. “Things, I believe, are starting to slow down a bit, but I don’t see a recession this year.”