Fed increases focus on market liquidity as economy weakens

U.S. Federal Reserve Vice Chair Michael Barr said that the Fed is keeping the situation under control, closely monitoring any problems that arise in the financial system. He also hinted that supervision of cryptocurrency may soon become stricter.

The Vice Chair also noted that the Fed will take a more thorough approach regarding issues of liquidity risks, credit and interest rates. Barr noted that amid tighter financial conditions and rising uncertainty, the U.S. economic outlook has undergone some changes.

Barr emphasized that the weaker the economy, the greater the pressure on households and businesses. As a consequence, the entire banking system is also under pressure. At the moment, the level of such risks is particularly high due to high inflation in the country. Moreover, geopolitical events put pressure on both the U.S. economy and the world economy.  

Barr's comments are particularly interesting given that this is the first time the Fed has pursued such a tight policy in 40 years. However, it’s worth noting that the policy is justified by high inflation and excessive tension present in the labor market.

In addition, Barr presented a sample set of tasks with the highest priority. These tasks could help regulate issues such as bank capital requirements, bank mergers, and the cryptocurrency situation.

Regulation at this point, according to Barr, is necessary because without proper regulation there could be a so-called race to the bottom, a situation in which restrictions are removed, and government regulation becomes minimal. Such a race would end up endangering everyone involved in the process, as well as ruining the reputation of products and services among both consumers and investors.

Commenting on recent troubling events in the crypto market, Barr noted that this is a good example of the risks that can arise in a completely new industry without proper regulation.