Confidence in Federal Reserve falls again

More and more Americans are losing faith in the Federal Reserve, according to new research from Axios and Ipsos. In most population groups, less than 40% have confidence in the central bank. Especially among younger people and lower income groups, trust is particularly low at around 30%, while older age groups have slightly more confidence. Higher incomes (more than $50,000 per year) are also slightly more positive about the central bank.

The survey shows that college-educated Americans know more about the Federal Reserve and its mandate, but that they don't trust them any more than the less-educated people. In fact, higher educated people appear to be slightly more negative about the central bank on average. Only age and income seem to have a positive correlation, but this is not the case for education and political affiliation.

The Federal Reserve also scores low in the ranking of public institutions, with an average of 34%. Only the U.S. federal government scores worse with only 30% confidence. According to Axios and Ipsos, the loss of trust in public institutions is a broader trend that has been visible for some time. The loss of confidence in the central bank can be attributed to policy failures.

Confidence in Federal Reserve is falling (Source: Axios/Ipsos)

Federal Reserve under pressure

The U.S. central bank is losing confidence due to an unconvincing monetary policy. With various asset purchase programs, it has been trying in vain to boost inflation for years. Now it is trying to compensate for that by further extending the inflation target. At the end of 2018, the central bank also suddenly made a complete U-turn in its monetary policy. Due to turmoil in the financial markets, the interest rate hikes came to an end and she suddenly had to cut interest rates again.

In September 2019, the central bank again ran into difficulties due to an acute crisis in the repo market. A shortage of safe collateral caused turmoil in the financial markets. From that moment on, the Fed started buying government bonds again. This year, the purchase programme went into high gear due to the corona crisis. In March, the Fed even decided to buy unlimited loans.

None of this seems to contribute to confidence in the central bank. According to critics, the accommodative monetary policy of the past decade has led to more wealth inequality. The wealthiest Americans benefit the most from low interest rates and the increase in the value of their assets. Lower incomes, on the other hand, have seen their purchasing power decline for years.

The question is how the Fed can regain confidence. A return to a normal policy with higher interest rates seems almost impossible. On the other hand, more stimulation doesn't seem to yield much either. What else can the central bank do?

This contribution was made from Geotrendlines