Fed’s Mester does not see coverage adjustments coming from GameStop saga

Fed's Mester doesn't see policy changes coming from GameStop saga

Cleveland Federal Reserve President Loretta Mester said top regulators should look into the GameStop trading saga and its impact on the markets.

However, she said the situation has no impact on her monetary policy approach and does not see any adjustments by the Fed in response to the turmoil on Wall Street.

“I don’t think this is affecting my monetary policy views at the moment,” said CNBC’s Mester Steve Liesman during a “Squawk Box” interview.

“I think we have to make sure it’s a fair market because, as you know, financial markets are important to the economy,” she said. “I’m glad Janet Yellen is bringing all the regulators together to see what happened.”

Yellen, the new Treasury Secretary, has called for a summit of regulators, including the Fed and its New York District, the Securities and Exchange Commission and the Commodity Futures Trading Commission.

The meeting is in response to the market turmoil that began with Reddit traders buying up shares in companies – including GameStop – that major Wall Street investors had bet against.

These stocks have changed a lot since then, and the matter has raised questions about market stability and the possibility that manipulation was involved.

Questions have also been raised as to whether simple Fed policies have created instability. The central bank has kept rates near zero for almost a year and buys at least $ 120 billion worth of bonds every month. This has resulted in a massive inflow of liquidity with money looking for places to go.

But Mester said she doesn’t see Fed policy as a direct cause of the market troubles and doesn’t anticipate any changes.

“We certainly understand that financial stability is a necessary thing to achieve our dual mandate goals of price stability and maximum employment,” she said. “You will get volatility in the market from various sources. I don’t think that should affect our monetary policy.”

Mester’s comments are similar to those of other Fed officials who have rejected the notion that simple monetary policy plays an important role in volatile market activity.

Accommodation policies are necessary, she said, as the economy continues to rise from the pandemic-made hole. The Fed took a new approach last year in which interest rates would not rise even if unemployment fell to levels previously associated with rising inflationary pressures.

“Just because unemployment is low, we will not necessarily move monetary policy. It really will be so, we have to see what is going on with inflation,” said Mester. “Let’s look at the economy more broadly, but also more disaggregated, so that we can really understand whether we are reaching the maximum employment target we have.”