BALI, Indonesia—The Federal Reserve stressed the need for it to normalize monetary policy gradually and transparently, as its global counterparts warned against threats to central bank independence following President Trump’s criticisms of the Fed.
“It’s not going to be in the interest of anyone in the world…for us to get behind the curve in the U.S. by moderating what we think is the right course of domestic policy,” Fed Vice Chairman Randal Quarles said Saturday at the annual membership meeting of the Institute of International Finance, an association for the financial industry, in Bali, Indonesia. Mr. Quarles said the Fed considers how its policy will affect the rest of the world, including emerging markets.
The Fed raised interest rates by a quarter percentage point at its September meeting, boosting the benchmark federal-funds rate to a range between 2% and 2.25. Fed officials signaled they would continue lifting rates through 2019.
President Trump has been critical of the Fed’s campaign to gradually lift short-term rates. After U.S. stock markets posted their biggest decline in more than seven months this week, he said the Fed had “gone crazy” and that he thought the central bank was “making a mistake.”
Higher rates we can internalize, but what’s hard to internalize is what’s going to be on Twitter the next day.
In Bali, European Central Bank President Mario Draghi said Saturday that threats to the independence of central banks have emerged as a significant risk to the global economy.
He said he had grown concerned geopolitical risks might lead to an abrupt “snapback” of higher interest rates. He cited three factors as threats to the key “pillars” of the international economy: trade tensions, threats to the rules on which the European Union was built, and a “willingness to discuss the independence of central banks.”
While central bankers frequently express concerns about their independence, Mr. Draghi—who didn’t mention the Fed or Mr. Trump directly—said the threats are increasingly front-page news, and that “you can see the executives are asking central banks to do things, which is not exactly the way to respect central bank independence.”
José Cantero Sienra, the president of the Central Bank of Paraguay, said emerging-market central bankers could deal with steady increases from the U.S. central bank. “Higher rates we can internalize, but what’s hard to internalize is what’s going to be on Twitter the next day.”
Colombia’s central bank chief Juan José Echavarría said when the country’s president criticized his bank, he used to respond that such threats were counterproductive and say “why not behave like the developed countries?”
“But now, with this, I can’t say it anymore,” he said.
Mr. Quarles, the vice chairman for supervision, is also in charge of the Fed’s bank regulatory agenda.
“It’s unquestionable that we have a stronger, more resilient financial sector now than we did before the crisis,” he said. A lot of that is a result of the work of the Financial Stability Board, an international committee of regulators, he added.
He emphasized the need for the U.S. to participate in global financial committees, echoing comments he made in June defending such bodies.
Mr. Quarles said the FSB could be more methodical in assessing future risks. He said the body had become unwieldy, and would be more efficient if it focused on three areas: potential risks, regulatory responses to vulnerabilities, and evaluating its current regulations.
He described the regulations imposed after the financial crisis in the U.S., specifically on capital standards, as having “kaleidoscopic complexity.” Congress in May passed a bill that marked the largest changes to financial regulatory law since 2010, relaxing a wave of crisis-era restrictions placed on financial firms.
Continued efforts to tweak regulation in the U.S. will result in a reduction in burden on financial institutions, but not a step back from the post-crisis agenda, he said.