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Trading Places: My New View from Inside the Federal Reserve

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Abstract

In my remarks today, I will focus on a couple of financial market developments that are on my personal radar: the considerable growth in private credit and hedge fund leverage. For both, it’s incumbent on us to be mindful of the financial stability tradeoffs of allowing or curtailing these activities through regulation, because any time we try to fix one problem, we may end up creating another. This is what the economist Ed Kane termed the “regulatory dialectic.” The rules we set up through regulation have consequences; they provide financial institutions with incentives and choices in how to respond. And if there’s one thing we know about profit-maximizing financial institutions, it’s that they are very good at following incentives. Finally, I will conclude with a brief overview of how I view current financial conditions and their implications for monetary policy, and I will raise a third potential financial stability risk: the likelihood that the long-term neutral real rate has shifted higher and the possibility that it may now be back above 2 percent.

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  • Beth Hammack, 2025. "Trading Places: My New View from Inside the Federal Reserve," Speech 99627, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcsp:99627
    DOI: 10.26509/sp-20250227
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    1. Vissing-Jorgensen, Annette, 2021. "The Treasury Market in Spring 2020 and the Response of the Federal Reserve," Journal of Monetary Economics, Elsevier, vol. 124(C), pages 19-47.
    2. Daniel Barth & R. Jay Kahn, 2021. "Hedge Funds and the Treasury Cash-Futures Disconnect," Working Papers 21-01, Office of Financial Research, US Department of the Treasury.
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