Former Fed Chairman Paul Volcker
Former Fed Chairman Paul Volcker said that he’s already worried about the next financial crisis and said the health of the financial sector is still shrouded in mystery.
In an interview with the New York Times, timed ahead of the release of his new memoir, Volcker said the real challenge facing economic policymakers is how to get better and stronger oversight powers over the financial industry.
Everybody talks about monetary policy, but the lesson of all this is we need better, stronger supervisory powers.”
Asked about the health of the banks XLF, -0.98% , Volcker replied: “They’re in a stronger position than they were, but the honest answer is I don’t know how much they’re manipulating.”
Volcker’s memoir, “Keeping at It: The Quest for Sound Money and Good Government,” to be published on Oct. 30.
In the book, Volcker wrote he is worried about the impact of money on the U.S. political system, and argues the country is devolving into a “plutocracy.”
On Fed policy, Volcker wrote he didn’t understand the need for the central bank’s 2% inflation target.
“I puzzle at the rationale,” he wrote. “A 2% inflation target, or limit, was not in my textbook years ago. I know of no theoretical justification.” He said the policy was driven by fears of deflation that hasn’t been experienced for 90 years.
Volcker was Fed chair from August 1979 until August 1987. The Fed adopted the formal 2% inflation target in 2012 under Ben Bernanke.
In the book, Volcker recounts getting pressure from President Ronald Reagan not to raise interest rates ahead of the 1984 election, where Reagan was running against Walter Mondale.
In a meeting with Reagan and his chief of staff James Baker, Volcker said that Baker ordered him not to raise rates before the election. Volcker said that he wasn’t planning to raise interest rates anyway.
Overall, the former Fed chairman sounded pessimistic in the interview.
“We’re in a hell of a mess in every direction,” he said.
“Respect for government, respect for the Supreme Court, respect for the president, it’s all gone,” he said. “Even respect for the Federal Reserve.”
Related: Greenspan says Fed should use ‘earmuffs’ to tune out Trump