Nancy Davis, founder of Quadratic Capital, recently shared her thoughts on the Federal Reserve’s (Fed) approach to managing the economy, during an appearance on ‘Closing Bell’. Davis expressed her concerns about the Fed’s reluctance to use quantitative tightening and criticized their over-reliance on creating more liquidity to save the banking system.

“They should have been using the balance sheet more… They have monetary policy. It’s not one policy. It’s policies. And that includes using quantitative tightening. And they’ve been really panzis about it. They really haven’t gotten bold with reducing the balance sheet by having these caps in place. And then ‘Silicon Valley Bank,’ they just created more liquidity and just increased their balance sheet again to save the banking system. So I think they could ease off the rate hikes, use more quantitative tightening with their balance sheets, and stop doing the same thing over and over again,” Davis explained.

Meanwhile, Boston Federal Reserve President Susan Collins indicated on September 6 that the central bank should exercise caution as it seeks to bring down inflation. Collins warned that further rate hikes could be warranted, depending on incoming data. “This phase of our policy cycle requires patience, and holistic data assessment, while we stay the course,” Collins said in a speech at the New England Council. “While we may be near, or even at, the peak for policy rates, further tightening could be warranted, depending on the incoming data.”

As the Fed continues to navigate the complex economic landscape, experts like Davis suggest that a more dynamic approach, involving quantitative tightening and a reconsideration of rate hikes, may be necessary to ensure stability and growth in the financial system.

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