Former RBI Governor Raghuram Rajan Joins US Fed Review: What Will Its Role Be? | Today’s news
Former Reserve Bank of India (RBI) governor Raghuram Rajan has been appointed to a high-level task force by the US central bank to review its balance sheet policy and put him at the center of a broader effort to reshape the central bank’s monetary policy framework.
Rajan is among the experts selected by newly appointed Federal Reserve Chairman Kevin Warsh to serve on one of five task forces examining key aspects of Fed policymaking. The review comes as the U.S. central bank is reassessing its tools after expanding its balance sheet during the pandemic and then trying to bring inflation back to its long-term target.
What will Rajan do?
According to news agency PTI, Rajan will serve on the Balance Sheet Policy Task Force along with Harvard University economist Karen Dynan and former Federal Reserve Governor Jeremy Stein.
The panel was tasked with examining the costs, benefits, and institutional implications of the Federal Reserve’s balance sheet policies, including the size and composition of assets held and their role in the conduct of monetary policy.
The review is expected to assess whether the Fed’s current approach remains appropriate after its balance sheet expanded to nearly $9 trillion during the Covid-19 pandemic through large-scale asset purchases aimed at supporting the US economy.
The central bank has been shrinking its holdings since then as it seeks to return inflation to its 2 percent target.
Although Warsh did not elaborate on Rajan’s specific responsibilities, he said the task forces will bring fresh thinking to the Federal Reserve after inflation remains above target for more than five years.
“Our aim is to make better decisions in the conduct of monetary policy and throw away these years of high inflation,” Warsh told senators, according to a PTI report.
He added that the task forces will examine five key areas of the Fed’s work — communications, balance sheet policy, use of economic data, productivity and jobs, and the inflation framework.
“I reached out to 15 people I know and trust with different opinions. It’s a step toward transparency and new ideas,” Warsh said.
Why Rajan?
The former RBI governor is widely regarded as one of the world’s foremost experts on central banking. He served as the RBI Governor from 2013 to 2016.
Prior to heading the RBI, he was the Chief Economist and Director of Research at the International Monetary Fund (IMF), where he gained international recognition for his work on financial stability and macroeconomics. He continues to be an influential voice on global economic issues through his academic work and policy research.
Other experts on Indian origins
Rajan is joined by two other experts of Indian origin on separate Federal Reserve task forces.
Harvard economist Raj Chetty will co-chair a panel that examines the use of economic data to improve the quality and timeliness of indicators used in policymaking.
Meanwhile, Microsoft executive vice president and Xbox CEO Asha Sharma will serve on the Productivity and Jobs Task Force, which will assess how new technologies, including artificial intelligence, are likely to affect productivity, employment and long-term economic growth.
