Economic Commentaries

Entries for December 2013


The past year was another one of sub-par growth and low inflation, but with a moderate rise in market interest rates. The former may be attributable to continued deleveraging, over regulation, policy uncertainty, and the drag from business and household tax increases. With all these roadblocks, it is a testimony to the economy’s underlying resiliency that it managed respectable growth.

But in the face of sub-par growth and low inflation long term interest rates rose as the Federal Reserve initially created unnecessary uncertainty by failing to adequately explain how it would extract itself from asset purchases. As a result, amidst too low inflation long term interest rates went from negative to positive in inflation-adjusted terms and the interest rate yield curve steepened.

A positive development in 2013 was the seeming end of the global economic emergency. The euro zone began to stabilize by spring and a modest recovery seems to be taking root. Japan has shown signs of life for the first time in over a decade. And China’s economy proved more resilient than many have suspected.

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