Economic Commentaries

Entries for September 2014


The Federal Reserve’s policy setting committee meets this week with some members becoming increasingly uncomfortable with the Fed’s deliberative stance. The FOMC will announce an end to its asset purchase program but beyond this we do not think the economy’s fundamentals support any other change.

There are at least five reasons in our view. First economic activity weakness and geopolitical pressures are widespread outside the United States. Asian economic activity is wobbly, and Europe is dangerously close to recession/deflation with east European military confrontation adding to this climate. The Fed does not typically like to rock the boat during such periods. And besides, these pressures have benefited the dollar exchange rate which is thus a de facto tightening of U.S. monetary policy.

Second, in the U.S. the government has extorted nearly $100 billion from the shareholders of mortgage lenders during a period when loan growth has been difficult to achieve. Now the Fed is voicing support for increasing capital requirements on major institutions beyond those demanded under international banking regulations. This is a de facto tightening of monetary policy.

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