See this Bloomberg article for a look at the ingredients in a policy stew that looks like it was scraped off the floor of Worst Cooks in America. Click the headline for the article.
Federal Reserve policy makers seem to be working at cross purposes.
In laying out plans to ease some constraints imposed on banks after the financial crisis, the Fed is moving to free up tens of billions of dollars for financial institutions to lend to promote faster economic growth.
At the same time it is reducing its balance sheet and gradually raising interest rates to restrain credit creation and keep the economy in check.
So tell me, why are they speaking out of both sides of their orifice? Is it because of the need to keep an object in motion (in this case, a hyper-stimulated economy within a Keynesian debt-for-growth system) hurtling forward at an ever increasing pace? Why can’t we just have a quiet end and soft landing to the boom that began in 2009? Ha ha ha, you know the answer already.
The cheese has to come from somewhere and you have Fed tightening with commercial banking rules loosening.
Those steps will complicate the Fed’s effort to engineer the soft landing of an economy that is already being juiced by tax cuts and government spending increases. To help bring that about, officials plan to keep raising interest rates over the next few years, though they’re expected to hold policy steady at their meeting next week.
“By itself this would risk putting regulatory policy on the same pro-cyclical trajectory as fiscal policy,” said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey, though he added that the economic impetus from the former is dwarfed by that from the latter.
Listen to Lou, he’s onto the scheme. It’s all pro-cyclical as far as the eye can see, other than the Fed baby step tightening. It’s a shift with different entities supplying the cheese platter at this ongoing party.
In unveiling a proposal on April 11 to ease leverage limits on Wall Street banks, the Fed and the Office of the Comptroller of the Currency said the step might lower the amount of capital lenders are required to hold in their main subsidiaries by $121 billion. The move would give banks added flexibility to extend credit.
Deposit-Shunning Banks Get Big Break as U.S. Eases Leverage Rule
It came on the heels on an announcement by the Fed of plans to revise its bank stress tests and risk-based capital rules. The agency estimated that the action would cut the total cushion that the banking industry has to maintain by $30 billion, though some Wall Street analysts reckon it could free up more than $50 billion in capital.
Hey look, it’s been a decade since the “Financial Crisis” and “Great Recession” (as handily labeled by the media) that we are supposed to believe more or less came out of nowhere, organically, without the Fed’s instigation. 10 years and now we are setting sail on the same course. Well of course we are, because… the debt! It needs to be carried, shifted and worked around. In essence, it’s a game of…
Lael Brainard puts her big brain to work thusly…
“While we should carefully consider how to make our regulations more effective and better tailored, we must take great care to ensure that we do not inadvertently contribute to pro-cyclicality that would exacerbate financial conditions that are, on some dimensions, somewhat stretched,” Fed Governor Lael Brainard said in an April 19 Washington speech.
She voted against the cheese redistribution. She is a Democrat. Powell voted for the cheese. He is a Republican.
The article closes with this right-minded item before serving you some “from the web” cheesy commercials disguised as content from Taboola.
There’s “no evidence that I’ve seen that there’s a credit shortage in the U.S. economy,” she [FDIC Chair Sheila Bair] told the Peterson Institute for International Economics on April 20. “If anything, I think there are certain pockets where we may have too much of a debt overhang.”
Gee, ya think Sheila?
NFTRH Premium for an in-depth weekly market report, interim updates and NFTRH+ chart and trade ideas; or the free eLetter for an introduction to our work. You can also keep up to date with plenty of actionable public content at NFTRH.com by using the email form on the right sidebar. Or follow via Twitter @BiiwiiNFTRH, StockTwits or RSS. Also check out the quality market writers at Biiwii.com.