Tag: Federal Reserve

Higher Bond Yields In 2018?

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


As a homeowner in a high-tax Blue state, I’m not sure I have a whole lot to be personally happy about in the Trump tax reform bill. My state’s government, which is already teetering financially, isn’t likely to reduce its own taxes to compensate for the cap on deducting state and local taxes. Nevertheless, I’m happy that the measure passed.

For one thing, it’s heartening to see the Republicans stand fast for a change and actually follow through on something their constituents have demanded and expected from them, rather than caving in the face of criticism from their liberal opponents in Congress and the press. I’m also getting a lot of enjoyment listening to the breathless hyperbole by Nancy “Armageddon” Pelosi, Chuck “Fake Tears” Schumer and the gang denouncing the bill, plus the stories by their allies in the press about the “victims” of tax reform, neglecting to mention the “victims” at AT&T, Wells Fargo and all who are being given immediate raises as a result of the measure.

Not a whole lot has been written or said about one of the more likely consequences of the package, and that’s that interest rates are going to move higher in 2018.

Already, in just a few days leading up to the passage of the bill, the yield on the 10-year Treasury note jumped 15 basis points to 2.50%, its highest level since last March and just 10 or so bps below its high for the year. It’s likely to rise further in 2018. Here’s why. Continue reading "Higher Bond Yields In 2018?" →

The Fed's 2018 New Year's Resolution

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


In February Jerome Powell takes over as chair of the Federal Reserve, succeeding Janet Yellen. His first order of business should be to get the Fed off its silly, outdated and nonsensical monetary policy target of 2% inflation. He and the other members of the Federal Open Market Committee should at the very least change the inflation target number, or, better yet, find a different measuring stick altogether.

One of the Fed’s mandates, we know, is to keep inflation “stable,” as noted on the Fed’s website, citing the Federal Reserve Act (the other two mandates are achieving maximum employment and moderate long-term interest rates). The current Fed has taken to defining price stability as 2% inflation. Given that the Fed already basically believes it has accomplished the other two objectives, and price inflation has been nothing but rock-solid stable for several years, it’s not clear why it’s still so determined to get inflation up to that 2% target rate, and letting that dictate its monetary policy. If prices are stable at about 1.5%, rather than 2%, doesn’t that meet the mandate, as long as prices are stable?

During the Great Depression of the 1930s the lack of inflation – more accurately, deflation – was a big problem, feeding the downward spiral in the economy for more than ten years. Since then, economists, both on the Fed and elsewhere, have been absolutely terrified of that happening again, even though we haven’t come close to it, not even during the depths of the recent Great Recession. Now that we have seemed to have finally pulled out of the last financial crisis, it’s time to put that deflation obsession to rest. Continue reading "The Fed's 2018 New Year's Resolution" →

Let's Not Relive The Past The Hard Way

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


Be careful what you wish for. That’s my modest advice to some bankers and their government regulators who want to ease up on bank oversight.

An article in the Wall Street Journal last week reported that several banks around the country are dropping the Federal Reserve as a regulator. The actions so far seem innocent enough, and perfectly reasonable in the examples mentioned, but they did conjure up some bad memories of how the housing bust – and subsequent global financial crisis – got started.

Here’s the story.

According to the Journal, Little Rock-based Bank of the Ozarks in June opted to ditch its holding-company structure, which means it is no longer regulated by the Fed. Now, as a bank only, and not a BHC, it will be regulated solely by the Federal Deposit Insurance Corp.

Saving money from having two layers of regulation was the main motivator for the bank. George Gleason, the bank’s CEO, said, “We didn’t really need to be regulated by both.”

The bank, which has about $21 billion in assets, is the largest bank to make such a move, but it’s not the only one. Continue reading "Let's Not Relive The Past The Hard Way" →

Fleeing The Fed Ship

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


William Dudley, the president of the Federal Reserve Bank of New York, has become the latest senior Fed official to announce his retirement. He follows Fed Vice Chair Stanley Fischer, who announced his intention to resign in September, and Daniel Tarullo, the central bank's top financial regulator, who announced his resignation back in February.

Of course, the biggest departure at the Fed was one that wasn’t voluntary, namely President Trump decision not to renominate Janet Yellen for another term as Fed chair, ignoring 40 years of precedent to reappoint a sitting Fed chief. Instead, of course, he nominated Fed governor Jerome Powell to replace her when her four-year term ends in February. Still, Yellen is entitled to finish her 14-year term as a member of the Fed’s Board of Governors, which doesn’t expire for another seven years, on January 31, 2024, although her staying on would also be unprecedented.
All told, there are now three open seats on the seven-member Board of Governors, which of course may rise to four if Yellen elects to leave.

It’s pertinent to ask, then: What are all the departures at the Fed, both voluntary and involuntarily, signaling? Is it simply senior officials graciously moving aside to let a new president get a chance to pick his own people? Or is there something more sinister afoot, namely, do they indicate that a big change in the market is about to occur and they want to get out before the chickens come home to roost? Continue reading "Fleeing The Fed Ship" →

Is Janet Coming Back?

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


A lot of names have been thrown around to be the next head of the Federal Reserve. But who is the most likely person President Trump will name?

The current occupant, Janet Yellen, has to be considered the front-runner, although that doesn’t necessarily mean she’ll be renominated. Indeed, I would put the odds of her being reappointed at less than 50-50 – a lot less.

She does have several things going for her. First and foremost, she’s a known quantity. The markets would certainly be happy if Yellen were reappointed, if for no other reason than that they’ll know what they’re getting. With the major stock indexes all at or near all-time highs, and the bull market already nine years old, the market doesn’t want anything untoward to upset the status quo.

But as we should know well by now, stability isn’t exactly Trump’s comfort zone. Two weeks ago, he had no problem telling investors in billions of Puerto Rican bonds that they could pound sand, which caused a major meltdown in the price of those bonds (administration officials subsequently walked back his remarks).

Would he risk something like that happening to the entire bond and stock markets by not reappointing Yellen? (Even if she doesn’t get reappointed as Fed chair, Yellen’s term as a member of the Fed’s Board of Governors doesn’t end until January 2024, although it’s expected that she’ll resign if she’s not renamed as chair).

Besides the stability factor, the main reason why the markets like Yellen, of course, is because, in the words of Mr. Trump himself on the campaign trail in May 2016, “She is a low-interest rate person, she’s always been a low-interest rate person, and let’s be honest, I’m a low-interest rate person.” He reiterated those feelings in July in an interview with the Wall Street Journal, in which he added, “I think she’s done a good job.” Continue reading "Is Janet Coming Back?" →