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Hey, Janet, How’s That Interest Rate Increase Working Out?

But the real problem is that the Fed has not understood why banks are holding all those reserves. There are two reasons. First, there is incredible risk aversion caused by the random, frequent regulations and lawsuits emanating from the Obama administration. Second, there is the small matter of loan demand. Banks are holding reserves because they don’t see demand for loans whose return is worth the risk. The only way loan demand will increase is for the economy to ascend to a decent growth rate. Until that happens, the Fed should just give up. Continue Reading →

I Was Wrong About ZIRP

Not, mind you, because the Fed will raise interest rates any time soon. No, the geniuses at the Federal Open Market Committee and the Board of Governors seem to be leaning in a different direction: NIRP. … Better get used to seeing those initials. They stand for negative-interest-rate policy. That’s right. The Fed thinks they can drive nominal short-term interest rates below zero. Continue Reading →

Watch for Interest Rates to Rise Soon

The Fed’s attempt to rescue the economy using monetary policy alone has been a fool’s errand. Now they face a Sophie’s choice: (1) Do nothing and watch inflation increase, or (2) drain the excess reserves from the system and watch interest rates rise. Actually, interest rates will rise either way. Continue Reading →