Higher Bond Yields In 2018?

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

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 His first order of business should be to get the Fed off its silly, outdated and nonsensical monetary policy target of 2% inflation.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"

Trump: Bad Bankers Beware

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

So now President Trump has thrown himself into the discussion about Wells Fargo. Maybe now the bank will get the justice it deserves. And maybe now the message about Trump’s intentions about financial regulation will become less fake.

First a little background. Three months ago Federal Reserve Chair Janet Yellen made some pretty startling comments for a Fed chief, publicly criticizing Wells’ behavior toward its customers as “egregious and unacceptable.”

She was talking, of course, about the bank’s years-long practice of signing up its customers for checking accounts, savings accounts, credit cards and other products without asking their permission or even telling them. But since then there have been reports and admissions by the bank of several other excesses, such as charging auto loan customers for insurance they didn’t ask for, dunning mortgage customers for interest rate-lock extension fees when the bank itself caused the delays, overcharging military veterans on mortgage refinance loans, and allegedly closing customers’ accounts without telling them why it did so.

You would think that the Fed – which regulates Wells and other big banks – would have come down on the bank by now. Yet nothing’s happened since Yellen made those comments.

Then last week the president injected himself into the fray. Continue reading "Trump: Bad Bankers Beware"

Going Rogue

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

A couple of months ago I wrote about the incredible arrogance and chutzpah of the now-former director of the Consumer Financial Protection Bureau, Richard Cordray.

“In a country loaded with way too many arrogant politicians and government officials who think they are above the law and normal standards of decency, Cordray has set the bar pretty low,” I wrote back then. “Few public officials have shown the level of contempt for legitimate questioning from Congress, the White House and the industries his agency oversees than Cordray has shown since he took over the CFPB, and it’s only gotten worse in the past few months as his tenure winds down.”

It turns out that I grossly underestimated just how devious and cynical he can be. Continue reading "Going Rogue"

Let's Not Relive The Past The Hard Way

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"