The reason is that central banks react to variables, such as inflation and the output gap, which are endogenous to monetary policy shocks. Endogeneity implies a correlation between regressors and the error term, and hence, an asymptotic bias. In principle, Instrumental Variables IV estimation can solve this endogeneity problem. In practice, IV estimation poses challenges as the validity of potential instruments also depends on other economic relationships.
Existing high levels of private debt mean there is little demand for more, and higher interest will drain more aggregate demand into debt service rather than real goods and services. Raising rates now will lead to cost push inflation and not demand pull inflation.
Wealthy government bond holders could be pushing the Fed for a pay rise. This article will show why the Fed has no reason to raise rates at this next meeting cycle and also for the last meeting cycles as well and for the foreseeable future.
In addition to some recent history and a brief description of how the Fed works, a sectoral flow analysis will be used to assess the situation. The Fed, a Brief Overview The Fed through its intraday interest rate-setting power controls the price of short-term money and hopes that an adjustment at the bottom will ripple up the yield curve.
The Fed controls only the intraday rate; the rest of the yield curve is market-determined.
Or at least it used to be. In more recent times since the GFC, the rest of the yield curve has also come under the control of the Fed. Using open market operations to buy long-dated bonds, the Fed has been managing the long end of the yield curve as well. This has also been going on at other central banks such as in Japan where the practice began and the European Central Bank.
The case not to raise Many key indicators are pointing to a decelerating credit market where an increase in the price of lending would not be helpful. Down from a massive 9. A clear collapse in credit growth.
The chart below shows the demand for consumer loans is falling. The rate of growth has halved since August The chart below shows the growth rate for auto loans is falling. In less than a year it has more than halved. Final sales of autos have been flat since the first quarter ofas the chart below shows.
The chart below shows that the growth rate for real estate loans is falling.
Nearly everyone needs accommodation and a car. The interest rate rise at the end of last year must have brought forward a bit of demand, but that appears exhausted now.
The growth rate is now just over half what it was a year ago. Existing home sales have flat-lined and been the same for over two quarters as the chart below shows.
Building permits for new homes have also stalled as the chart below shows. Flat since January Some banks offered long term plans during the worst of the recession, but now only offer temporary plans. These “life of the balance” repayment programs closely resemble debt management plans available through a nonprofit counseling agency.
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Preliminary versions of economic research. Did Consumers Want Less Debt?
An analysis by USA Today shows that when the Federal Reserve raised interest rates in June by %, auto loan rates only increased by somewhere between % and % depending on the term of the loan. The Midterm Elections are fast approaching. ABC News brings you in-depth coverage and breaking political news, as voters determine the Senate and House of Representatives. As a follow-up to Tuesday’s post about the majority-minority public schools in Oslo, the following brief account reports the latest statistics on the cultural enrichment of schools in Austria. Vienna is the most fully enriched location, and seems to be in roughly the same situation as Oslo. Many thanks to Hermes for the translation from vetconnexx.com
Consumer Credit Demand Versus Supply in the Wake of the Financial Crisis. As a follow-up to Tuesday’s post about the majority-minority public schools in Oslo, the following brief account reports the latest statistics on the cultural enrichment of schools in Austria.
Vienna is the most fully enriched location, and seems to be in roughly the same situation as Oslo. Many thanks to Hermes for the translation from vetconnexx.com Dear Twitpic Community - thank you for all the wonderful photos you have taken over the years.
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