A new meaning for accommodation

Doug Noland rips into the Federal Reserve’s extraordinary reckless, loose and irresponsible monetary policy in the (nearly) decade after the crisis of 2008.

The current remarkable cycle has brought new meaning to the phrase “Behind the Curve.” Rates were cut from 5.25% starting back in September 2007. By December 2008, they had been slashed to zero (to 25bps), with the DJIA ending the year at 8,876. Now, with the DJIA at 21,000, Fed funds sit at only 0.75%. Rates have budged little off zero despite record securities prices, record corporate bond issuance, record home prices and a 4.8% unemployment rate.

While Q4 data will be out soon, it appears that 2016 posted the largest Credit growth since 2007. Through the first three quarters of 2016, non-financial Credit expanded at an annualized pace of just under $2.4 TN, not far off 2007’s record $2.503 TN.

For comparison, non-financial debt expanded $1.259 TN in ‘09, $1.589 TN in ‘10, $1.309 TN in ‘11, $1.916 TN in ‘12, $1.545 TN in ‘13, $1.807 TN in ’14 and $1.931 TN in ‘15.

U.S. Credit growth and economic activity had attained sufficient self-sustaining momentum by 2014 and 2015 for the Fed to have launched so-called “normalization.” It was a major policy blunder not to have this process well underway by 2016. The Fed basically disregarded domestic considerations as it postponed rate adjustments after its single December 2015 baby-step. [Link]

This should answer the Wharton Professor who took exception to Danielle Di Martino Booth’s book. Not that institutions like the BIS and its former Chief Economist William White had not anticipated and addressed his objections already.


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