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More Central Banking Lunacy

June 9, 2015

More Central Banking Lunacy

US Rate Hike: The Back-Pedaling Brigade

Last week’s payrolls report was “stronger than expected”, which should actually be fairly meaningless, given how many times it will be revised and considering that it is a lagging economic indicator. However, in light of the Fed’s absurd employment mandate, it does slightly increase the chances of a token rate hike at some point this year.

Christine-Lagarde-EU-IMFIMF chief Lagarde – a political operator and bureaucrat since 2005, thinks monetary policy should remain as loose as possible. No-one seems to really know why.

Photo credit: Reuters

To this it should be noted that whether the Federal Funds rate is or isn’t 25 basis points higher shouldn’t make much difference either, but it would certainly have some symbolic significance if the Fed were to move away from its current zero interest rate policy. In the meantime, the broad US money supply TMS-2 has most recently recorded an approx. 7.8% year-on-year growth rate, which remains a historically very high level. Only in the context of the ever wilder oscillations since the Nasdaq bubble blow-out in 2000 can it be considered a “middling” rate of money supply growth:

1-TMS-2The broad US money supply aggregate TMS-2 (true money supply) is growing at 7.8% y/y at last count – click to enlarge.

Given that the Fed has stopped “QE” and its balance sheet growth has turned slightly negative, current money supply growth is the result of credit creation by commercial banks – especially industrial and commercial loans are essentially back at typical boom growth rates. Most recently they clocked in at a rate of 12.45% annualized.

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