Tuesday, December 3, 2013

Unless the Fed Goes Cold Turkey on Us, Expect a Bountiful Economic Harvest for Thanksgiving 2014 (Econtrarian)

Interesting post by Paul Kasriel on his blog site "The Econtrarian."

It pertains to the tapering of QE and what affects he believes the tapering affect will have on credit within the economy.

Here is an excerpt.

Now, I do not view the point forecasts of nominal Gross Domestic Purchases as the Gospel. But I do believe that the projected rising trend in the growth of the sum of Fed and depository institution credit does portend a rising trend in the growth of nominal Gross Domestic Purchases. Moreover, I believe that my growth projections of the sum of Fed and depository institution credit are very conservative. Given the capital-raising campaigns undertaken by U.S. depository institutions in recent years, given the diminished uncertainty about future regulatory capital requirements and given the rising trend in residential real estate prices, I believe that depository institutions are more able to step up their credit creation. Lastly, if I have erred in my projection of Fed credit, I suspect I have erred on the side of restraint. It is not a done deal that the Fed will commence a tapering in its securities purchases in the December 2013 or January 2014, as I have assumed, especially given how low consumer inflation is. For example in the three months ended October, the All-Items CPI increased at a compound annualized rate of 0.8%; the CPI ex Food & Energy at 1.5%. If the Fed were to delay its initial round of tapering until March 2014, it also would likely delay its second round of tapering – i.e., initiating an additional amount per month of reduced securities purchases – until after July 2014.

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