Tags: Dow | JPMorgan JPM | Steve Liesman | Federal Reserve Governor Dan Tarullo

Fed's Tarullo: 'Not Appropriate to Raise Rates Now'

Fed's Tarullo: 'Not Appropriate to Raise Rates Now'
(Dollar Photo Club)

By    |   Wednesday, 14 October 2015 09:35 AM

CNBC’s Steve Liesman interviewed Federal Reserve Governor Dan Tarullo on the subjects of financial supervision and monetary policy.

Tellingly, Liesman began the interview by repeating what has come over the years to be the “Jamie Dimon question” asked petulantly of then-Fed Chairman Ben Bernanke: “Has anyone bothered to truly count the cumulative effect of all these regulations upon the economy?”

Liesman noted that Dimon had asked this exactly four years ago, and Liesman proceeded to ask, “Do we know yet the cumulative impact of these regulations? Are they holding back economic growth?”

This writer cringes whenever this question is dutifully asked by a prominent journalist or even a committee chairman, because it is calculated to put would-be regulators, whose eagerness to please bank CEOs has contributed mightily to the protracted, ongoing, permanent financial crisis, on the defensive and move the conversation away from the cumulative toll that decades of risky behavior by TBTF banks has taken on the economy.

In 2012 the U.K. authorities eased out the CEO of Barclays, Bob Diamond, in response to the LIBOR scandal and because he was continually carping and pressuring regulators and making it harder for them to function.

On this occasion Tarullo responded, “One thing we know for sure is that I think we have a safer financial system now than we did seven or eight or nine years ago. The second thing I think we know is that it is difficult to disentangle the impact of regulation from, on the one hand, the performance the economy, the adequacy of aggregate demand, and secondly, to be sure about what baseline we’re using.”

He then asserted that 2005 was not the right baseline, even though he had just used it.

Tarullo then concluded that regulators have “a pretty good sense that banks are able to operate in a sensible and profitable fashion, and we’re surely looking at the effects of regulation, particularly on smaller institutions, to see if there are changes that can be made.”

Not satisfied, Liesman quoted bank analyst Mike Mayo as saying that bank lending is only one third of normal right now. Tarullo responded that lending is “healthy in some sectors,” citing autos, credit cards, and commercial lending.

This writer would observe that statements of regulators have to be parsed carefully, and even if it is true that banks “are able to operate safely and profitably,” this does not mean that they actually are or that conflicted regulators even know.

To his credit, when Liesman pressed Tarullo on whether it is government policy “to force banks to become smaller,” Tarullo responded that policy is “to force them to internalize costs.”

When the discussion shifted to monetary policy, Liesman elicited from Tarullo the view that there is not yet enough “tangible evidence” of inflation reaching the 2% target “to allow us to make informed decisions based on the evidence.”

Tarullo said that, “For most of the time since the crisis and the recession, we have been running below the FOMC’s stated 2% target. We’re currently in a globally disinflationary environment.”

He warned against “a premature rise” in rates, with the caveat that conditions could change.”

Markets seemed not to react, perhaps because they do not look to Tarullo for leadership in this area of Fed policy.

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Robert-Feinberg
I believe that statements of regulators have to be parsed carefully, and even if it is true that banks “are able to operate safely and profitably,” this does not mean that they actually are or that conflicted regulators even know.
Dow, JPMorgan JPM, Steve Liesman, Federal Reserve Governor Dan Tarullo
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2015-35-14
Wednesday, 14 October 2015 09:35 AM
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