Monetary Policy

Short Term Interest Rates
The fundamentals to support raising short rates are not quite in place yet as there is still
a little extra economic slack and no pressure on my short term credit supply / demand
pressure gauge. The economic slack measures likely count the most in supporting the
Fed's ZIRP, but the credit demand pressure gauge has been trending down in recent months
as commercial and industrial loans at banks have lost growth momentum. Prime quality
large companies continue have free access to the commercial paper market, but smaller
businesses are still finding it tougher to secure loans.


The QE Taper Program
Treas. bond yields have fallen since very late in 2013 and stocks are down on the year to
date. The markets are pricing in further tapering of the $1tril. a year QE program ahead
based on the idea that despite stronger economic data, further and persistent curtailment
of the program will eventually lead to a slowing of economic growth. The capital markets
are also betting that the Fed will regard the bitter cold that has gripped the eastern two -
thirds of the US in Jan. as but a very temporary impediment to economic progress.