Monetary Policy

Short Term Interest Rates
The Fed continues to suppress the very short end of the credit market and there is no firm
indication when It will lift the FFR%. Using a model based on 100 years of short rate,
inflation and credit supply / demand data, the 91 day T-Bill rate should now be around 2.2%
reflecting continuing low inflation but rising short term credit demand. So, the Fed, concerned
with idle labor resources particularly, now trails the curve suggested by the economy by a
significant margin.The hawks on the Board will press Ms. Yellen so long as the economy
does not regress to stall speed.

QE 3
The FOMC today cut the securities purchase rate to $25 bil. a month, on its way to zero later
in the year. Measured yr/yr, QE has added 24% to the Fed Bank Credit through late Jul., but
looking forward to mid - 2015, Fed Credit may well only be 2% higher if the economy holds
up reasonably. Thus, the economy is going to become increasingly more dependent on the
private sector for liquidity growth and as we look out a year, the likelihood grows that short
rates will also start to rise.

There are plenty of discussions out there as to when and and how fast short rates will rise.
I appreciate all that, but I remain keenly sensitive to how well business and investor
confidence hold up as the QE program unwinds to completion. So far so good.