If Current Bank Credit Trends Continue, Bet Against the Fed’s Interest Rate Forecast - Kasriel - Feb 7/12

A majority of FOMC members currently expect that the interest rate on federal funds (immediately-available overnight funds), an interest rate targeted and controlled by the Federal Reserve, will not be increasing until late in 2014. If the current trend in the behavior of bank credit continues in 2012 and into 2013, I believe that the FOMC will be lifting its federal funds rate target early in the second half of 2013. Again, if the current growth trend in bank credit continues, a failure on the part of the FOMC to raise its federal funds rate target and shrink its balance sheet will sow the seeds of a rate of consumer inflation above the FOMC’s 2% annualized target in 2014 and 2015.

If Current Bank Credit Trends Continue, Bet Against the Fed’s Interest Rate Forecast