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Week In Review

The Fed

The Fed released the minutes from the August 1 FOMC meeting.  Most participants saw continued rate increases and balance sheet reduction as the appropriate policy course.  The Fed staff released a memo arguing for continued adherence to models that consider both the level of inflation and the labor utilization gap, even though the traditional relationship between employment and inflation does not seem to be holding.  Powell gave his speech to the Jackson Hole policy symposium, and he stated that policy normalization should continue.  Powell did note that the traditional relationships underpinning Fed models do seem to be breaking down.

Our Take

The Fed is likely moving in the right direction of normalizing monetary policy even if its reasoning for doing so may be flawed.  The Fed is following the guidance of models that are based on relationships that most key Fed individuals admit are not currently holding.  This is likely because the past decade of Fed policy has moved the policy stance well outside the range of anything seen before.  Moving monetary policy, especially the size of the Fed’s balance sheet, to more historically normal levels should allow for better price signaling in interest rates and less distortion in the financial system and economy.


Chicago officials are considering issuing $10 billion of pension obligation bonds.  The bonds would help the city pay for its unfunded pension liabilities.  Chicago has $28 billion in pension debt.  A decision on whether to explore issuing pension obligation bonds will occur in the coming weeks.

Our Take

Many lawmakers are skeptical of issuing additional debt to shore up the pension system.  Adding more debt could increase the city’s overall borrowing costs.  Supporters of issuing pension obligation bonds prefer borrowing at low interest rates rather than raising taxes to pay for pension obligations.  City officials should focus on meaningful pension reform rather than adding more debt.

All expressions of opinions are subject to change without notice in reaction to shifting market conditions.  All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness.  Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice.