Correspondent Blog

Last week the Federal Reserve raised the Fed Funds rate by another 75 basis points – that was no surprise to the market.  However, in Powell’s unscripted remarks at the press conference, he stated that interest rates have reached a “neutral level.”  The market reacted to those words with equities and bonds both rallying.  We…

We established that stagflation (defined as high inflation and likely accompanied by higher interest rates and stagnant or no growth) could be toxic for real estate projects.  Few bankers working today have any experience with how destructive stagflation can be since this environment last occurred in the 1970s.

Historically bankers used the Treasury, FHLB, or swap yield curve to discern the future path of interest rates. At the time of this writing, the three-month Treasury-Bill is yielding four basis points, the two-year note is 0.59%, and the 10-year note is yielding 1.33%. Historically, such a yield curve prognosticated minimal interest rate changes over…

The graph below demonstrates loan repricing changes quarter-over-quarter from June 2020 to June 2021 for banks in three asset bands (under $1B, $1-3B, and over $25B).  The top three stacks of the bars show fixed-rate loans that reprice 3-5 years, 5-15 years, and over 15 years.  The bottom three stacks show floating and adjustable-rate loans. …

There appears to be some complacency regarding the Federal Reserve’s monetary policies in 2021 and 2022. The ten-year Treasury, around 1.35%, may be sending a short-term signal on liquidity versus a long-term prediction on inflation.  Community bankers need to factor in the high probability (50% to 75%) that tapering will start in 2021 and not…

We have published multiple articles, economic bulletins, and podcasts on inflation (including here and here).  In this article, we will not make a case for or against the market’s expectation of inflation.  We will assume current gauges such as CPI and PCE accurately reflect the current inflation environment (many arguments can be made for why…