Market Commentary - Focus

Vital information about the markets, the economy, rates, and more.

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Basel III Proposed Regulatory Capital Changes Webinar

FinSer is pleased to provide a replay of a webinar we held jointly with the Accounting Firm of Fisher, Herbst & Kemble in September 2012 on the proposed changes to

Regulatory Capital, Implementation of Basel III, Minimum Regulatory Capital, Capital Adequacy and Transition provisions 

Regulatory Capital Rules: Standardized Approach for Risk-Weighted Assets; Market Discipline and Disclosure Requirements

To view the replay select this link.

Economic Outlook - MARCH 2015

Aside from job growth, the balance of economic data at the start of the year has been disappointing. Some of the slowdown, as was the case last year, may be due to the residual impact from the inclement weather and also to the supply chain disruptions from the West Coast port partial shutdown. The decline in oil prices has not materially spurred consumer spending, but rather has pushed cautious consumers’ savings rates higher. In contrast, the decline in oil prices has had a significant impact on business investment, as oil exploration and development activity has declined substantially. It also appears that businesses are starting to see more downside risks to activity, as the stronger dollar looks to be a bigger drag on exports than initially expected. With the data consistent with positive but below trend growth, the Fed signaled its concern at the March 17-18 FOMC meeting that the economy is losing momentum.


At that meeting, the Committee dropped the “patient” wording, but hedged itself, stating that the “change in forward guidance does not indicate that the Committee has decided on the timing of the initial increase in the target range.” This implies that, starting with the June meeting, changes to the Committee’s interest rate forecast will be decided on a “meeting-by-meeting” basis. Fed Chair Yellen, in her post-meeting press conference made clear they are not ruling out a rate hike at any meeting beyond April, but she also said, “just because we removed the word ‘patient’ from the statement doesn’t mean we are going to be impatient.”.



Other notable changes came in the FOMC participants’ economic forecasts and their “dot” projections for the federal feds rate. The updated economic estimates show the Committee is expecting GDP growth to be slower than previously anticipated for this year, as well as in 2016 and 2017. The downgrade suggests that the FOMC now believes that the factors weighing on current economic activity, such as the stronger dollar and, to a lesser degree, lower crude oil prices, are more likely to be a lasting drag on the outlook.

Unsurprisingly, the Committee also lowered its projections for inflation. Reflecting the further movement in oil prices and the strength in the dollar since its previous forecast in December, the central bank’s inflation forecast was revised lower in 2015 and 2016, suggesting a later return to the Fed’s 2 percent target for core inflation. With inflation expected to take longer to return to target and anticipated economic activity (GDP) now downgraded, the median estimate for the fed funds target rate at year end fell 50 basis points from 1.125 percent to 0.625 percent. Expectations for 2016 and 2017 were also revised downward even as the longer-run median was unchanged, suggesting a more gradual pace of tightening once the Fed begins to normalize policy. The downshifted outlook and the hint that the Fed tightening will be slow and small, regardless of when it begins, triggered major rallies in stocks and bonds.


In spite of the Fed’s dovish direction, interest rate hikes are still likely to happen sometime this year. Indeed, fifteen out of seventeen FOMC members expect to increase the fed funds rate this year, according to the dot plot. As a group, the FOMC wants to get away from zero or near zero interest rate policy. The U.S. economy continues to healthily add jobs, while it is anticipated that weakness on the trade side will be offset by strong consumer spending as households reap the benefits of low gasoline prices and rising employment. Once the Fed is “reasonably confident” that inflation has bottomed, it will begin to normalize rates, most likely in the second half of this year, and proceed patiently thereafter.