Author Archives: James_Hamilton

Repealing Dodd-Frank and Basel III

One of the responses to the financial turmoil of 2008 was new legislation and regulation intended to prevent such a disaster from recurring. These measures include the Dodd-Frank Act of 2010 and the third international accord from the Basel Committee on Banking Supervision of 2010-11. But today there are powerful voices seeking to amend or overturn these measures. President Donald Trump said on December 12:

We have to end Dodd-Frank…. The head of the banks, they’re petrified of the regulators….I mean, unless you have 5 time what you want to borrow, they don’t lend you any money. They’re afraid to loan people money and those are the people that should be able to borrow.

And Representative Patrick McHenry (R-NC), Vice Chair of the Financial Services Committee, wrote on January 31:

Agreements like the Basel III Accord … turned into domestic regulations that forced American firms of various sizes to substantially raise their capital requirements, leading to slower growth here in America.

Here I review the motivations for Dodd-Frank and Basel III and some of the proposals to amend or replace them.
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Back to normal?

A year ago, the Federal Reserve decided to raise its target for the fed funds rate by 25 basis points above the floor of 0-0.25% at which we’d been stuck for 7 years. FOMC members indicated at the time that they were expecting to end 2016 at 1.4%, or four rate hikes during the last year. We started this December at 0.41%, and the first hike of 2016 didn’t come until last week. Now FOMC members say they are expecting to end 2017 at 1.4%, or three more hikes from here during the next year. The January 2018 fed funds futures contract is currently priced at 1.23%, suggesting that the market is buying into two, not three hikes during 2017.
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New data sources for economic research

One of the exciting implications for economists of the digitization of everything is the ability to study economic relations and behavior at a level of detail far beyond anything that could have been attempted a decade ago. I’ve earlier called attention here to new measures of inflation obtained from millions of prices posted on the web, new insights into pricing behavior coming from scanner data on individual store transactions, and understanding of consumer behavior based on debit and credit transactions of 25 million Americans. Here I discuss another new study based on smart-phone apps.
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