The successful transition from a crisis-management monetary policy to credit conditions compatible with steady economic growth and price stability requires exceptionally good short-term forecasting — and a fair amount of luck.
That tongue-in-cheek allusion to divine intervention is meant to underscore the difficulty of "normalizing" the monetary policy that was designed to deal, for six years, with nearly catastrophic systemic problems in the financial services industry and in the real economy.
America faced all that between December 2007, when the Federal Reserve began opening wide its discount facilities to rescue the faltering banking system, and the second half of 2013 when the banks` borrowing at the Fed — an exceptional circumstance compared with central banking practices in the rest of the world — went back to pre-crisis levels.
But even then, banks remained gun-shy about taking on the risks in their core business of consumer finance. They needed to rebuild their shattered capital structures by acquiring the risk-free U. Treasury securities, while non-banks took up the slack with a 6 percent growth in their consumer lending portfolios.
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