OFR points to low interest rates without mentioning the Fed

Published by the R Street Institute.

In the July 2016 edition of its Financial Stability Monitor, the U.S. Treasury Department’s Office of Financial Research (OFR) points out multiple times that exceptionally low interest rates are exacerbating systemic risks. But OFR somehow never mentions the Federal Reserve as the cause the low interest rates and, therefore, the risks.

The OFR was set up to analyze and report on systemic financial risk. Governments and central banks are among the most important causes of this risk. But can one part of the government ever say that another part is generating systemic risk, even when it manifestly is?  Apparently not.

Thus, we discover in the OFR report that:

U.S. interest rates have declined to ultra-low level levels, which can motivate excessive risk-taking and borrowing.

Note the passive voice: “have declined.” The relevant actor, the Fed, is not cited.

Key market risks stem from persistently low U.S. interest rates.

And who is setting these rates?

The report points to the “situation exacerbated by the U.K. vote.” So we can mention Brexit, but not the Fed.

Low U.S. long-term interest rates underpin excesses in investor risk-taking, as well as high U.S. equity prices and commercial real estate prices…these excesses…could compound other threats, including credit risk.

Somehow no mention of the Fed’s strategy to create “wealth effects” by promoting investor risk-taking.

Low interest rates have prompted investors to take risks to get better returns.

Who did the prompting?

Commercial real estate prices climbed rapidly…generally attributed to low interest rates and low vacancy rates. However, such large and rapid price increases can make an asset market more susceptible to large price declines.

Yup, the danger of central banks promoting wealth effects.

Is the OFR able to say what it really thinks?  If not, it needs to be replaced as soon as possible by somebody who can.