William Lewis, Founding Director of the McKinsey Global Institute, makes a clear case for what academic research has long suggested—that is, “the power of productivity” to expand economic opportunity.

For Lewis and others, broad productivity gains are key to increasing wealth, reducing poverty, and mitigating threats to global stability. Households are thus keenly interested in increasing the pace and broadening the scope of productivity gains.

Policies that encourage competition in financial services, though frequently overlooked in this context, play an important role in facilitating these ambitions. But if our political capitol doesn’t promote competitive markets, our financial capital cannot power the productivity that has helped generations of Americans enjoy substantial increases in living standards.

We look forward to offering through this newsletter periodic briefings on the state of financial governance in the US and what it means for our economic wellbeing and policy opportunities to do better.

Federal Reserve: What's More Worrisome, Deflation or Asset Bubbles?
The most frequent question in financial news may be, “when will the Fed increase rates?” While the Federal Open Markets Committee (FOMC) has offered guidance, opinions vary from a hawkish camp that advocates increasing rates sooner and a dovish camp that appears more patient. The latest employment report, which saw a relatively strong increase in earnings, may have lessened concerns in the FOMC about tightening monetary policy too soon.¹ These concerns have not disappeared, however, especially amongst FOMC members who see deflation as a persistent threat.

Working against that view is the fact that strong economic performance has accompanied numerous periods of deflation over the past 150 years.²In this light, a less-frequently asked question may deserve more attention—that is, when and how will the Fed start reversing its unprecedented accumulation of mortgage, Treasury, and other securities?

So far, the FOMC does not appear to have firmly settled on a strategy. And given the difficulty of identifying any associated distortions to market prices, timing may be less dependent on data than it is on theory. Fed Chair Yellen’s testimonies, scheduled for February 24^th before the Senate Banking Committee and February 25^th before the House Financial Services Committee, may begin to offer some answers.

Dodd-Frank Updates
The Consumer Financial Protection Bureau (CFPB) has been particularly busy during the first two months of 2015. On January 15^th, the Bureauannounced that it was seeking comment on its “Safe Student Account Scorecard,” a metric meant to rank the safety of consumer financial products offered to college students. Two weeks later, on January 29^th, the CFPB proposed a number of measures aimed at reducing the regulatory burden felt by small, rural banks.

The comment period for each ends in March, which could leave little time for industry, consumer advocates, researchers, and Congress to weigh in on the proposed changes.

Meanwhile, the Bureau remains committed to their “Owning a Home” online toolset. Designed to encourage potential homebuyers to shop around for better mortgage rates, the project (particularly the “Rate Checker”) has been criticized by the mortgage banking industry for leaving out key information and potentially misleading consumers.

Financial Stability Oversight Council
MetLife has emerged as the first firm willing to formally challenge its designation by the Financial Stability Oversight Council (FSOC) as “systemically important.” At the very least, this sets the stage for courts to weigh the procedural and constitutional concerns of designated entities against the wide latitude granted to regulators in the Dodd-Frank Act.

More broadly, it opens the door for policymakers to discuss whether or not it makes sense to think of large insurers as systemically risky in the first place. If a key requirement for assessing systemic risk is the presence of liabilities that are ‘run-prone,’ for instance, then insurers may be a poor fit for FSOC designation.

^{1 Silvia, John E. and Sarah Watt House (2015). Employment: Strong Hiring Continues, Wages Rebound. Wells Fargo Securities, LLC Economics Group.}

^{2 Plosser, Charles (2003). Deflating Deflationary Fears. Shadow Open Market Committee (SOMC) Position Paper, November.}