US fed throws out the telegraph; are you prepared for surprises?


The vice chair of the US Fed said that it is time for the gang of twelve to go back to the old (pre-great-recession) policy of not telegraphing their moves. Long-term expectations of stability were important to build and maintain confidence during the protracted recovery. Now, he says, it is time to be weaned off of lengthy forward guidance, explaining that, “It seems to me that you unnecessarily constrain yourself.”

That nervous reaction that you hear comes from the professionals involved in pricing at retail banks (lending, deposits, and treasury). Having been reassured that interest rates won’t go up before June, they now face less time to react when the Fed does make their imminent moves.

We’ve talked about the important impacts, such as deposit flight risk, before, so I won’t cover that here. What I do want to address is what I am calling “The Need for Speed”. It encompasses a number of elements, but in terms of pending rate-rises and OMC surprises, it means something pretty fundamental:

On the day the Fed announces the first uptick, some banks will have multi-hour meetings talking about how to respond. Others will have already modeled and analyzed it and will either push out their optimized response immediately or just call a short meeting to review the plan and expected course of action. Don’t sit down, this will only take five minutes.

The need for speed is so key to retail bank success, it is the title and subject of Dr. Robert Phillips' keynote at Nomis Forum this year. If you haven’t registered yet, here’s the link: I look forward to seeing you there. We plan on having a “Guess Your Wait” board where you can win prizes by making the most accurate prediction as to when and by how much rates will first go up. Winning that contest just got a bit harder. But if you do attend Nomis Forum 2015, I feel confident saying that winning the more important contest will be easier for you.

About The Author

As President and CEO of Nomis Solutions, Frank is responsible for strategy and day-to-day operations of the company and steering the development of its Pricing and Profitability Management solutions. Frank joined Nomis Solutions in 2005 as VP of Sales and Marketing.