The height of Dodd-Frank rulemaking has yet to come, and uncertainty about future regulations will stop the Fed from tightening sooner, and swifter, according to Societe Generale’s Aneta Markowska.
While Dodd-Frank may have become law last year, it left up the decision-making on much of the new regulations to the regulators themselves, and now the deadlines set in the rules are looming.
From Aneta Markowska:
According to Davis Polk, there are 386 rules that have to be formulated and put into place by the Fed, Treasury, the SEC, CFTC, FDIC, OCC, etc. The SEC alone is charged with ruling on issues spanning derivatives, securitization, credit rating agencies, hedge funds, municipal securities, corporate governance and executive compensation. Many of these rules are supposed to be implemented within one year of the bill’s passage. This means that rulemaking will accelerate significantly in the coming months. The number of deadlines as estimated by Davis Polk will rise from 9 in Q1 to 27 in Q2 to 106 in Q3 of the current year.
The fear is the quantity of reforms meant to be confirmed in Q3 could lead to a rush and mistakes that will further hinder economic growth. Adding this to the end of QE2 in June, and it could be a difficult time period for the economy. Markowska believes it will slow down the Fed’s tightening process.
It is difficult to quantify the potential impact of the upcoming rulemaking on the economy and so we simply put this in the category of potential risks in the second half of the year. This builds on top of other headwinds which include another wave of government budget cuts at the state and local level, and potential spending cuts at the federal level. For all these reasons, we believe that the Fed is unlikely to rush to the exit door.
Check out just how busy the SEC will be in Q3 in terms of new rulemaking.
Photo: Societe Generale
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