Fed Stimulus to Continue, Oh Boy!

June 7, 2012 at 7:21 am Leave a comment

Federal Reserve Vice Chairman Janet Yellen forcefully signaled that she’s in favor of extending the Fed’s bond buying program known as Operation Twist when Fed policy makers meet later this month to ruminate about the state of the economy.  Coupled with comments from other Federal Reserve officials, it looks more than likely that the Fed will continue to buy agency-backed securities, including mortgage-backed securities, with maturities of between six and thirty years in order to keep down borrowing costs.  For those of you who are interested in this stuff, I just got through reading Yellen’s speech and it provides very good context as to what the Fed has done and why she feels that more needs to be done.  As for the economy, she cites the Devil’s trifecta of moribund fiscal policy, political troubles in Europe, and continuing weakness in the housing market to argue that the Fed has the flexibility it needs to continue to supply stimulus to the economy without triggering inflation.

The interesting question is whether this is good news for credit unions.  Increasingly, it’s getting harder to answer that question in the affirmative.  What this policy means is that for the foreseeable future, it is impossible to see how we are supposed to safely grow our money.  I also am beginning to wonder if the Fed is backing itself into a situation of diminishing returns.  To the extent that the markets expect Fed intervention, are they truly stimulating economic growth or simply safeguarding the anemic economic performance we are currently experiencing.  Bottom line, the Fed policy may be necessary, but it is another example of how credit unions and their members, for that matter, are paying a disproportionate price for a financial crisis they didn’t create.

Heading off to the Sagamore for our annual convention.  I hope to see many of you there.

Entry filed under: General. Tags: , , , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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