Yellin Becomes Prognosticator In Chief

February 4, 2014 at 8:48 am Leave a comment

Janet Yellin was officially handed the keys to the economy yesterday, becoming the first woman Chairman of the Federal Reserve. She was greeted with a three digit drop in the stock market. If she were totally honest, I bet she would tell you that she kind of feels like the person whose dream job was to be the skipper of the Hindenburg.

Alan Greenspan’s tenure was defined by how he handled the stock market crash of 1987. Ben Bernanke’s tenure was defined by how he handled the mortgage meltdown and the resulting Great Recession. Anyone who tells you that they know the future trajectory of the economy is too foolish to listen to. This uncertainty has implications for credit unions, regulators and the American Consumer.

Is Yellin getting in on the ground floor of an economic recovery or is she being saddled with an economy hobbled by structural impediments that will make it almost impossible for it to break free of the gravitation pull caused by the Great Recession for years into the future?

Yesterday was marked by more confusing signals just as Yellin takes the helm. First, the Federal Reserve released its quarterly report on bank lending. For those who want to see signs of a growing economy, there are indications that business lending standards, in particular, are loosening and that the American consumer is once again throwing more debt on their credit cards. Conversely, we may be seeing the first signs of a qualified mortgage belt tightening with looser underwriting standards for home buyers by large banks being offset by tighter underwriting standards used by smaller banks. This is consistent with the belief that some of us have that in the short to medium term, smaller institutions will underwrite predominantly, if not exclusively, to qualified mortgage standards, while bigger institutions will be more willing to underwrite to looser standards.

You want more confusion about the economy? On the one hand, fourth quarter GDP growth was a robust 3.2%. On the other hand, there is increasing fear that the ostensibly expanding economy is still not translating into more job growth for the American consumer. This means that this Friday’s jobs report will be analyzed about as much as the New Jersey weather was before the Super Bowl.

The Federal Reserve Board feels that the economy is getting on to stronger footing as demonstrated by its decision to cut back on its bond buying program, but even this has created new riddles for economic prognosticators. For instance, the primary purpose of the bond buying program was to prop up the price of bonds and keep yields lower than they otherwise would be, but we have yet to see the type of dramatic shift in yields or bond prices that had been predicted.

Which brings me to the dead horse that I am going to be beating for the next several months at least. This is not the environment in which regulators should be making guesses about which credit union assets pose the greatest risk to the Share Insurance Fund. Instead, credit unions should have maximum flexibility to adjust their assets in response to exceedingly unsettling economic conditions.

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

Let Loose The Lawyers Time To Work Together To Protect All Credit Unions

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Authored By:

Henry Meier, Esq., 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.

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