Are You Ready for Some March Madness?
Two things happened yesterday that will impact your credit union. What remains to be seen is how great an impact they will have.
Most importantly, the Federal Reserve’s Open Market Committee gathered yesterday for its first meeting since January. Reports indicated that the Fed is losing patience. To be more accurate, meetings of the Federal Reserve’s Open Market Committee are accompanied by a statement providing clues as to where the Fed thinks the economy is headed. In its January statement, it explained that “[b]ased on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy.” If, as expected, the Fed removes this line from today’s statement, it is a sure sign that it will be raising interest rates for the first time since 2008, probably no later than June.
For almost a decade now, regulators have been warning against the dangers posed to financial institutions over-exposed to a sudden spike in interest rates. I have always thought these fears were exaggerated, but the Fed’s policy statement will signal the start of what could be the most volatile period of rate gyrations you have had to deal with in quite some time. Remember that in June of 2013, a statement by then Chairman Ben Bernanke indicating that the Fed would soon be moving to raise interest rates resulted in the average rate for a 30-year fixed rate mortgage to surge more than 100 basis points between June and September. Ironically, the Fed ultimately did not raise rates at that point, and mortgage rates tumbled yet again. The question is: will the Fed’s statement today touch off another analogous period or has the market already baked in an anticipated rate increase?
The second thing that happened yesterday you should keep your eye on is the CFPB’s announcement that it is beginning a “public inquiry” into credit card industry practices. Since the inception of the CFPB, your faithful blogger has always thought that it would take steps to fundamentally amend Regulation Z, not only for mortgage lending, as it was charged to do under the Dodd-Frank Act, but for all open-ended lending.
The CFPB is charged with conducting a biennial review of the CARD Act. As part of this review, the Bureau is seeking public comment on credit card practices for purposes of presenting a report to Congress. Pure speculation on my part, but if I were a consumer advocacy organization, and I wanted to change the way consumer lending is done in this country, I would sure want to lay out my blueprint while a Democratic President is still in office. Stay tuned.