Posts tagged ‘interest rates’

How The Fed Intervention Is Hurting Credit Unions

My blog’s a little late this morning because I put aside what I was going to write about after I saw the amount of attention that this opinion piece from Bill Dudley, the former president of the New York Federal Reserve and now a professor at Princeton, is getting. In it he explains why the Feds unprecedented intervention in the economy, which he predicts will soon reach $10 trillion, is a manageable and necessary support, at least in the short term.

He is right. But this is little consolation if you run a credit union or a small community bank. Once again, the Fed is intervening in the economy in a way which helps large businesses and investment banks while doing little to support mainstream lending institutions. It’s time for this to change.

There are two ways to help an economy in trouble. The first and more traditional method is to stimulate economic activity by flooding it with cash. This is what Congress did by printing money and sending it out to consumers. This is analogous to using an economic defibrillator to jolt the economy back to life.

A second much less common approach which the Fed started aggressively using in the Great Recession is to intervene directly into government bond markets to keep interest rates artificially low. This is more analogous to putting the economy on a ventilator since the Fed is so closely intertwined with the economy that it has to cautiously sell off these bonds in a way which doesn’t harm the economy.

In dealing with COVID-19, the Fed has taken this approach to a whole new level. It has set-up mechanisms not only to buy government bonds but corporate bonds as well. This is in addition to setting up facilities to   make loans to businesses too big to qualify for the PPP.

This approach has worked. Despite shutting down the economy, corporations still have cash and the market is booming, in part because there is nowhere else to get any type of return on investments.

But here’s the catch. As Dudley points out, when the Fed engages in such a large amount of purchases, the resulting money has to go somewhere:

“When the Fed buys a financial asset from a private holder, the proceeds received by the seller typically flow back into the banking system. Even if the seller reinvests the proceeds into some financial asset rather than depositing it at a bank, the cash eventually ends up either as an increase in currency outstanding or an increase in bank deposits. Because most people don’t want to hold large amounts of cash, almost all of the money eventually finds its way back into the banking system.”

Don’t banks want to convert all this cheap money into cheap loans? Perhaps, but Dudley points out that in 2008 the Federal Reserve Board was given the right to adjust the interest rate it gives on Fed accounts held by financial institutions. This was done to ensure that all that cheap money didn’t fuel inflation.

All this comes at a very steep price to those of us who believe that for capitalism to work, it can’t be a “Heads the big guys win, Tails the little guys lose” system. Once again credit unions are being driven into Prompt Corrective Action because members need a place to put their cash and interest rates are being kept at artificially low levels.

For the second time in less than a decade policy makers are explaining why this is all necessary. It’s time to start calling the Feds intervention what it is: a justifiable bail-out of larger companies and the institutions that fund them. It’s time Congress consider providing direct funding for credit unions and community banks. After all, the industry should be allowed to fight on a level playing field.

June 22, 2020 at 10:52 am Leave a comment

Seven Ways COVID-19 Is Impacting Your Operations

Greetings from the state that is number one in COVID-19 cases; as of Sunday afternoon.

There have been an amazing number of developments affecting your credit union over the weakened.  I am emphasizing those that you may not have heard about yet.

New York Delays New Servicing Regulations

I actually have some good news to tell you this morning.  I found out over the weekend that New York’s  Department of Financial Services has issued an emergency regulation putting on hold for an additional 90 days new servicing regulations which many credit unions and mortgage bankers were wondering how they were going to comply with.  In announcing the delay DFS Superintendent, Linda A. Lacewell explained that “the volume and complexity” of the new regulations, especially since they require new programing and disclosure requirements for home equity lines of credit, has led the department to conclude that businesses need more time to comply, particularly at a time when they have to concentrate on the pandemic.

A special shout out to the New York Mortgage Bankers Association, which did a great job alerting stakeholders to the difficulties in complying with this regulation.

State Issues COVID-19 Emergency Relief Order

New York’s Department Of Financial Services issued an order exempting state licensed and state chartered financial institutions including state chartered credit unions from some regulations with which they would normally have to comply.  Most importantly, these institutions can now close and relocate branches and offices without first providing notice to DFS.  In addition, licensed individuals such as mortgage originators can work from home with the understanding that they are still subject to New York’s regulations.  Entities are still expected to inform New York State of any relocations.

Additional Developments…

Also over the weekend, the Governor asked businesses that could do so, to voluntarily shut down and allow their employees to work from home.

Finally, the state has imposed limits on the size of mass gatheringsHere is his first order.  This situation is very fluid and we may see further reductions in the authorized size of mass gatherings.

Fed Gone Wild

Just how low can the Fed go?  The Federal Reserve Open Market Committee announced yesterday that it was slashing the Federal Funds rate to zero (!) and “expects to maintain this target range until it is confident that the economy has weathered recent events…”

When the history of this pandemic is written, it will be marked as the end of a unique period in American history during which the Federal Reserve exercised a decisive impact on the American economy.  In 1987, Alan Greenspan calmed the stock market following its dramatic decline; it was the Fed that helped minimize the impact when the dot-com bubble popped; and Ben Bernanke mitigated the impact of the Great Recession of 2008 by going on a mortgage buying binge.

My how times have changed.  Interest rates are already too low to have much of a stimulus impact and they will have no effect in coxing Americans out of their homes to hoard more toilet paper.

The Fed did take one important step recently.  It announced a massive infusion of funds into the repurchase market.  It also announced it would accept a broader range of securities for these arrangements.

The repurchase market plays an absolutely crucial role in the economy.  It is the mechanism by which the largest of the large financial institutions manage their liquidity on a daily basis by getting short-term loans of cash in return for collateral such as bonds.  The system has had some hiccups over the past year and no one quite knows why.  Stay tuned.

With the Fed out of bullets, it is up to Congress and the President to come together and agree on a stimulus package.  On Saturday, the house took the first step in this legislative dance by passing legislation which extends limited family leave protections to some employees and increasing funding for programs such as SNAP.  The precise impact of this proposal is being debated this morning, with critics already complaining it contains too many loopholes to help most workers.  If, as expected, the Senate passes the bill this week and the President signs it, the real contentious debate gets started.  Both sides are already jockeying for position over what should be included in a larger stimulus package.

March 16, 2020 at 10:38 am Leave a comment

FASB Green Lights CECL Delay

Good morning folks.

As expected, the Federal Accounting Standards Board approved its proposals to delay the effective date of CECL for smaller businesses, including credit unions until January 1, 2023. The delay is welcome news, particularly for the smaller credit unions which are concerned that the standards will negatively impact their bottom line.

In making the decision, the FASB announced a change in its approach to implementing major changes to its accounting standards such as CECL. Although there are exceptions to this new approach, institutions which are required to file financial reports with the SEC will have more time to adapt to new accounting rules than the larger companies subject to SEC oversight. According to the FASB, it received 35 comment letters from credit unions and credit union associations.

Under traditional GAP accounting standards, companies have to recognize losses on loans when they become probable. In contrast, under CECL, credit unions and other institutions will have to account for expected credit losses based on the past performance of similar loans. For what it’s worth, yours truly remains very much in the minority within the credit union industry in believing that IF CECL is properly implemented and understood by examiners, the accounting change is logical and can be easily implemented by smaller credit unions. The FASB has repeatedly stressed that it does not expect smaller institutions to adopt the same analytical models as bigger ones.

How Low Can Interest Rates Go?

There is more and more talk about the possibility that the Fed could introduce negative interest rates in a future economic downturn. This recent analysis by the Federal Reserve Bank of San Francisco analyzing the experiences of central banks around the world that have adopted negative interest rates has generated a fair amount of attention. In addition, the Wall Street Journal is reporting this morning that an increasing number of option traders are betting that interest rates could go negative within the next two years. Yours truly is in no position to make predictions on the future interest rates, but the very fact that serious people treat negative interest rates as a distinct possibility underscores how limited the Fed’s options will be to combat the next economic downturn using traditional stimulus pools. This is a long winded way of saying that interest rates are already near historic lows.

Have a nice weekend, see you on Monday.

October 18, 2019 at 8:42 am Leave a comment

What’s Next On The Regulatory Hit List?

If you’re wondering what’s next on the regulatory to-do list a good place to start is the Fair Debt Collection Practices Act. On April 17th, Director Kreninger used an appearance before the Bi-Partisan Policy Center to announce that the CFPB would shortly be coming out with proposed regulations to update the FDCPA. On May 8th she will be hosting a town hall meeting in Philadelphia and if the Bureau’s past practice is any indication, it’s likely that the meeting will coincide with the unveiling of new proposals in this area.

What type of changes does she have in mind? As she explained in her speech, the FDCPA regulatory framework needs to be updated. As a result she says, “The Bureau will propose clarifying rules to better enable the use of modern communications technology in collections activity. The proposed rules also would protect consumers with clear, bright-line limits on the number of calls they may receive from debt collectors on a weekly basis.  We will propose to provide clarity on how collectors may communicate via newer technology such as email or text messages. We will propose that collectors provide consumers with more and better information at the outset of collection to help them identify debts and understand their options, including their rights in disputing debts or paying them.”

When the Bureau previously considered regulations in this area, my primary concern was that the regulators would attempt to bootstrap regulations in a way that made creditors and not just third-party debt collectors subject to these mandates. We will have to see how this unfolds. Stay tuned.

FDIC Continues To Push For BSA AML Reforms

FDIC Chairman Jelena McWilliams is continuing to lead the way when it comes to advocating for reducing the  burden imposed on financial institutions by anti-money laundering regulations. The American Banker is reporting that she is working with the Financial Crimes Enforcement Network to meet with financial regulators within a month. According to the paper, McWilliams wants the meeting so she can better “understand what law enforcement and intelligence officials do with the millions of suspicious activity reports banks submit every year without much feedback.” Her hope is to find out if there are changes that can make the reporting requirements less burdensome. Efforts like this can only help credit unions but the fact remains that many of the antiquated reporting thresholds are in statute and not regulation.

FOMC Keeps Market Rates Unchanged

Skimming the paper this morning the most interesting takeaway I have from yesterday’s announcement that the Fed’s Open Market Committee will leave interest rates unchanged is that we are once again seeing concerns voiced about the risk of too little inflation. In the first paragraph of its statement, the Fed noted that, “On a 12-month basis, overall inflation and inflation for items other than food and energy have declined and are running below 2 percent. On balance, market-based measures of inflation compensation have remained low in recent months, and survey-based measures of longer-term inflation expectations are little changed.” The economy might be rolling along but policy makers continue to be befuddled by the lack of inflationary pressures. It defies  conventional logic. The concern policy makers have is that if inflation continues to run below average when times are good, we could be into unchartered deflationary waters when the economy turns sour again.

May 2, 2019 at 9:00 am Leave a comment

Five Things You Need to Know Before You Go on Vacation

You can tell a lot of policy makers are taking off for the holidays because an awful lot worth noting yesterday happened.

Fed Raises Interest Rates

The Fed Reserve’s Open Market Committee announced that it would be raising short-term interest rates by another quarter of a point. Perhaps more importantly however, Federal Reserve Chairman indicated that the Fed was reducing the number of its anticipated rate hikes for 2019 from 4 to 3. In his post-game press conference Powell explained that while the economy remains fundamentally strong, developments of the last few months indicate that there may be complications ahead. Apparently this was too much equivocation for the captains of industry who invest in the stock market. I’m assuming they wanted a more negative assessment of the economy’s growth to signal that the fed was putting any rate hikes on hold for the foreseeable future. Dream on.

Did Banking Regulators Just Pull a Fast One When It Comes To CECL?

Yesterday the FDIC finalized regulations permitting banks to phase in additional capital requirements that may resul from the implementation of current expected credit losses (CECL) loss recognition requirements over a three year period.

Now let me try to put that in plain English. As readers of this blog know, in 2016 the Financial Accounting Standards Board announced that it would be phasing in new accounting standards requiring banks and credit unions to record potential losses on loans earlier in the lending cycle. Under the old way of doing things, losses had to be recognized when a loss is likely and there is no requirement to account for potential losses at the time credit is extended. In contrast, under the new approach, institutions are required to use historical data to estimate and account for potential losses of a given product. Since losses will now have to be accounted for earlier in the lending cycle, this new accounting rule will mean that many banks and credit unions will be faced with having to build up their ALLL Reserves.

The final rule announced yesterday by the FDIC and shortly to be implemented by other banking regulators not including the NCUA, will give banks the option of phasing in capital requirements triggered by the new accounting requirements over a three-year period. But banks will still have to also report the amount of money they would be putting aside if they had to fully comply with CECL. This announcement would be easy to demagogue but it makes sense so long as investors have the information they need to assess a bank’s health under the new accounting standards.

Given the complexity of bank balance sheets and capital requirements, it’s not easy to make an apples to apples comparison but NCUA should consider using a similar concept to assist credit unions that want to smooth out the potential negative impacts of complying with CECL.

A Credit Boost For Consumers?

I don’t know what I think about this news so I will just give you a heads up about this article in yesterday’s Wall Street Journal reporting on how Experian will be rolling out a new addition to its credit scoring system which will allow it to take the payment of utility and phone bills in to account in return for the member providing them direct access to monitoring their account activity. Under the system, if a member is repeatedly delinquent in paying these bills, the additional information will simply be removed from the calculation of their credit score.

Is This A Canary in the Mortgage Coal Mine?

The ever informative CU Today has this interesting article reporting that rate repayments for residential mortgages dropped in 48 states the last 12 months. This is a key indicator that interest rate risk may be rising for those of you holding mortgages in your portfolio.

Happy Holidays. I’m Going Fishing.

Last but not least, enjoy your holiday. Hard to believe yet another year is out the window. Thank you very much for taking the time to read the blog and occasionally comment. I’ll be back next year for another fun-filled exchange of news and ideas which I hope you find useful. Happy Holidays.

December 20, 2018 at 9:13 am 2 comments

Three Things You Need To Know Heading Into a Holiday Weekend

Here are some recent happenings that I think you need to know about before my long weekend kicks in.

Another Day, Another Overdraft Lawsuit

The first thing I did this morning was read a decision released by a Federal District Court in Massachusetts yesterday denying a motion by Digital Federal Credit Union to dismiss a class-action lawsuit claiming that the credit union inadequately explains its account balance calculation methods to members who opt in to receiving overdraft protections for their debit card transactions. (BRANDI SALLS, individually, & on behalf of all others similarly situated Plaintiff, v. DIGITAL FEDERAL CREDIT UNION & DOES 1 through 100, Defendants., No. CV 18-11262-TSH, 2018 WL 5846820,  (D. Mass. Nov. 8, 2018)

I’m not going to spend too much time on this because I’ve already talked about the issue in previous blogs. But once again, a court has ruled that a credit union which uses the available balance method when determining if a member has adequate funds to pay an account debit wrongly assumed that a reasonable person couldn’t find their disclosures ambiguous. As for the argument that the credit union used forms promulgated by federal regulators, the judge joined with other courts in finding that the use of federally prescribed forms for providing disclosures under Regulation E only protects financial institutions against claims based on the form of the disclosure and not claims about its substance. The bottomline is you can use an available balance method but you must properly disclose what it is and how it works.

Another Day, Another Data Breach

Earlier this week it was reported that HSBC was victimized by a relatively small data breach. A mere 1.4 million consumers had their accounts compromised but like I always say, these numbers tend to grow as the weeks go by. Reading about the breach has educated me about a relatively crude but apparently increasingly common, hacking method in which the bad guys use software to bombard accounts with stolen passwords and other account information they have usually purchased from the “dark web” to see if they can gain access to consumer accounts. Remember, someone in your credit union should be responsible for knowing how vulnerable your institution is to this type of attack and what defenses the CU has in place.

Credential stuffing underscores why it is foolish for consumers to use the same login information on all their accounts as well as underscoring the utility of multi-factor authentication techniques. It also demonstrates how difficult it is to assess how damaging a data  breach rally are.  Information stolen from a site like Yahoo  sites could be used to compromise a member’s security years after it was gobbled up. Here are some links that I found helpful: https://www.owasp.org/index.php/Credential_Stuffing_Prevention_Cheat_Sheet; https://www.techrepublic.com/article/how-to-avoid-credential-stuffing-attacks/

Another Fed Meeting

The Federal Reserve’s interest rate setting Open Market Committee released a statement yesterday in which it all but announced that there be another rate hike when it meets again in December. The statement explained that, “The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term.”

That’s enough for one day. Enjoy your weekend. I’ll be back on Tuesday.

 

 

November 9, 2018 at 8:48 am Leave a comment

Four Things You Should Know To Start Your Credit Union Week

Kudos to our good friends at CUNA for joining in a petition seeking clarification from the FCC about when exactly the TCPA applies. Although I continue to get the sense that credit unions are not paying as much attention to this issue as they should, the general public is getting more annoyed by the growth unsolicited phone calls and now is no time to be in the dark about the circumstances under which your credit union may find itself on the receiving end of a class action lawsuit.

As I explained in this previous blog, the Telephone Consumer Protection Act (TCPA) applies to telephone equipment which has the capacity to store or produce telephone numbers to be called, using a random or sequential number generator; and to dial such numbers.” An amendment by the FCC extended this definition to include equipment which could be modified to do these tasks. Fortunately, a Federal court struck down the more expansive definition but now it’s time for the FCC to clarify once again what type of equipment triggers the TCPA.

Interest Rates Remain Steady Despite Record Low Unemployment

If your job is to anticipate how quickly interest rates are going to rise, you can be forgiven for being more than a little confused by recent economic trends. Friday’s announcement by the Department of Labor that the unemployment rate dipped below 4% means that it is at levels not seen since the days of the .com bubble and moving into territory that would have made Eisenhower proud. At the same time, we aren’t seeing a surge in wage growth. While this is good news for those of you guarding against interest rate spikes, it certainly has economists scratching their heads. Here’s the heading of a research note from Fullerton Markets this morning: Data shows slacks remain in US labor market despite drop in unemployment rate. Say what? There is slack in an economy with near record unemployment? We may not know what’s going on in the economy for decades to come, but this is further evidence that there are some fundamental shifts taking place that no one fully understands.

It’s Official, Senator Gillibrand Introduces Post Office Banking Bill

New York’s Senator, Kirsten Gillibrand officially unveiled legislation that would permit people to bank at their local post office. Perhaps now my local branch will start staying open at times when I can actually get to it. According to this article, services to be offered by the Post Office include small dollar savings and checking accounts and transactional services including debit cards. If you want to know what I think of the aspiring President’s proposal, here’s another blog for you.

DACA Issues Come To The Surface

With the continuing legal and political wrangling over the future of the Deferred Action for Childhood Arrivals program, my guess is that you will see more and more litigation dealing with claims of discrimination against individuals currently protected under the program who are in danger of losing their legal immigration status. The latest example I’ve seen is this lawsuit brought against Bank of America, by a job applicant who says he was denied his “dream job” because of his DACA status. I also checked this morning and a fascinating case alleging that Wells Fargo discriminated against DACA students by refusing to provide them student loans and/or credit cards is still being litigated.

 

May 7, 2018 at 9:08 am Leave a comment

Five Things You Need To Know On Tuesday Morning

Here is a roundup of some of the other news that happened over the last week when I wasn’t doing the blog and the CFPB had only one Director:

Uber Data Breach

Most importantly, ride sharing app Uber disclosed, all be it belatedly, that it had been victimized by a data breach about a year ago. The breach affected at least 57 million accounts and compromised the phone numbers and emails of 600,000 US driver licenses. It ended up paying more than $100,000 in ransom money to hackers. Uber’s announcement, conveniently made as people prepared for the Thanksgiving holiday, is the latest and most blatant example of companies failing to give adequate notice of data breaches in a timely fashion. This is why it is also the latest example of why we need national data breach standards.

High Noon For Tax Reform

The push for the Republican Tax Cut Proposal is nearing another critical stage with the Senate talking about voting on the bill by the end of the week. Today the Senate Budget Committee meets to consider the bill. What’s so interesting about that is that one of the Republicans most outwardly skeptical about the plan, Senator Corker of Tennessee sits on that committee. He has indicated the he plans to vote against the bill unless changes are made. If Republicans hope to pass a tax bill without Democrat support, they can only afford two Republican no votes. Remember, that even if the legislation gets through the Senate, then the House and the Senate will have to agree to and pass a single bill.

CUNA and NAFCU Recognize Mulvaney As CFPB Director

All of this would be comical if it didn’t have real world consequences and involve adults.

CUNA and NAFCU sent letters to Mick Mulvaney congratulating him on being named the interim head of the CFPB. Meanwhile, the Justice Department was granted an extension to prepare a response to Leandra English’s lawsuit claiming that she is the rightful heir to the CFPB throne. Mulvaney also announced a freeze on CFPB rulemaking. Also yesterday, several high-profile Democratic Senators including New York Senator and majority leader Chuck Schumer and Massachusetts Senator Elizabeth Warren indicated that they would be submitting amicus briefs in support of English. All this took place as Mulvaney was passing out donuts to his new employees and English was emailing CFPB employees in between making visits to key Democrats on Capital Hill. And you thought your office was dysfunctional?

Powell To Testify At Confirmation Hearing

Gerome Powell will be testifying today before the Senate Banking Committee as he seeks to be confirmed as the next head of the Federal Reserve Board. Barring any unforeseen developments, he is expected to easily win Senate approval and take over the job when Janet Yellen’s term ends in February. Here is a link to his prepared testimony.

Is Inflation MIA?

When he takes the helm, one of the riddles he will continue to have to deal with is inflation and the lack thereof. As I’ve noted in previous blogs, there is an important debate going on among economists; in one camp are those who argue that inflation is just around the corner and that the Fed has to aggressively act now or it will act too late to control the inevitable spike; the other camp argues that the economy is changing and that the persistence of low inflation may be a permanent fixture of this new world. One of the most interesting articles I’ve read in recent weeks was this one from the WSJ in which Chairman Yellen said that the continued persistence of low inflation surprised her and that policy makers may have to consider that “there is something more endemic or long-lasting that we need to pay attention to.” Expect the Fed to raise rates again in December. But if inflation continues to be sluggish, more and more central bankers will question whether raising interest rates makes sense.

November 28, 2017 at 9:09 am Leave a comment

Is The Fed Playing Where’s Waldo With The Economy?

That is the question I pondered on Friday as I settled in for a long weekend at a lake house outside of Cooperstown, New York. As the Fed nudges the Fed Rate higher at what point will consumers expect a greater return for placing their deposits with you? Or as the WSJ put it in this great article ” For now, most bankers are happy to keep deposit yields low, standing pat even as the Federal Reserve hikes short-term rates. No one is sure, though, how long customers will tolerate that.”

The chart accompanying this  blog (which I created using the FRED website) demonstrates that something really strange is going on here: on the one hand employment is that a 16 year low;  on the other hand inflation has Hardly nudged and wage growth has been anemic. Not surprisingly interest rates on  12 month certificates of deposit  are flat.

History says it’s not supposed to be this way. After all, the Fed has gradually been raising rates and has signaled that it intends to start selling  all those mortgage back securities back into the economy, but despite impressive  job gains we haven’t seen the type of upward pressure on wages that would make raising rates the logical thing  for your credit union and the Fed to do  The WSJ reported that from a year earlier, average hourly earnings increased 2.5%, in July  thanks to a 9 cents-an-hour increase from the prior month. That is slower than normal in the past  quarter. In fact,  one of the reasons the market is booming is because it’s the only place persons planning for retirement can make any money off their money.

Which brings us back to Where’s Waldo? If you read their analysis  or listen to their interviews economists  are convinced that inflation is hiding  out there somewhere, they just haven’t looked in the right place  yet.  Conventional wisdom says they are right but if they are wrong than we aren’t anywhere near  the point  yet where the Fed should raise rates again or  your  members will demand a higher return on their deposits

August 7, 2017 at 9:27 am Leave a comment

The Most Important Question Of The Week

You are forgiven if you have mistaken the media’s coverage of the upcoming meeting of the Federal Reserve’s Open Market Committee on Tuesday and Wednesday for the plot line to a Lifetime movie; “Will they or won’t they?  Can they and should they?”   But there is no mistaking the importance of the decision of whether or not to nudge interest rates higher or the impact it may ultimately have on your credit union. If the Fed gets it right, it will, at the very least , enable you to get a bit more of a return on  your loans and investments.  If the Fed gets it wrong, it will hasten the onset of another recession.

What makes the decision so perplexing is that the economic signals being sent are so contradictory. For example, last Tuesday the Census Bureau reported  the most positive economic news that anyone has heard in  years.  Real median income increased by 5.2% for American households between 2014 and 2015 to $56,516, an increase in real terms of 5.2%. This is the first  increase  since 2007, the year before the onset of the Great Recession. In addition, the report indicates that all income brackets and regions in the country experienced increases.  Combine this news  with a falling unemployment rate  and you can easily conclude that  the Fed may have waited too long to raise rates and could easily lose control of inflation  if it doesn’t act fast.  In fact, a report released on Friday by the Department of Labor indicates that, depending on what inflation measure you use inflation is on the rise. The Core Consumer Price Index, which excludes volatile items such as gas, has risen 2.3% in the past year,  well above the Fed’s 2% inflation target.

So raising interest rates is a no brainer, right? Not really. Take,  for instance, the falling unemployment rate.  Even as the job market is tightening there are signs that employers are still uneasy about taking on new job seekers. According to the WSJ “about 300,000 fewer people are being hired each month compared with the pace reached in February.”  There are a lot of jobs that are going unfilled.

And if economic growth is reaching into households then why is almost half of the American public contemplating voting for Donald  Trump? His doom-and-gloom portrait of an America in decline wouldn’t have any traction if people felt confident about their economic well-being.

And the spike in the household income only partially masks  larger trends that are continuing to dampen enthusiasm for consumer spending.  For example, the same census Bureau also reported that a growing  number of Americans  have health insurance; but does anyone really believe that healthcare trends are headed in the right direction with so many major insurers pulling out of the healthcare exchanges and costs continuing to rise?

Finally income and equality is continuing unabated. The Bureau reports that since 1993 it has increased 5.5% and was unchanged by the household income gains.

What all this means is that there are many crucial questions to which we won’t have answers until  we are still enjoying the fruits of economic growth or tiptoeing towards  recession.

On that note enjoy your Monday.

September 19, 2016 at 9:28 am Leave a comment

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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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