Rightly or wrongly, every statement regarding the outlook for the economy from policy makers or economists is immediately amplified by commentators, trying to determine if the recession is over. While many credit unions are in annual planning mode, what is the proper context to place the following comments?
“Even though from a technical perspective the recession is very likely over at this point, it’s still going to feel like a very weak economy for some time,” Federal Reserve chairman Ben Bernanke, September 15, 2009 Speech
If two-thirds of the U.S. economy is based on the consumer, then an economy that “feels weak” is going to mean the consumer – i.e., the member – will be behaving in a certain way. As an industry we should see members de-leveraging; less appetite for loans and more emphasis on savings, really a continuation of what we have seen to date in 2009. As a result credit unions should be flush with liquidity.
“Exceptionally low levels of the federal funds rate for an extended period.” and “Inflation subdued for some time” FOMC Statement Issued September 23, 2009
It is hard to infer anything from the statement above other than a forecast based on low interest rates (yields) for the foreseeable future. Is that the proper conclusion? If so when are yields going to move, and how much? This is an important question in the strategic plan: If the industry is awash in liquidity and investment returns are low with meek loan growth, the pricing assumptions made on the deposit side are critical. However, credit unions have learned this past year that even when trying to turn funds away from the institution they still continue to come in.
“Above-trend growth is now the anticipated result of these policies whereas previously it was simply sustainable growth” Jan Hatzius, Goldman Sachs Research Article “FOMC Meeting Results: No Major Surprises from an FOMC that has a Brighter Outlook,” September 23, 2009
This comment is a little less intuitive (not surprising from the dismal science!). Basically, Hatzius is making a distinction from earlier statements from Bernanke, where the Fed Chair has shifted the sentiment from a leveling out of economic activity to an increase.
Now more than ever it is vital that credit union managers listen to the markets and stay abreast of the headlines. Economists with “stature” certainly can impact market sentiment with their words, - ultimately it comes down to determining their policy objectives and the corresponding impact on your institutions balance sheet.