FOMC Rate Cut Should Have Been Larger

ST. LOUIS–One member of the Federal Open Markets Committee says he believes the Fed erred last week and should have cut rates further.

James Bullard, president of the Federal Reserve Bank of St. Louis, said deeper rate cuts are necessary to head off growing economic risks. At its most recent meeting the FOMC cut rates by 25 basis points.

“Lowering the target range for the federal funds rate by 50 basis points at this time would provide insurance against further declines in expected inflation and a slowing economy subject to elevated downside risks,” Bullard told the Wall Street Journal. “It is prudent risk management, in my view, to cut the policy rate aggressively now and then later increase it should the downside risks not materialize.”

Bullard was among three members of the FOMC who voted against the 25-basis point reduction, but he cast his vote for a different reason, as the other two FOMC members dissented because they didn’t believe any rate cut was necessary. The three dissenting votes were the first to be cast since an FOMC meeting in September of 2016.

Growing Risks

Bullard told the Journal the risks of an economic slowdown are growing, and noted the Fed’s target-rate range, which now stands at between 1.75% and 2%, is higher than other major nations. Bullard also said a bigger rate cut now would help speed a return to 2% inflation.

Bullard further told the Journal that while his vote went against the consensus, he remains confident that his colleagues “will continue to monitor economic developments and respond accordingly as economic circumstances dictate.”

Inbound Marketing for Credit Unions

Inbound Marketing for Credit Unions: A Primer

Which would you prefer:

You use print, radio, TV, and banner ads to attract new members and market specific products and services.
Or…
You let eligible, already-interested parties come to you for those same products, services, and membership benefits.

Those options represent the difference between outbound and inbound marketing. Of course, you don’t have to choose between them. You can (and should) use both methods. But if your credit union is interested in inbound marketing—and letting leads and prospective members seek you out—then this primer should help.

What Is Inbound Marketing?

Inbound marketing leverages content such as blogs, videos, case studies, and social media to attract leads and capture new business. Search engine optimization (SEO) makes the content easy to find online.

Check out “Inbound Marketing for Credit Unions: A Primer” from Ongoing Operations & CU2.0 on Vimeo.
 
The video is available for your viewing pleasure at https://vimeo.com/359206690

If you like this video, make sure you share it, too!
 
Vimeo is filled with lots of amazing videos. See more at https://vimeo.com.

 

Fed approves quarter-point rate cut but is divided on further action this year

Information received since the Federal Open Market Committee met in July indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending has been rising at a strong pace, business fixed investment and exports have weakened. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 1-3/4 to 2 percent. This action supports the Committee's view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain. As the Committee contemplates the future path of the target range for the federal funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair, John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Charles L. Evans; and Randal K. Quarles. Voting against the action were James Bullard, who preferred at this meeting to lower the target range for the federal funds rate to 1-1/2 to 1-3/4 percent; and Esther L. George and Eric S. Rosengren, who preferred to maintain the target range at 2 percent to 2-1/4 percent.

Implementation Note issued September 18, 2019

FOMC is expected to cut rates Today

WASHINGTON—The Federal Open Market Committee is expected to cut rates at the conclusion of its two-day policy-setting meeting, which ends today.

Along with numerous other analysts, NAFCU Chief Economist and Vice President of Research Curt Long said he anticipates another rate cut due to comments made by committee members at their annual retreat last month and in the last meeting minutes.

At the end of its July meeting, the FOMC cut rates by 25 basis points. Since then, there have been conflicting economic data: the labor market remains strong, inflation has firmed, consumer spending hasn't fallen significantly, and the economy is expanding at a modest pace; however, trade and tariff uncertainties and global economic weaknesses have created headwinds and unease, stated Long.

Long predicted another 25-point rate cut due to these concerns and the threat of a potential recession. The FOMC will next meet Oct. 29-30; its tentative meeting schedule for 2020 is now available.

"There will not be a recession in the U.S. in the near future!" Mike Schenk, deputy chief advocacy officer and chief economist at CUNA

WASHINGTON—There will not be a recession in the U.S. in the near future, according to a CUNA economist, who is citing two reasons for the forecast: the inverted yield curve this time is not a sign of a downturn, and the economy will continue to expand.

Mike Schenk, deputy chief advocacy officer and chief economist at CUNA, said the uncertainty and volatility in the economy brought about by the trade war with China and debate around what the inverted yield curve might mean, as long-term Treasury yields drop below those of shorter-term T-bills.

“When the yield curve inverts, the U.S. generally heads toward a recession. It is typically a very accurate predictor of a recession,” said Schenk. “But this time we don't think that's going to happen for variety of reasons.”

Not Typical Inversion

A key reason for CUNA’s stance, said Schenk, is that what has triggered the inverted yield curve this time is not what typically causes the rate imbalance.

“If you look back, historically there's been one or two instances when the yield curve inverted and no recession has followed,” explained Schenk.

One of those instances was in 1998, he said.

“What happened was the yield curve inverted because there was a flight to safety, so what we saw was a huge increase in demand for Treasury securities that caused treasury prices to go up and mathematically the yields to go down and that's how the yield curve inverted,” he said. “The exact same thing happened this time—the yield curve did not invert because the Federal Reserve has been overly aggressive at increasing rates. The rates are simply inverted because there was consternation in bond markets, and long yields went down.”

Improvements, Not Deterioration

And with 70% of the economy driven by consumers, that bodes well for the near future, Schenk said.

“When we look to the consumer sector, generally we see not only a healthy consumer sector but a consumer sector that reflects financial health that's improving, not deteriorating,” explained Schenk. “That says to us that we're probably in good shape overall and we do expect to see expansion continue.”

Schenk said CUNA expects the economy to continue to grow at a slower “but healthy” rate.
“In that context, our baseline forecast calls for the credit union industry to perform quite well over the next 12 to 18 months,” he said. “This is something that is more likely than not. We're definitely past the peak of the credit cycle, that's clear. We expect credit union loan growth to continue to come in at healthy, but lower levels; earnings to come in at healthy levels, and asset quality to maintain its relatively high position at the moment.”

The Federal Reserve “will act as appropriate to sustain the expansion,” Chairman Jerome Powell

JACKSON HOLE, Wyo.–In comments at the conclusion of the Fed’s annual summer retreat here, Federal Reserve Chairman Jerome Powell said objective is to maintain the economic expansion, but also made an indirect reference to President Trump’s tariffs by saying “trade policy uncertainty” was the new challenge.

Less than an hour after delivering his comments, Trump tweeted the Fed has done “NOTHING” and then added, “My only question is, who is our biggest enemy, Jay Powell or Chairman Xi?”

During his prepared statement, on several occasions Powell said the Fed “will act as appropriate to sustain the expansion,” adding that when it comes to the Fed’s dual mandate on full employment and price stability, the “economy is close to both goals.”

 

“Our challenge now is to do what monetary policy can do to sustain the expansion so that the benefits of the strong jobs market extend to more of those still left behind, and so that inflation is centered firmly around 2%,” Powell said.

 

With many analysts attempting to read the Fed tea leaves for plans for further rate cuts, Powell said among the challenges to Fed officials is there are “no recent precedents to guide any policy response to the current situation.” The Fed cut rates at its July meeting and many are anticipating another quarter-point cut when the Fed meets in September.

“While monetary policy is a powerful tool that works to support consumer spending, business investment, and public confidence, it cannot provide a settled rulebook for international trade,” said Powell. “We can, however, try to look through what may be passing events, focus on how trade developments are affecting the outlook, and adjust policy to promote our objectives.”

The Toolkit
Powell said the Fed is examining “monetary policy tools we have used both in calm times and in crisis, and we are asking whether we should expand our toolkit.”

Looking forward and beyond just the U.S. economy, Powell added,  “The global growth outlook has been deteriorating since the middle of last year. Trade policy uncertainty seems to be playing a role in the global slowdown and in weak manufacturing and capital spending in the United States.”

At its July 30-31 meeting, the policymaking Federal Open Market Committee approved a 25 basis point rate cut, the first reduction in 11 years. Officials cited concerns over weaker global growth, the U.S.-China trade tensions and low inflation in making the reduction.

The New ‘Challenge’
 “Because the most important effects of monetary policy are felt with uncertain lags of a year or more, the Committee must attempt to look through what may be passing developments and focus on things that seem likely to affect the outlook over time or that pose a material risk of doing so,” he added. “But fitting trade policy uncertainty into this framework is a new challenge. Setting trade policy is the business of Congress and the Administration, not that of the Fed.”

Powell did not mention the yield curve inversion that has been rattling the markets, in which the 2-year Treasury note has surpassed the 10-year, a reliable recession indicator for the past 50 years. Minutes from the last meeting also offered only passing reference to the curve spread, and Powell made no mention of recession in his speech.

Trump thundered Powell on Twitter, saying “the Fed did NOTHING.”

NAFCU's Chief Economist Curt Long "Eyes Turn Again to the Fed"

ARLINGTON, Va.—Total retail sales increased 0.7% in July, and while consumer growth continues to "buoy" the economy, other threats could have a negative impact, according to NAFCU Chief Economist and Vice President of Research Curt Long.

"Three segments that have struggled recently – clothing stores, sporting goods and hobby stores, and electronics and appliance stores – showed solid gains last month," said Long in a new NAFCU Macro Data Flash report. "Tariffs represent a threat to the future outlook for sales, although any negative impact may operate with a lag if skittish consumers move spending forward to get ahead of potential price impacts.

"With yet another solid economic report in hand, the Fed faces a difficult decision. Markets are convinced that the trade war, slow growth abroad, and a range of geopolitical risks mean another rate cut is forthcoming," he added.

Results among the major retail segments were mostly positive in July. The biggest gains were among nonstore retailers (+2.8%), gas stations (+1.8%), department stores (+1.2%) and restaurants and bars (+1.1%). The largest declines during the month included sporting goods and hobby stores (-1.1%) and motor vehicle and parts dealers (-0.6%).

"FOMC officials have been conspicuous in their silence since July's meeting, but next week's annual gathering in Jackson Hole should provide some clarity," Long concluded.

See you in Clearwater Beach

Mortgage Rates Lowest Point Since 2016

CUToday NEW YORK–In what many had anticipated would be a (slowly) rising rate market, mortgage rates have dropped significantly, with the 30-year fixed-rate mortgage hitting its lowest point since November of 2016.

According to Freddie Mac, last week ended with the 30-year fixed-rate mortgage averaging 3.6%, down 15 basis points from the previous week. Last week marked the third-largest weekly decline for the 30-year fixed-rate mortgage this year — so far in 2019, rates for the loan product have only posted a weekly increase on eight occasions, Freddie Mac reported.

Meanwhile, the 15-year fixed-rate mortgage also declined 15 basis points to an average of 3.05%, according to Freddie Mac. The 5/1 adjustable-rate mortgage averaged 3.36%, representing a decline of 10 basis points, the GSE added.

Mortgage rates track the 10-year Treasury note, the yield on which has fallen sharply over the past year due to tensions over trade and other issues.

‘Tug of War’
“There is a tug of war in the financial markets between weaker business sentiment and consumer sentiment,” Freddie Mac said in a statement accompanying its latest data. “Business sentiment is declining on negative trade and manufacturing headlines, but consumer sentiment remains buoyed by a strong labor market and low rates that will continue to drive home sales into the fall.”

While rates continue to decline, its bittersweet for many would-be homeowners. As CUToday.info has reported, there continues to be a shortage of homes, especially for first-time buyers.

Join us in Clearwater Beach FL 10/1-4/2019
www.ncofcu/org

Federal Open Market Committee has cut rates by 25 basis points

WASHINGTON–As many had expected, the Federal Open Market Committee has cut rates by 25 basis points to a target rate for the federal funds rate of 2% to 2.25%.

“Information received since the Federal Open Market Committee met in June indicates that the labor market remains strong and that economic activity has been rising at a moderate rate,” the Fed said. “Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although growth of household spending has picked up from earlier in the year, growth of business fixed investment has been soft. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.”

The Fed said it moved to cut rates to meet its statutory mandate of fostering maximum employment and price stability.

“This action supports the Committee's view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2% objective are the most likely outcomes, but uncertainties about this outlook remain,” the Fed said. “As the Committee contemplates the future path of the target range for the federal funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.”

Following the rate decision, Fed Chairman Jerome Powell said during a press conference, "We are thinking of it as a mid-cycle adjustment to policy. I'm contrasting it with the beginning of a lengthy cutting cycle."

That statement caused the Dow to drop more than 300 points as the markets interpreted it to mean no more rate cuts might take place. Powell later clarified the Fed may consider another rate cut sometime soon, but the cycle of cuts will not last a long period of time.

Separately, the FOMC said it will conclude the reduction of its aggregate securities holdings in the System Open Market Account in August, two months earlier than previously indicated.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; James Bullard; Richard H. Clarida; Charles L. Evans; and Randal K. Quarles. Voting against the action were Esther L. George and Eric S. Rosengren, who preferred at this meeting to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent.

Join us in Clearwater Beach FL 10/1-4/2019
www.ncofcu/org

FASB Delays CECL Compliance for CUs Until 2023

NORWALK, Conn.–The Financial Accounting Standards Board has announced a delay in the implementation date for its new current expected credit loss (CECL) standard for an additional year for credit unions, pushing back the compliance date until 2023. 

Both credit union trade associations have been pushing for the delay.  

“We appreciate FASB considering credit unions’ concerns and moving forward with a delay of the CECL standard and committing itself to conducting a cost-benefit analysis to better understand this new standard’s impact on consumers, credit unions and the economy as a whole,” said NAFCU Chief Economist and Vice President of Research Curt Long. “NAFCU will continue to advocate for credit unions to be exempt from this onerous and costly accounting standard as it could adversely affect credit unions’ capital levels immediately upon implementation. More so, credit unions did not cause or contribute to the financial crisis or the poor lending conditions that led the FASB to consider a new standard.” 

Added Elizabeth Eurgubian, deputy chief advocacy officer and senior counsel with CUNA, "While the proposed one-year delay will help small credit unions come into compliance with this rule, the fact remains that CECL is a solution in search of a problem. We maintain that CECL will only hinder credit unions’ ability to uplift low-income borrowers and maintain that a quantitative impact study is critical to understand the far-reaching effects of CECL, including its impact on credit availability.”

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