PLANO, Texas (9/12/13)--Credit unions need to assess the impact of Federal Reserve policymakers preparing to taper their quantitative easing (QE) policy as the U.S. economy improves, according to an economist who will speak at an upcoming Catalyst Corporate FCU forum.
Ed Yardeni, an economist and president of Yardeni Research, will speak at Plano, Texas-based Catalyst Corporate FCU's 36th annual Economic Forum, Oct. 22-23 in Frisco, Texas.
"Financial institutions need to assess not only the outlook for the federal funds rate, but also how the bond and mortgage markets will respond to the Fed's eventual tapering of QE and its ongoing forward guidance," said Yardeni. "Assessing these developments is bound to be especially tricky given the leadership transition at the Fed and the new composition of the Federal Open Market Committee."
Yardeni is referring to the completion of Ben Bernanke's term as chairman of the Federal Reserve and the rotation of new members onto the Federal Open Market Committee, the Fed's monetary policymaking group, in early 2014.
What does this easing mean for consumer credit? said Yardeni. If the Fed does phase out QE by the middle of next year, as Bernanke has suggested, it will be because the U.S. economy is continuing to improve. More specifically, the unemployment rate would most likely be down to 7% in this scenario, he added.
"The good news for credit unions is that the quality of their consumer loan portfolios would improve significantly as delinquencies continue to decline," said Yardeni. "The not-so-good news is that competition will heat up among financial institutions to lend to consumers."
Yardeni has been following and forecasting the Fed's moves for investors since working for the Federal Reserve Bank of New York in the late 1970s, under Paul Volcker.