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Wash. Gridlock Could Cause Credit To Ease, CUNA Tells WSJ

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WASHINGTON (10/10/13)--With consumers' credit card balances declining in August for the third consecutive month, some economists say that could be a signal that consumers are downshifting their spending. And a gridlock in Washington could have a further impact, according to Credit Union National Association Chief Economist Bill Hampel in The Wall Street Journal Online.
The uncertainty caused by the Washington gridlock on the federal deficit could cause overall credit growth to ease, especially if a prolonged debt ceiling fight makes consumers skittish about financing cars, appliances and other long-lasting goods, Hampel told WSJ Online Monday.
"Consumers have the ability and need to replace big-ticket items, but it's also really easy to postpone those purchases for a couple of months if they get nervous," he said.
The partial government shutdown, which began Oct. 1 and has affected roughly 800,000 employees, threatens to curtail spending in the public sector for the rest of 2013, said the Journal.
Although consumer debt rose overall, consumers' revolving credit--the money they owe on credit cards--declined 1.25%  or $883.4 million during August. Consumer spending accounts for a significant part of the economy, and the data suggest that spending has not helped the economy pick up its recovery pace, the article said.
See related News Now article, "Consumer Credit Increases 5.5% In August, CUs See Rise," by using the link.

FOMC Minutes: Fed Still Considering Tapering QE3 By End Of Year

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WASHINGTON (10/10/13)--Most of the Federal Reserve's policymaking body, the Federal Open Market Committee (FOMC),  struggled with the decision at the committee's September meeting to refrain from beginning an expected tapering of the Fed's bond-buying program, according to the FOMC minutes.
The minutes for the Sept; 17-18 meeting, released Wednesday afternoon, indicated that most believed the Fed would likely begin by the end of this year to slow down the pace of its $85-billion-a-month program of buying back Treasuries and mortgage-backed securities, a policy known as quantitative easing, or QE3.
However, some committee members expressed concern about the economic data reports at the time and about threats to the financial market from the hen-pending Oct. 1 partial shutdown of the federal government and Washington's fiscal policy. They suggested these factors might make the economy more volatile.
"Most participants viewed their economic projections as broadly consistent with a slowing in the pace of the committee's purchases of longer-term securities this year and the completion of the program in mid-2014," said the FOMC minutes.
At the meeting, the FOMC delayed tapering the bond purchases and noted that budget cuts and increases in the cost of borrowing were drags on economic expansion.  "With the markets apparently viewing a cut in purchases as the most likely outcome, it was noted that the postponement of such an announcement to later in the year or beyond could have significant implications for the effectiveness of committee communications," the minutes said.
In particular, concerns were expressed that a delay could potentially undermine the credibility or predictability of monetary policy by, for example, increasing uncertainty about the committee's reaction function and about its commitment to the forward guidance for the federal funds rate, with the result of an increase in volatility in financial markets," the minutes said.
The committee noted that not paring back its bond purchases might make it "difficult to explain a cut in coming months, absent clearly stronger data on the economy and a swift resolution of federal fiscal uncertainties."
It also discussed how it could clarify or strengthen its forward guidance for the federal funds rate and how to differentiate between signaling its plans for its bond buying program with its commitment to hold down the federal funds rate to near 0% as long as unemployment exceeds 6.5% and the inflation outlook remains below 2.5%.
The officials considered not raising the target federal funds rate "if the inflation rate was expected to run below a given level" and also considered providing more information once the unemployment rate threshold of 6.5% was reached.
For the full minutes, use the link.