FED Peers Over Fiscal Cliff

by Henry Meier

Today and tomorrow the Federal Reserve’s Open Market Committee holds its last meeting before the American economy is either saved from or tossed over the fiscal cliff.  So it shouldn’t surprise anyone that the most prominent bit of financial news making the rounds this morning is an article authoritatively predicting that the FED will use the meeting to announce that it will be extending and maybe even increasing its Quantitative Easing (QE) Program.  I don’t need to remind credit unions that the program has resulted in historically low interest rates.

A few quick thoughts:

  • You can hardly blame the FED for doing what it can to guard against political ineptitude, but at its next meeting I am hoping that there is more public discussion about the continuing value of artificially low interest rates.  The FED’s program hasn’t stimulated investing by companies, which are sitting on a record high amount of cash, and business lending by banks remains sluggish.  Bottom line:  credit unions and smaller community banks are still paying the price for the great recession by artificially subsidizing the handful of institutions with the ability to capitalize off lower interest rates.
  • Last night I chatted with some credit union people and there is something seriously wrong about a policy initiative that discourages credit unions and banks from taking in new deposits.

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