The Real Interest Rate Risk To Credit Unions
by Henry Meier
I’m feeling a little bit like Nostradamus this morning before Fed Chairman Ben Bernanke gives his semi-annual assessment of the U.S. economy to Congress today. Here’s what Nostradamus has to say.
This is the most important presentation to be given by the Chairman in quite some time. For years now federal regulators have been harping about the dangers imposed by a sudden rise in interest rates, a fear exacerbated by the Fed’s decision to buy $85 billion of mortgage- and treasury-backed securities each month in order to keep mortgage rates artificially low (by the way, as someone looking for a house right now, Nostradamus says thank you!). Still, the most extreme concerns of a sudden rise in interest rates caused by a reheated economy are kind of like my prediction about the end of the world. Some day I will be right, but in the meantime let’s get on with the business of banking.
In reality the only plausible scenario for an interest rate spike, at least any time soon, would involve a mismanaged exit from the FED’s bond buying program. This is one you don’t have to take my word for. In his speech the other day, William Dudley, the Chairman of the Federal Reserve Bank of New York, noted “There is a risk is that market participants could overreact to any move in the process of normalization. Indeed, there is some risk that market participants could overreact even before normalization begins, when the pace of purchases is adjusted but the level of accommodation is still increasing month by month.”
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