Yellen becomes Prognosticator in Chief
by. Henry Meier
Janet Yellin was officially handed the keys to the economy yesterday, becoming the first woman Chairman of the Federal Reserve. She was greeted with a three digit drop in the stock market. If she were totally honest, I bet she would tell you that she kind of feels like the person whose dream job was to be the skipper of the Hindenburg.
Alan Greenspan’s tenure was defined by how he handled the stock market crash of 1987. Ben Bernanke’s tenure was defined by how he handled the mortgage meltdown and the resulting Great Recession. Anyone who tells you that they know the future trajectory of the economy is too foolish to listen to. This uncertainty has implications for credit unions, regulators and the American Consumer.
Is Yellin getting in on the ground floor of an economic recovery or is she being saddled with an economy hobbled by structural impediments that will make it almost impossible for it to break free of the gravitation pull caused by the Great Recession for years into the future?
Yesterday was marked by more confusing signals just as Yellin takes the helm. First, the Federal Reserve released its quarterly report on bank lending. For those who want to see signs of a growing economy, there are indications that business lending standards, in particular, are loosening and that the American consumer is once again throwing more debt on their credit cards. Conversely, we may be seeing the first signs of a qualified mortgage belt tightening with looser underwriting standards for home buyers by large banks being offset by tighter underwriting standards used by smaller banks. This is consistent with the belief that some of us have that in the short to medium term, smaller institutions will underwrite predominantly, if not exclusively, to qualified mortgage standards, while bigger institutions will be more willing to underwrite to looser standards.
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