The political and policymaking sides of the Federal Reserve's role were in full view last week as the Fed kept interest rate the same and lawmakers dragged out the vote on Chairman Ben Bernanke's second term.
Credit union specialists praised the rate decision, expressed frustration at the political maneuverings and expressed hope that the Fed would show restraint when issuing additional regulations on consumer issues.
The Fed's Open Market Committee's decision to keep the target federal funds rate-the one banks use when lending to each other-unchanged at between 0% and 0.25% had been widely expected. Both NAFCU Chief Economist Tun Wai and CUNA Mutual Group Chief Economist Dave Colby said they don't expect a rate change in the immediate future.
Wai said that while he advises credit unions to "always be worried about the possibility of a rising rate environment," that won't happen until next year because the Fed is "aware that there is a moderate growth pace and that probably will stay the same."
Colby said he is concerned, and credit union executives should be as well, about what will happen when the Fed pulls back on some of its efforts to stimulate the housing market and the tax credits for homebuyers expire later this year.
"It could have the effect of shooting ether into the carburetor,'' he noted.
Wai expressed concern that if interest rates rise, credit unions will lose some of their deposits as members return to the stock market in search of higher yields.
"This will cause a justifiable concern about credit unions' liquidity and members having a reversal of the flight to safety," he said.
Credit unions are also keeping an eye on another key component of the Fed's role as a regulator of consumer protection issues.
Jenny Sholar, the compliance officer of the Kentucky Employees Credit Union in Frankfort, said she hopes the Fed will be more balanced when issuing regulations on overdraft protection and similar topics.
"They are trying to be consumer friendly but aren't thinking it through all the way. They need to do more research on how the rules impact our ability to offer services. Also, forcing consumers to opt in on a variety of services will be confusing," she said.
The Fed's future as a consumer regulator is in question because some of the regulatory restructuring proposals working their way through Congress would transfer some of those powers to a new Consumer Financial Products Agency or to other agencies.
At press time, the Senate had not yet voted on whether the board's future actions would be guided by Bernanke. Lawmakers were scheduled to vote last Thursday on whether to reconfirm Bernanke to a second term at the helm of the Fed.
Some lawmakers of both parties said they'd oppose Bernanke and criticized his handling of the economy before and after the recession began, but officials of the Obama administration expressed confidence he would be confirmed. But the administration had to pull out all the stops in support of Bernanke's second term.
Senate Majority Leader Harry Reid (D-Nev.) announced he would support Bernanke but expressed reservations and made his decision following a conversation with White House Chief of Staff Rahm Emanuel that contained, according to a New York Times account, "some of Mr. Emanuel's characteristic profanity."
Colby said he was pleased that despite the pressure Congress is putting on the Fed, it has continued not to bend.
"An independent Fed benefits everybody because the goals are price stability and economic growth, and that is most likely to happen when there isn't interference.''
But that level of independence may not last. The regulatory restructuring bill passed by the House in December contains an amendment-passed with bipartisan support-that allows Congress to audit the Fed's interest rate decision making process.