The most recent minutes published for the FOMC meeting provide a glooming view of economic recovery, which directly affects the U.S. credit card business. The minutes covering the July 20 meeting were posted on August 19:

• The path of the economy will depend significantly on the course of the virus.
• The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.
• In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent

Just to peel this back, the FOMC is the Federal Open Market Committee, one of the results of the Banking Act of 1933, created as the United States exited the Great Depression. The first meeting notes, published in 1936 can be found here, at the Fed.

That is the same reform measure that established the FDIC and the Glass Steagall Act. FOMC is the “principal organ of the United States national monetary policy,” with rotating members from the Federal Reserve banks in Boston, Philadelphia, and Richmond; Cleveland and Chicago; Atlanta, St. Louis, and Dallas; and Minneapolis, Kansas City, and San Francisco. The NY Fed president is always a member of the FOMC.

When the Fed talks, bankers (have to) listen.

Enough history, let’s look at some of the comments. Jerry Powell, the Federal Reserve Chairman, is at the helm of the Fed at a time of global crisis. From where I sit, he is up to the task and adds well-balanced leadership. Some selected minutes:

• Financing conditions for consumer credit tightened a bit further during the intermeeting period. In the credit card market, lending standards at commercial banks tightened further according to the July SLOOS. (SLOOS is an acronym for Senior Loan Officer Opinion Survey on Bank Lending)
• Conditions in the consumer asset-backed securities (ABS) markets were stable during the intermeeting period. Yield spreads for certain highly rated credit card and auto loan ABS stabilized at pre-pandemic levels, while student and auto loan ABS issuance recovered to a pre-pandemic pace.
• Consumer credit quality remained stable, partly due to forbearance programs.
• …high-frequency indicators (such as credit and debit card transactions and mobility indicators based on cellphone location tracking) as suggesting that increases in some consumer expenditures had likely slowed in reaction to the further spread of the virus. Participants noted that households’ spending on discretionary services—such as leisure, travel, and hospitality—would likely be subdued for some time and thus would be a factor restraining the pace of recovery.

There are no great pearls of wisdom as to fixing the issue. Given the global scope of COVID-19, there is no silver bullet; but market stability is essential.

• A number of participants commented on various potential risks to financial stability. Banks and other financial institutions could come under significant stress, particularly if one of the more adverse scenarios regarding the spread of the virus and its effects on economic activity was realized. 

Behind much of the recovery will be the Fed’s ability to support the financing function of retail credit.

• To support the flow of credit to households and businesses, members agreed that over coming months it would be appropriate for the Federal Reserve to increase its holdings of Treasury securities and agency RMBS and CMBS at least at the current pace to sustain smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions.

Perhaps the big worry is not 2020. It looks more like worrying about 2021 and 2022 is in order.

Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group