In the last few FOMC meetings, the Federal Reserve has emphasized it will only act according with economic data. The same data that the Federal Reserve utilizes to make data-driven decisions are available to every credit union.
"When my colleagues and I meet, we will assess all of the available data and their implications for the economic outlook in making our policy decision." –Janet Yellen
Behind every decision there is a driver. Every choice we make is based on past experiences and the knowledge we have about the world around us. Arguably the world’s most powerful institution, the Federal Reserve (the Fed), understands this data-driven thinking very well. It makes critical decisions that shape the global economy. Decisions this important cannot be made based on someone’s opinion. Janet Yellen, chairwoman of the Fed knows that decisions must be backed up by data from as many sources as possible. Strategically integrated data provides the Fed with a platform to make decisions that direct the United States economy.
Managing the monetary policy for the largest economy in the world is no easy undertaking. The Fed is tasked with three, often conflicting, objectives: maximizing employment, stabilizing prices, and moderating long-term interest rates. In order to do this, the Fed needs data from many different sources. Utilizing big data, the Fed is able to collect data from different sources in the United States and throughout the world. Information on consumer spending, housing, energy prices, and many other economic indicators drive the Fed to utilize big data when developing strategies for monetary policy.
Bringing all these different data sources into one location is difficult. The Fed needs to develop an analytic data model (ADM) to make sense of all the data and its interconnected relationships. Since economic factors are interlinked, the task of designing the data model to replicate the United States economy is essential. Data models should be built to replicate the real world. As data sources continue to become less structured (i.e. - Twitter and Facebook), data integration will become even more challenging. Setting up a standard data model to be used across the country is required for the Fed to develop advanced analytics.
Acting on Analytics
Gathering data into one location is only half the battle. Once the data is integrated into an ADM, the Fed must build analytic tools to make sense of it. Interpreting the data through advanced analytics and economic knowledge is where the value of data is evident. Developing predictive and prescriptive analytics gives the Fed power to make wise decisions. With a well-defined ADM and the analytics tools in place, the Fed is able to predict future economic changes.
Credit Union Lesson
Credit unions can learn from the Fed’s data driven philosophy. Big data infrastructure and analytics tools are available and are becoming cheaper by the day. The leaders of tomorrow will be the people who are able to think analytically about their data today. Credit unions sit on a treasure trove of data within and have the tools to gather data from many different data sources just like the Fed. As the credit union movement continues to sharpen its analytics capabilities, lessons will be readily available to share across the industry. Fostering an ecosystem of credit union collaboration will be essential. With a collaborative spirit and advanced analytics, credit unions can create a competitive advantage over the big banks and other Fintech companies that are vying for the attention of members daily.
More importantly, credit unions know their members better than the Fed is able to know every American. With the deep knowledge of members’ lives, credit unions can take action in anticipation of Fed policy changes. Predictive analytics will allow credit unions to be one step ahead of monetary policy changes and will allow their decisions to become proactive instead of reactive. Members will benefit from a credit union that is able to navigate an uncertain economic terrain using big data and analytics to provide the best products.