As expected, the Federal Reserve increased interest rates Wednesday—a move that signals confidence in the economy and it won’t hurt credit unions, economists said.
“The Fed’s go-slow approach means credit unions can expect the economic environment to be broadly supportive of more member engagement and of generally favorable operating results,” said Mike Schenk, CUNA’s vice president of economics and statistics.
That doesn’t mean that credit unions won’t take a hit because of the Fed decision. “More credit unions are apt to feel the pinch of higher market interest rates, but CUNA economists see healthy membership growth, solid loan growth, higher asset quality, and generally favorable earnings results in the coming months,” he said.
Schenk said that the Fed’s statement suggests one more quarter-point increase in 2017 and three quarter-point moves in 2018.
NAFCU’s chief economist, Curt Long said the Fed’s decision to reduce its balance sheet is a good sign.
“The actions taken by the Fed reflect confidence in the labor market and a perception that global risks have declined in the first six months of the year,” he said. “Nevertheless, the outlook for the second half is uncertain.”
“Inflation has slowed recently and the debt ceiling debate poses political risk,” he added.
Credit unions are likely to continue to see moderate growth, said Brian Turner, president of Meridian Economics, a Plano, Texas-based firm. He said that while loan demand is growing at 7.1%, most of that growth is occurring at credit unions with more than $500 million in assets.
“So, the industry continues to be in a moderate growth stance – despite all the celebration on how strong the industry stats appear to be,” Turner said. “This will continue to proceed for the rest of this year but gather more steam during the second half of 2017 and first part of 2018.”
