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News Now

Market
While FOMC holds down rates, CU 'lending boom' will roll on
MADISON, Wis. (6/19/14)--In addition to thinning out its bond-purchasing program by another $10 billion, the Federal Open Market Committee (FOMC) also announced Wednesday it will continue to hold the federal funds rate at near-zero levels.

Further, once the stimulus purchasing program sunsets later this year, the Federal Reserve's monetary policy-making body said it likely will continue to pin interest rates down until the economy strengthens.

For credit unions, the ongoing low-interest rate environment should boost their bottom lines, according to Steve Rick, Credit Union National Association (CUNA) senior economist.

The FOMC's "dot-plot indicates the target Fed funds interest rate is expected to be 1.25% by the end of 2015; 2.5% by the end of 2016; and 3.75% by the end of 2017," Rick told News Now, adding, "This will allow credit unions to roll over and re-price their assets at a similar pace to the re-pricing of their liabilities, limiting their interest rate exposure.

"CUNA expects interest rates in 2018 will 'normalize' at levels below previous plateaus due to lower real interest rates and lower expected inflation."

Rick added that the low interest rates expected for the remainder of this year will "keep the lending boom rolling along" for credit unions.

Credit union loan balances are rising at a seasonally adjusted 10% annual rate, Rick said, which is the fastest it's climbed since the summer of 2005.

Strong job creation, improved consumer balance sheets, rising consumer confidence, faster membership growth, competitive loan pricing and post-great-recession pent up demand for durable goods are a few of the factors driving the recent surge in credit union lending, CUNA's senior economist added.

"Credit union lending appears to be firing on all cylinders as some loan categories that were previously declining are now posting positive growth rates," Rick said. "For example, home-equity loan balances declined over the last three years due to households paying down debt, debtors rolling their home equity loan balance into their first mortgage refinance and the reduction of available home equity as home prices fell. 

"But now home equity loan balances are rising at a seasonally adjusted annual rate of 8%.  Faster loan growth will have a positive effect on credit union earnings this year as asset yields head up, improving net interest margins and ultimately the bottom line, net income."


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