ARLINGTON, Va.—Uncertainty around when the Fed will raise rates—and more so around what it will do afterward—are signals to CUs to not base their pricing strategies moving forward on how rising rates were addressed following the last economic downturn.
That is advice from Curt Long, NAFCU’s chief economist and director of research, who cautions that CUs forging plans around rates steadily rising once they begin going up may be making a mistake.
Long first addressed how the Fed has not provided a great deal of clarity about its intentions for the next year and added there is a great deal of diversity of opinion among the Federal Open Market Committee.
“I think one thing we can take away from what the Fed has indicated is that when rates rise, it will be gradual,” said Long. “I think that is a good thing for credit unions.”
But if inflation begins to tick up significantly, or the economy hits some bumps, that could put a halt to rate hikes, said Long, who like other analysts predicts that the first rate increase will come near the end of the year.
Fed Decisions Based On Data
Long said one important message the Fed’s Open Market Committee has been delivering is that decisions made in the coming year or two will be based on data, as opposed to a plan.
“The last time we went through a rate normalization period, it was a very planned path of upward rate movement,” said Long. “The Fed said they won’t do that this time and what they do will be data dependent. If the situation does not call for another rate increase, they won’t do it.”
Curt Long, NAFCU
Consistent with what other sources have been telling CUToday.info, Long said a small number of credit unions are beginning to raise deposit rates in advance of the Fed’s move to protect and attract liquidity. He noted that what credit unions are doing with their rates is no different than what banks are doing.
Spread Remains Same
“We keep weekly rate data on the number of different savings and loan products for both banks and credit unions,” said Long. “Looking at the data, the spread credit unions maintain over banks in offering lower loan rates and higher deposit rates has been consistently the same. So, in aggregate, credit unions are lockstep with banks in how they are addressing rates.”
Long reiterated that credit unions need to prepare for an unpredictable rising-rate environment and toss away thinking they may be holding onto from the last rising-rate period.
“The last time rates rose the ascent was much steeper than this one is projected to be. It was a very consistent upward movement,” said Long. “This time credit unions must be prepared for a more gradual climb and one that is likely to be uneven or inconsistent.”