By Ray Birch
PLANO, Texas—The federal government’s sweeping reductions in force (RIFs)—the largest mass terminations in modern U.S. history—are beginning to ripple through the broader economy, with potential consequences for household finances, consumer spending, and credit union balance sheets, says one economist.
While experts expect only a temporary uptick in unemployment, the sudden loss of thousands of government paychecks could tighten deposits, slow loan demand, and heighten liquidity pressures across the credit union system, said Brian Turner, president and chief economist at Meridian Economics.
At the same time, Turner noted that reduced federal spending could ease inflation and interest rates over the longer term—offering eventual relief on funding costs even as credit unions brace for near-term strain from members living paycheck to paycheck.
“Congress has previously tried to protect federal workers against general reduction in jobs, particularly when President Biden tried through Executive Order to keep his appointed agency hirings in place after his tenure ended,” commented Turner. “This attempted to increase and solidify the size of government payrolls along political lines before the new Trump Administration started and his campaign’s promise of downsizing the federal government.”
Turner reminded that there is a basic difference between RIFs and layoffs.
“Under Title 5 of the U.S. Code, the government is permitted to eliminate positions outright during budget crises, but workers are still eligible for unemployment and severance. Layoffs are considered temporary furloughs that retain workers but are unpaid and not eligible for severance or unemployment,” Turner noted.
Turner told CUToday.info that it appears that Democrats are playing right into President Trump’s hand of permanently downsizing the size of federal government.
“Something that is generally supported by the American taxpayer, especially given the waste and repetition of the workforce that has already been revealed,” he said. “So, there’s the issue of workers quickly becoming part of the unemployed versus those who are quickly swept up by the current 7.2 million job openings in the country with nearly 80% of those good paying openings that might easily be absorbed by the RIFs.
“Therefore, I anticipate a temporary increase in underlying unemployment and, with lower government spending, a slight dilution of GDP,” continued Turner. “But the result will be lower interest rates and lower inflation in the longer term. Interestingly, most institutions that downsized experienced higher growth in the year following a consolidation or merger than they did beforehand. Therefore, I expect a more streamlined and efficient payroll will provide economic benefits.”
Turner said he does not anticipate much impact on current credit union performance, activity or risk profiles currently in place.
Downward, Moderate Pressure
Brian Turner
“Consumer rates will continue to have downward, yet moderate, pressure as demand vacillates through the economic cycle and mortgage rates continue to be volatile as the economy struggles with market rates, inventory of homes and affordability—especially first-time buyers,” Turner explained.
CUs will continue to see pressure on core deposits—checking and savings—as more members continue to live a paycheck-to-paycheck experience due to relatively high prices, Turner stated.
“Loan demand will continue to falter up to next spring, after which it will rebound,” Turner said. “Credit mitigation and liquidity management will continue to be credit unions’ principle focus as loan delinquency continues to rise—during a time when core deposit outflow might exceed loan origination in such a way that could possibly put negative pressure on liquidity.
“So, credit unions should not be as concerned about loan growth through the end of 2025 as much as managing their credit mitigation and protecting their liquidity profiles—both to be in a prudent position to accommodate strong demand (especially A- to A+ quality applications) in the spring,” he said.