Top-Level Takeaways

• It has been a noisy year for financial markets and the economy, but performance across several metrics has proven resilient.
• There is little consensus on the future path of the economy among Fed leaders and Wall Street economists.
• Credit union and bank profitability remained solid in 2025 amid widening interest margins and stable credit performance

A word we have used often to characterize financial markets and the economy in 2025 has been “noisy.”

A simple, yet technical definition of noisy is “accompanied by or introducing random fluctuations that obscure the real signal or data.” In this context, the real signal or data could be economic growth, the unemployment rate, performance in equity and fixed income markets, or the financial performance of banks and credit unions. The obscurities could be tariffs, threats to Fed independence, geopolitical tensions, and the longest government shutdown in U.S. history. To be clear, each of these could prove to have true economic costs rather than being merely distractions. However, thus far, the bark has been greater than the bite.

Although ample sources of economic uncertainty and worry persist, the same could be said for economic opportunity. As such, there is a wide dispersion of potential outcomes forecasted by Wall Street economists and Fed leaders alike.

The latter has been a heightened area of focus for financial markets in recent months as they try to assess whether the FOMC might be pivoting to a less dovish, or more hawkish, policy path. The minutes of the October 29 FOMC meeting and recent speeches by various Fed leaders suggest a growing contingent more worried about lingering inflation risk. However, as of Monday, the fed funds futures market showed a 100% probability of a December cut and nearly 100 basis points of rate cuts over the next year.

If the labor market proves to be on firmer footing than what the FOMC doves seem to believe, this scenario presents upside risks to bond market yields. However, if business investment remains subdued and unemployment rises, the Fed is more likely to continue lowering the policy rate, as is currently priced by fixed income markets. As always, interest rate directionality scenarios are relative to what is already accounted for in current yields across the curve.

Visit ALM First to read more about the latest economic data and overall monthly market trends.

Jason Haley joined ALM First in 2008 and is the firm’s chief investment officer. He heads ALM First’s Investment Management Group (IMG), which is responsible for leading the investment process and investment theme development. Haley also oversees all capital markets activities, including portfolio management, trading, market research and commentary, and execution of hedging and funding strategies for the firm’s depository clients. He holds an MBA with a concentration in finance and a BBA with a concentration in marketing, both from The University of Mississippi.

Not an offer for investment advisory services. This content is provided for general educational information and market commentary purposes only.

The post It’s Been A Noisy, Yet Resilient Year For The U.S. Economy appeared first on CreditUnions.com.

Top-Level Takeaways

• The Fed executed a 25-basis-point rate cut on Oct. 29, but forward guidance was less clear.
• Fed releases and public speeches highlight a sharp divide between FOMC hawks and doves regarding inflation and labor market risks.
• Headlines have brought pockets of credit markets into focus, including increased lending by commercial banks to non-bank financial institutions.

The FOMC moved forward with another 25-basis-point rate cut on Oct. 29. That cut was expected, but the forward outlook is a bit murkier.

Heading into the meeting, the fed funds futures market was pricing 100% probability of a December rate cut, followed by another 100 basis points of cuts in 2026. In a speech before the annual National Association for Business Economics (NABE) conference on Oct. 14, Jerome Powell had an opportunity to push back on market pricing, but the chair of the Federal Reserve instead focused on the role and size of the Fed’s balance sheet.

Powell then struck a notably different tone at the press conference following the Oct. 29 FOMC meeting.

“In the committee’s discussions at this meeting, there were strongly differing views about how to proceed in December,” Powell said in his opening remarks. “A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it.”

The updated Summary of Economic Projections (SEP) released following the Sept. 17 FOMC meeting revealed a wide range of opinions on where the federal funds rate would end 2025, as well as the long-run neutral rate. In the speeches that followed that meeting, more dovish Fed leaders expressed concern that recent labor market softening was a harbinger for weaker GDP and reduced inflation in the months ahead. On the other hand, Fed hawks characterized the September cut — and the likely cut on Oct. 29 — as insurance against further weakness in the labor market. At the same time, they expressed hesitancy about doing much more policy easing amid ongoing inflation uncertainty.

This debate was clearly alive and well during the Oct. 29 meeting, which Powell even suggested should be clearer when the minutes are released. During the press conference, Powell said he believes most of the slowdown in hiring is more attributable to supply-side factors (labor participation and immigration) as opposed to the demand side of the equation (business investment). Fed policy typically has less impact on labor supply and more on labor demand. This is likely a critical factor in the current outlook of Fed hawks.

Visit ALM First to read more about the latest economic data and overall monthly market trends.

Jason Haley joined ALM First in 2008 and is the firm’s chief investment officer. He heads ALM First’s Investment Management Group (IMG), which is responsible for leading the investment process and investment theme development. Haley also oversees all capital markets activities, including portfolio management, trading, market research and commentary, and execution of hedging and funding strategies for the firm’s depository clients. He holds an MBA with a concentration in finance and a BBA with a concentration in marketing, both from The University of Mississippi.

Not an offer for investment advisory services. This content is provided for general educational information and market commentary purposes only.

The post Forward Guidance Less Clear After October Rate Cut appeared first on CreditUnions.com.

A first-of-its-kind collaboration could signal a new avenue for liquidity for mid-sized institutions.

Alloya Corporate Federal Credit Union announced the settlement of its first multi-issuer auto loan asset-backed securitization (ABS) in July, pooling together auto loans originated by three of its member credit unions: Blaze Credit Union, Consumers Credit Union, and Interra Credit Union.

Although selling loans is a well-established financing tool in the credit union industry, packaging loans from separate institutions into a single deal is not. According to Alloya’s chief investment officer, Andy Kohl, it was the bundle’s diversity — three credit unions across three states provided a wide spread — that attracted investors.

“Every tranche was oversubscribed, some seven times over,” he says. “The demand was strong.”

A Hunt For Creative Solutions

The approach required the four institutions — all with their own underwriting, lending, and operational teams — to work closely together for a little more than a year; after which, the corporate credit union sold $150 million in bonds to 16 investors.

Kohl says the idea for a multi-issuer ABS sprang from an effort to identify alternative liquidity solutions post-pandemic.

“During COVID, all that stimulus money flowed in and then out again very rapidly,” he says. “Historically, credit unions needing liquidity could turn to other credit unions that had it, but in that situation, fewer credit unions had liquidity available, and the whole system felt the strain.”

Securitization opens access to investors outside of the credit union ecosystem, such as insurance companies, pension funds, and investment firms. However, it can be expensive and complex, making it unrealistic for smaller financial institutions. Alloya hoped a multi-issuer approach would help circumvent that challenge.

Talks began internally in early 2024. Ryan McCarroll, Alloya’s vice president of Capital Markets, led the charge and formalized the initiative in June.

“None of us knew exactly what this would require,” McCarroll says. “We had to learn a lot on the fly, which meant urgent requests, lots of asks, and figuring things out as we went.”

According to McCarroll, working with the right people was an essential component of success.

“We needed partners willing to ‘build the airplane while flying it,’ and this group stepped up,” he says.

Kohl echoes that sentiment.

“The three credit unions we partnered with couldn’t have been better,” the CIO says. “They were motivated by service to the system, not immediate need. That was key.”

Cooperation Over Competition

You wouldn’t see something like this in the banking world. For us, it was about supporting the broader system.

Blaze Credit Union ($4.4B, Falcon Heights, MN saw the opportunity as a way to give something back to the industry.

“Ten or 15 years ago, we needed our leagues and corporate credit unions to step up for us, and they did,” says Justin Burlseon, the credit union’s senior vice president and chief operating and financial officer. “Now that we’re larger, we see it as our duty to do the same for others. You wouldn’t see something like this in the banking world. For us, it was about supporting the broader system.”

Similarly, Jim Henning, chief financial officer at Interra Credit Union ($1.9B, Goshen, IN), says the collaboration was a way to access capital markets that had historically been closed to the Indiana cooperative.

“Being part of building that pathway was important, regardless of immediate need,” he says.

Regardless of individual reasons, all three credit unions — Blaze, Interra, and Consumers — say buy-in was unanimous.

“Our CEO [Amy Sink] had been behind a strategy like this for years,” Henning says. “So internally and with the board, it was an easy sell.”

At Consumers Credit Union ($4.2B, Lake Forest, IL), chief financial officer Sean Bowers says prior experience selling loans individually put his institution’s board at ease with the strategy. Plus, it required no extra hurdles when it came to staffing.

“We actually budgeted for this in 2025 and brought it to the finance committee,” Bowers says.

The collaboration served as a valuable learning experience for all parties involved. According to Bowers, it challenged his team to learn more about the credit union’s own data and loan portfolio.

“We had to dig into disclosures and requirements and really analyze things differently,” he says. “Being part of this deal gave us new insights into how our portfolio is structured and how to think about future pricing strategies.”

Consumers broke down its pricing by credit grade and shared those results internally to see how it could better align pricing with member value while staying relevant to the market. Over at Blaze, Burleson says the deal motivated his staff members to realize they can do more than previously thought.

“Without being pushed, we might not have taken on a deal like this,” he says. “But the team rose to the challenge.”

At Interra, Henning says joining forces with two other credit unions was motivating.

“It wasn’t just about us at Interra succeeding or failing,” he says. “If we didn’t deliver, the others would feel it too. That accountability pushed us forward.”

Blazing The Trail For Future Deals

Greg Hill is a strategic initiatives consultant at Alloya. Looking back at the effort from start to finish, he says what stood out to him most was how open everyone’s teams were.

“Every part of the process was a lesson learned,” he says. “None of us had done this before, so everything from legal to ratings agencies to structuring was new. No one was rigid about how things had to be done. That openness let us build a template that not only worked for this deal but also will help future ones.”

Burleson called the process an example of the industry’s cooperative principles in action.

“Philosophically, this is proof of the credit union difference. We sometimes get flack for our tax status, but this is why we’re structured differently,” he says.

“I’ll second that word for word. Underline it, bold it, italicize it,” Henning says.

According to Hill, now that Alloya has a playbook, the goal is to bring in more credit unions and complete more deals.

“The $150 million was a proof of concept,” he explains. “We wanted to test the structure, the ongoing management, and the investor appetite. This opens the door for somewhat smaller organizations to participate by partnering together.”

Henning calls the strategy a huge increase in access.

“Before this, maybe 100 credit unions could realistically access the secondary markets through this type of model,” he says. “With what Alloya built, that number could expand to 1,000.”

Consumers’ CFO encourages other credit unions to get involved.

“This isn’t a one-and-done,” Bowers says. “There will be future deals, and the more participants, the stronger the program becomes. Even if you don’t need liquidity today, it’s another tool in the toolbox.”

The post Midwestern Credit Unions Break New Ground With Auto Loans appeared first on CreditUnions.com.

How Does Your Asset Quality Compare? Book a free 1:1 session to benchmark your credit union against two to three peer groups of your choice. You’ll receive a detailed report with key insights to guide your team’s decision-making. With Callahan, it’s never been easier to leverage industry data to assess credit union performance, uncover new opportunities, and strengthen your strategic initiatives. Book now.

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Top-Level Takeaways

• Financial markets responded well to reduced trade fears in May, including a partial reduction/pause in Chinese tariffs.
• Credit sectors exposed to lower income/wealth households have experienced higher delinquencies in the past year, and an increase in unemployment would likely exacerbate the trend.
• President Trump reopened the door to GSE privatization on May 21, but it’s not an easy path to success.

Financial markets bounced back in May, particularly riskier assets. The S&P 500 returned 6.3%, the biggest monthly return since November 2023, and fixed income credit also performed well, particularly on a hedged basis amid the rise in benchmark yields. For corporate credit, both investment grade (+1.19%) and high yield (+2.16%) markets also posted the biggest monthly excess returns in 18 months according to ICE BofA indices. However, there is still ground to make up for the cumulative negative returns of the prior three months.

Tariff anxiety was lessened on multiple fronts. First, on May 12 the White House announced a significant reduction in Chinese tariffs for a 90-day period, which reinforced the idea of a “Trump put” for market participants, as discussed briefly in last month’s commentary. This idea was brought to the mainstream near the end of the month when a Financial Times columnist coined the phrase TACO — “Trump always chickens out” — to describe an emerging strategy on Wall Street to deal with policy noise from the White House. Nevertheless, trade fears and market volatility are likely to remain elevated for the foreseeable future as policy announcements remain less predictable.

Visit ALM First to read more about the latest economic data and monthly market trends.

Jason Haley joined ALM First in 2008 and is the firm’s chief investment officer. He heads ALM First’s Investment Management Group (IMG), which is responsible for leading the investment process and investment theme development. Haley also oversees all capital markets activities, including portfolio management, trading, market research and commentary, and execution of hedging and funding strategies for the firm’s depository clients. He holds an MBA with a concentration in finance and a BBA with a concentration in marketing, both from The University of Mississippi.

Not an offer for investment advisory services. This content is provided for general educational information and market commentary purposes only.

The post Markets Responded Well To Reduced Trade Fears In May appeared first on CreditUnions.com.

Credit union and financial institution leaders face a growing list of challenges. With liquidity at a premium, commercial real estate under stress, and shifting credit risks, traditional asset strategies are being re-evaluated, prompting a rethink of where and how capital is deployed.

The typical investment mix of long-term loans and securities may turn out to yield lackluster results. But there might be another option: consumer credit.

Consumer credit is a viable but often overlooked way to balance long-duration, low-yield portfolios. Personal loans offer short terms, high yields, and solid returns. Institutions can originate loans or invest through fintechs, often opting for fintechs to avoid building new infrastructure.

Understanding Personal Loans As An Asset Class

Consumer lending is a $27 trillion and growing market, generally split into property-backed residential mortgages and non-property-backed consumer loans. As an asset class, it gives investors exposure to a range of consumer credit — from mortgages and personal loans to emerging products like buy now, pay later. This growth has been driven by changing consumer behavior and advances in technology.

4 Key Benefits Of Personal Loans

When financial institutions choose to invest in consumer lending, and more specifically, the sub-asset class of unsecured personal loans, they can benefit from the following:

1. Quality Borrowers

Personal loan borrowers are often individuals in their mid-30s to mid-50s with solid credit histories, higher incomes, and a focus on improving their financial future, typically by consolidating high-interest credit card debt.

By consolidating debt with a personal loan, borrowers gain one payment, fixed terms, and fixed rates. Many see their credit scores rise. LendingClub Bank members average a 48-point increase.

2. Solid Returns

Personal loans often have shorter durations (typically 24 to 72 months) compared to longer-dated assets like mortgages. They also offer higher yields (around 6%–8%) with a steady income stream from borrower repayments.

Delinquency rates for personal loans are low and trending downward. In Q1 2025, TransUnion reported the 60+ days past due rate dropped to 3.49%, down from 3.75% the year prior.

3. Portfolio Diversification

With their relatively high yields and short durations, personal loans offer a way to diversify investment portfolios. Long-duration, lower-yielding assets will likely remain part of the mix, but adding shorter-duration assets can help balance it out.

4. A Growing Asset Class

Personal loans continue to grow. TransUnion reports a 26% year-over-year uptick in personal loan originations – four consecutive quarters of growth, signaling strong consumer demand.

Currently, 24.6 million U.S. consumers have an unsecured personal loan, with total balances reaching $253 billion, per TransUnion.

A Strong Choice In Uncertain Times

In today’s climate, the regulatory and macroeconomic landscape remains uncertain. During such times, short-duration investments can offer compelling returns with reduced exposure to long-term volatility.

When investing in personal loans, investors can choose from a range of structures with different risk and return profiles. For example, LendingClub Bank offers flexibility to purchase loans on a passive or active basis, in bulk or individually, as whole loans or in security format.

Before investing, institutions should determine their objectives and risk-return preferences. They should also choose a provider with deep experience and a proven track record.

With monetary policy tightening, commercial real estate stress, and deposit volatility putting pressure on balance sheets, financial institutions should consider new options.

Personal loans stand out as a resilient, high-yielding, and diversified asset class. Well-suited to today’s rapidly changing environment.

DISCLAIMER: The information included in this article is historical, may include simulated or hypothetical scenarios, is for illustrative purposes only, and should not be relied on as an indicator of future results or utilized as the basis from which to make any investment decision. Investments are not deposits insured by the FDIC, may lose value over time and no return is guaranteed. This article is not intended to provide, and should not be relied

The post Banking On Consumer Credit: A Smart Move In Today’s Uncertain Times appeared first on CreditUnions.com.

Consumers are rattled, to say the least.

The White House has taken steps in the past four months to shrink the federal government by reducing the number of government employees. Many large private sector firms are also shrinking their workforce, with layoff announcements totaling nearly half a million in the first three months of the year. At the same time, the administration has announced a range of tariffs that are likely to raise prices for consumers on everything from groceries to cars, electronics, and more. Meanwhile, the Federal Reserve’s future moves remain unclear, consumer sentiment is down, and economic anxiety is rising as a result of widespread layoffs and economic uncertainty.

Given all of this, the response of credit union finance leaders runs the gamut from seeing how things develop to scrambling to adjust their balance sheets.

“My gut says we’re in for a rocky road,” says Leanne McGuinness, CFO at The Summit Federal Credit Union ($1.4B, Rochester, NY). “Not like 2008-2010; I don’t think we have a fundamental underlying mess in our balance sheet. I think the combination of inflation and a possible recession at the same time could hurt the economy to the point where I’m not sure what we could do to get out of that easily.”

Save Or Spend?

Despite some general uneasiness, deposits are a bright spot. Some credit unions have increased their deposit outlook — The Summit raised its projection from 7% growth to 8% — and others have pulled back from deposit promotions. Uncertainty around the job market has also resulted in a flight to safety, and some CFOs say members are bringing in a larger-than-usual influx of deposits. The bigger question is how long those funds will stick around.

“Locally the demand for deposits is pretty high, especially on the community bank side,” says Seth Rudd, CFO at Leaders Credit Union ($1.1B, Jackson, TN). “We’d love to take this opportunity to pick up some market share and pick up deposits, but in our market deposit prices remain pretty high.”

For Rudd, the deciding factor is about the credit union’s mission.

“You’re running your balance sheet, but you’re also serving your membership,” he says. “They still need that car loan. They still need lending. For you to pull out because of economic uncertainty, you might want to think about what your mission truly is.”

So far, that hasn’t been an issue at Leaders. A high-yield savings account introduced a few years ago continues to attract new business, and many members are moving maturing CDs into that account. The credit union also is hitting its goals for new checking accounts, although Rudd says those balances are increasing at a slower pace than before.

“It does seem like people are keeping less in their checking account,” he says. “That begs the question: Are they moving it into high-yield savings, which we did see, or are they spending it? I think a lot of it is moving into the high-yield savings.”

That thesis is backed up by the fact that Leaders hasn’t seen a shift in spending patterns related to where members shop or dine.

The Lending Landscape

I think there are more than a couple of credit unions looking at what a bank charter might look like if forced to go that way.

Meanwhile, McGuinness at The Summit has already revamped her 2025 budget forecast, which she put together last fall when the economic mindset was more optimistic.

“I’m not feeling like loan growth is going to meet my original projections,” she says. “I redid the budget in the first quarter to look at a couple of scenarios — we did stress testing around what happens at various low-growth levels and loan loss levels. You can’t get blood from a stone.”

McGuinness and many other finance leaders say auto lending presented a small but unexpected boom during the first quarter, but the general consensus is that’s the result of consumers trying to buy before tariffs impact auto prices and isn’t likely to continue.

Some CFOs suggested rising car prices could also be a blessing in disguise if the economy goes south.

“We’re watching the price of [new and used] autos,” says Toni Davisson, CFO at Spero Financial Federal Credit Union ($702.1M, Greenville, SC). “If we have to do a repossession and sell at auction, what kind of values are we going to get?”

Although some credit unions have tightened their underwriting slightly, most haven’t taken that step yet. Some are even expanding their lending to reach consumers with weaker credit. Regardless, shops also are shifting pricing, particularly around deals with higher loan-to-value ratios, to compensate for changes in the market.

“We’re trying to get ahead if auto values go up — if tariffs stick and get passed on to the consumer,” says Dan Leclerc, CFO at Ent Credit Union ($9.8B, Colorado Springs, CO). “We’re still funding, but if it’s a higher LTV, we’re charging a higher rate to make up for it.”

Elsewhere in the loan portfolio, the approach to housing largely isn’t changing, in part because the situation hasn’t changed. There’s still a shortage of available, affordable housing, and high prices and interest rates are locking many buyers out — particularly younger ones. But the overall housing picture remains top of mind for many.

“We’re watching local unemployment and real estate market trends,” says Simeon Tabakov, CFO at MyPoint Credit Union ($650.9M, San Diego, CA). “That can translate into consumer confidence or decreased spending, depending on which way it goes. If people feel confident, they spend money. The opposite is true, too.”

Whichever way it goes, credit unions are preparing. Although first quarter loan loss reserves overall held relatively steady compared to the previous quarter, they’re up 6.4% compared to the first quarter of 2024.

Tax Status And Regulatory Guidance

The constantly shifting economic news has made it difficult for many finance leaders to plan. EFCU Financial ($1.4B, Baton Rouge, LA) has modeled a variety of scenarios — from recessions to terrorist attacks and everything in between — but has yet to change its current plans.

“I was always taught to invest in good times and bad, but we’re here ultimately to serve the members,” says Tom Kuslikis, a former CFO and current CEO at EFCU Financial ($1.4B, Baton Rouge, LA). “We’re not going to scale back that investment. It’s critical for our long-term success.”

Delinquency and charge-off rates continue to be key indicators of trouble, but unemployment trends are also top of mind. Many of these credit union leaders say layoffs have not yet impacted their fields of membership, but local reductions in force could have a domino effect as layoffs would likely increase delinquencies, slow lending, hurt liquidity, and more.

Ent has raised its loss reserves, but Leclerc says that’s partly a function of CECL, which didn’t take effect until two years ago.

“We didn’t have CECL pre-2023, so it’s interesting to go back and do that testing,” he says. “We’re still learning, and we feel we have a much better grasp on it, but we realize how much economic forecasting plays a role in our reserves compared to what it used to.”

Regulation — and its impact on the balance sheet — remains a top-level concern. Nearly every credit union leader interviewed for this story cited worries about the future of the credit union tax status and NCUA board.

“I would rather have a little more direction and certainty from a regulatory standpoint than be whipsawed between two different administrations,” Kuslikis says.

Ongoing uncertainty on that front could alter the entire industry landscape — especially if some of the balance sheet advantages that come with being a credit union are chipped away.

“I think there are more than a couple of credit unions looking at what a bank charter might look like if forced to go that way,” says Mike Sacher, a credit union consultant and former CFO.

Here We Go Again

If you randomly selected a date from 2013 to 2025, you would probably find something to be worried about from an economic perspective. This is unusual because political forces are causing a lot of the concern, but that’s part of being in banking. It’s a natural part of trying to manage the balance sheet.

If there’s a silver lining, it’s that most finance leaders in the industry have been through this kind of thing before.

Although there hasn’t been a long-running recession in more than 15 years, an economic downturn and two-month recession brought on by the pandemic, widespread work stoppages due to shelter-in-place directives, rampant inflation, political turmoil, and more have occurred in the past five years.

“If you randomly selected a date from 2013 to 2025, you would probably find something to be worried about from an economic perspective,” says Rudd at Leaders. “This is unusual because political forces are causing a lot of the concern, but that’s part of being in banking. It’s a natural part of trying to manage the balance sheet.”

Industry leaders are confident they can handle whatever comes their way. The key, many say, is to remain focused on long-term goals and on the credit union mission of serving the underserved.

“We got through the Great Recession and the world recovered,” Sacher says. “There were lots of areas where you needed to defend yourself and strengthen internal and financial controls. We look back at that crisis and say, ‘Wow, the opportunities were unbelievable, will we ever have those opportunities again?’ I suspect we’ll look back in a couple of years and have those same kind of conclusions for what’s happening today.”

Equip Your Leaders With Data-Driven Insights To Navigate Uncertainty. Join a Callahan advisor for a complimentary 1:1 session to analyze your performance reports. We’ll benchmark your credit union against two to three peer groups of your choice and provide a detailed report of our findings at the end of the session to help your team make informed strategic decisions. Request your free session today.

The post ‘Rocky Road’ Ahead? Credit Union CFOs Tweak The Balance Sheet Just In Case. appeared first on CreditUnions.com.

TAKEAWAYS:

• We discussed the different types of scenarios such as baseline scenarios, stress scenarios, and growth scenarios. This discussion included the data and assumptions in each model.
• What type of factors can we run scenario analysis on? In this session we looked at interest rate scenarios, credit risk scenarios, and liquidity scenarios.
• Lastly, we looked at regulatory considerations and best practices surrounding Model validations, documentation, and enterprise risk management integration.

Access the slides here: Link

Produced and sponsored by:

The post Break it Down: Effective Scenario Analysis in a Dynamic Interest Rate Environment appeared first on CreditUnions.com.

How can credit union leaders create meaningful financial wellness solutions for their members in a changing economy? Learn from this year’s top innovators, including Changed, Starlight, Silvur and Debbie.

• Introduction – 0:00
• Changed – 1:53
• Debbie – 11:48
• Silvur – 22:09
• Starlight – 33:21

The post Innovation Series: Financial Wellness appeared first on CreditUnions.com.

Understanding these factors — along with employment trends and the housing market — will be essential for credit unions to navigate the upcoming year and strategically position themselves for success.

Fed Funds Rate

In the third quarter, the Federal Reserve lowered its benchmark interest rate from 5.25% to 4.75%. It did so again in the fourth quarter to 4.50%.

A further decline in interest rates in 2025 could push credit unions to price assets — such as loans and investments — lower than they have been while also lowering savings rates on term deposits. However, given the long-term nature of lending versus the shorter-term nature of a certificate, the net interest margin might at first move in the credit union’s favor.

Fed Funds Rate
FOR THE U.S. ECONOMY | DATA AS OF EARLY DECEMBER 2024
SOURCE: Board of Governors of the Federal Reserve System

Gross Domestic Product

Driven by consumer spending, which collectively makes up two-thirds of the nation’s economic activity, GDP has steadily grown since the pandemic-era recession. If the economy continues to grow at this rate, loan demand could increase in the coming year.

According to the Bureau of Economic Analysis, consumer spending contributed 2.37 percentage points to annual GDP growth, whereas capital expenditure provided 0.21 and the government provided 0.83. Net exports reduced growth by 0.57 percentage points.

Gross Domestic Product
FOR THE U.S. ECONOMY
SOURCE: Bureau of Economy Analysis

Consumer Sentiment

Consumer sentiment as measured by the University of Michigan remains relatively low. The baseline rate for the index is 100 but was 70.5 as of October 2024.

Residual impacts of inflation, high interest rates, and dissatisfaction with Washington have led consumers to feel generally uneasy about economic conditions. Although traditional indicators  such as GDP growth and unemployment are healthy, many Americans — credit union members included — are not optimistic.

Consumer Sentiment
FOR THE U.S. ECONOMY | DATA AS OF OCTOBER 2024
SOURCE: University of Michigan Surveys of Consumers

Inflation

Inflation is inching closer to historic norms; however, prices have not come back down and are unlikely to. Falling prices — or deflation — is an economic phenomenon that many economists consider even more detrimental than inflation.

Economists expect inflation to remain in the 2.5% range in the year ahead. That is lower than the elevated levels of the past few years but higher than the Federal Reserve target rate of 2.0%.

Inflation
FOR THE U.S. ECONOMY
SOURCE: U.S. Bureau of Labor Statistics

Unemployment

The unemployment rate ticked up to 4.2% in November. Many economists expect the economy to hover around this rate in 2025.

Economic growth, stable inflation, and steady payroll expansion continuing into the new year make it unlikely that unemployment will move higher. Meanwhile, the prime-age working rate, or the percentage of Americans between the ages 25 and 54 with a job, was a near-record-high of 80.4% in November.

Unemployment
FOR THE U.S. ECONOMY | DATA AS OF NOVEMBER 2024
SOURCE: U.S. Bureau of Labor Statistics

Home Building Starts

Home building slumped in 2014 after more than a decade of clawing back from the 2008 recession. Many home builders went out of business in the wake of that recession, which had ramifications across the broader economy. After all, home building creates jobs as well as inventory. When supply drops, it increases prices for would-be homeowners.

Increasing home builds has been a priority for federal, state, and local governments during the past few years. Striking the right balance presents significant consequences for the macroeconomy.

Home Building Starts
FOR THE U.S. ECONOMY
SOURCE: U.S. Department of Housing and Urban Development

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