WASHINGTON — The Federal Open Market Committee slashed the federal funds rate by 75 basis points on Jan. 22 well ahead of its scheduled meeting at month's end, making good on Chairman Ben Bernanke's promise to take swift action to defend against recession. Taking the funds rate to 3.5% is a "huge decrease," said NAFCU's chief economist Dr. Tun E. Wai. The Fed's Board of Governors also decreased the discount rate by 75 basis points to 4%.

The Fed cited the "increasing downside risks to growth" and deterioration in broader financial market conditions coupled with indications of "a deepening of the housing contraction as well as some softening in labor markets," for the cuts.

CUNA's Chief Economist Bill Hampel told Credit Union Times that the cuts may encourage credit unions to lower rates on home equity lines of credit as they are tied to the prime. Money market accounts may also be affected because the cost of funds will be lower. But the greatest effect will be on CU savings growth, which Hampel said would likely pick up, even as loan growth will go down. "We're probably in a recession now, and consequently credit unions will become collateral damage due to the subprime meltdown," he said.