Recovery May Hike Interest Rates: NCUA
While loan demand at credit unions has improved, the economic recovery could result in rising interest rates posing problems for some credit unions, according to NCUA Chief Economist John Worth.
“The improving economy brings with it lots of positives for credit unions but, at the same time, a sustained pickup in the general economy brings the potential for interest rates to rise,” Worth said in an economic video update released Wednesday by the NCUA.
“As we’ve discussed in the past, we’re concerned that a number of credit unions may not be well-positioned to navigate a rising rate environment,” he added.
The Fed has forecast that short-term interest rates would begin rising at some point in 2015 if the economy continues to grow.
"Economic activity is rebounding in the current quarter and will continue to expand at a moderate pace thereafter," Federal Reserve Chairwoman Janet Yellen said in June.
Worth said the current 6.1% unemployment rate shows only one dimension of the improving labor market.
“The average monthly gain in non-farm payroll jobs has picked up sharply this year. In the second quarter, job gains average 272,000 – the best performance since the first quarter of 2012 and unlike 2012, the gains have been more consistent this year,” he said.
“Like a failing unemployment rate, rising jobs numbers are likely to boost key credit union performance indicators like deposit growth and loan demand,” Worth added.
In the first quarter of this year, consumer credit outstanding at credit unions outperformed lending at other financial institutions while new car loans increased 14%.