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WASHINGTON – The Federal Open Market Committee raised its target for the federal funds rate 25 basis points to 5.25%, and indicated potentially more tightening on the way. “Recent indicators suggest that economic growth is moderating from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices,” the FOMC’s statement read. However, the portion of the committee’s statement that was particularly telling was: “Readings on core inflation have been elevated in recent months. Ongoing productivity gains have held down the rise in unit labor costs, and inflation expectations remain contained. However, the high levels of resource utilization and of the prices of energy and other commodities have the potential to sustain inflation pressures.” “They’re leaving the door open for more hikes as necessary,” NAFCU Senior Economist Jeff Taylor explained. Looking into the future, Taylor said he believes the FOMC will likely leave rates alone in August, but bump them up another 25 basis points in September. But for the first time in a long time there is “a wide swath of views” among economists as to where rates will be by year-end. Taylor said he has heard predictions up to 6% but he believes the Fed will probably leave things alone after September when he expects them to hit 5.5%. The economy grew at 5.6% in the first quarter, but it is expected to be around 3% over the next three quarters, “which is good. The economy can not sustain [high growth] without inflation,” he said. Taylor noted that long rates have gone up some in the last month, but, “If they increase rates again it will be totally flat if not completely invert.” To compensate, “[Credit unions] need to diversify as much as you can not only to keep your members happy but to not have all your eggs in one basket.” Taylor suggested. “If you take away non-interest income they’d really be hurting. Not all of them but a lot of them.” While mortgages and car loans are slowing credit unions need to look to other things; some are getting into business lending or working with credit union service organizations. [email protected]

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