WASHINGTON — The Federal Reserve half-point cut in the federal funds rate yesterday to 3.0% from 3.5% will ease interest rates on consumer credit cards, home equity lines of credit and auto loans. The cut will help credit union earnings quite a bit, said, said Dwight Johnston, vice president of economic and market research for WesCorp in San Dimas, "as they are dominant in one-year bonds. This will help credit unions to be a better source of loans."
"The Fed knows this is the most effective weapon they have to enable financial institutions to earn their way out of things. Getting the yield curve as steep as possible–like they did in the early 90s, when it was flat–allows banks to recover," said Johnston.
Greg Wirthman, senior vice president and chief investment officer for Southeast Corporate in Tallahassee, Fla., predicted the half-point drop and said, "I think low mortgage rates will last for a while. I think we'll see lows near the record lows we had in 2003. The Fed will act aggressively to push the front end of the curve down. I think we'll end up with a Fed Funds rate of 2%-2.5%."
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Terrin Mendivil Griffiths, Economist and Industry Analyst for the California and Nevada CU League told Credit Union Times the size of the cut was no surprise, as the markets made their expectations clear, and concurred that the yield curve would likely end its flat line. "It's been static, and while it takes a while to see the effect, we will see a stepping up in the yield curve and when it does it will alleviate some margin stress and ROA pressure."
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