The Federal Reserve's decision not to raise interest rates this week should not cause indigestion for credit unions, according to economists.
"The committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives," the statement from the Fed said.
"Although the Fed did not move this time, an increase in the fed funds target rate would have been consistent with an economy approaching full employment with moderately rising inflation," Bill Hampel, CUNA chief policy officer said.
A rate increase by the end of the year is likely, Hampel said. That will be followed by additional increases in 2017, he believed.
"Higher short-term interest rates will provide welcome relief to savers, and should present no problems for credit unions," he said.
"The announcement pretty much paves the way for at least a 25 basis point hike at their December meeting," said Brian Turner, president of Meridian Economics, a Plano, Texas firm. He said that even then, the challenge will be how the Fed can increase short-term interest rates without upsetting consumer spending, which already is relatively weak and unsteady.
Credit unions should continue to protect their risk exposure by limiting their loan originations below the B+ quality, Turner added.
"It's better to take a little less current yield from stronger credit quality than risking what could be significant loss exposure from default should the economy take a downward turn in 2017, he said.
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