The Federal Reserve’s Wednesday decision to hold interest rates steady gives a strong signal to credit unions, CUNA Senior Economist Perc Pineda said. Pineda said that a strengthening economy means that a rate hike is on the horizon.
“The Fed’s decision today to keep the Fed funds rate unchanged has a strong signaling effect on credit union operations. One positive takeaway--as the Federal Open Market Committee (FOMC) acknowledged that the case for a rate hike has strengthened--is that U.S. economy continues to improve and the next rate hike is closer,” Pineda said. “CUNA economists’ view is one modest rate hike this year--in December. Credit union loan and savings growth will stay in the positive territory moving forward as the Fed continues to gradually raise rates higher than the current lows by historical standards.
“The labor markets continue to strengthen, however, there is room for further improvement. Inflation pressures are more evident today with wages and commodity prices, particularly oil, higher than last year,” he added. “Additional positive jobs and higher inflation data before the December FOMC meeting will provide stronger case for a rate hike. With the 2.9% third quarter GDP growth, a modest rate hike in December will keep the U.S. economy on track.”
According to the Federal Open Market Committee, the case for an increase has continued to strengthen, but it seeks “further evidence of continued progress toward its objectives.”