ALEXANDRIA, Va. (12/28/15)--An increase in the federal funds target rate shows “significant upside potential” for credit union deposit rates, according to National Credit Union Administration Chief Economist Ralph Monaco.

In the agency’s latest economic update video, Monaco examines what the increase, as well as an improving economy, means for credit unions.

“Historically, some credit union rates have followed the economy-wide short-term rate very closely,” he said. “For example, share certificate rates and money market rates seem to follow the ups and downs of economy-wide rates. Rates on regular shares don’t seem to follow the ups and downs, but they do seem to capture the general trend.”

Monaco also said the consensus seems to be that the Federal Reserve will aim for “continued, moderate expansion” of rates in order to slow the growth of inflation.

“As the Federal Reserve sees it, the economy is either at or near full employment. So, stimulating it further may only produce higher inflation, and while inflation right now is still below their target, policymakers believe that it’s already headed higher after being held down by the sharp drop in oil prices,” he said.

The improving economy also means more consumer confidence, which generally leads to more big ticket purchases, Monaco said. He said it is expected that car loans and mortgages, which generally make up approximately 85% of a credit union’s aggregate loan portfolio, will rise.

CUNA Chief Policy Officer Bill Hampel also discussed interest rates and increased credit union auto lending in an interview with CUBroadcast released last week.