WASHINGTON (2/1/08)--The credit union movement responded to Wednesday’s 50 basis-point cut of the federal funds rate by the Federal Reserve. Bill Hampel, chief economist at the Credit Union National Association, told Reuters Wednesday he believes the fed funds rate may drop further. “If we go into a full-fledged recession, which seems more likely than not, the fed funds rate will go down to 2% by summer,” Hampel said. Brad Stewart, senior vice president and chief investment officer for Mid-Atlantic Corporate FCU, Middletown, Pa., said he expected the Fed to reduce the rate by only 25 basis points. The half-percentage-point reduction indicates that the Fed believes the economy needs a solid thrust to end the reductions (Life is a Highway Jan. 31). “Chances of avoiding an outright recession are greater now than they were two weeks ago,” Stewart said. Despite the continuing housing recession, which should not be ignored, the future outlook is positive, he added, noting that the current fiscal stimulus being discussed in Congress will be helpful to the economy. Credit unions should adhere to their investment philosophy and be cautious about investments, Stewart said. Most overnight investment rates will move accordingly with Wednesday’s Fed announcement, said Brian Turner, manager of advisory services for Southwest Corporate Investment Services. This will widen the differential between overnight yields and loans, as well as many investment security alternatives--especially structured mortgages, he added (Lonestar Leaguer Jan. 31). “Credit spreads appear to be holding on mortgage whole loans, but some tightening is occurring on agency investment securities,” Turner said. “Consumer loan rates should be fairly stable over the next few weeks, and there continues to be beneficial spread built to consumer and mortgage rates.” It also is important to make sure that all share deposit rates are positioned in respect to each other to avoid any transitory shift between products, Turner advised. “Given that many credit unions did not raise share draft or regular share rates very much over the past few years, there might be a propensity to believe that there’s little room to move down--please check anyway,” Turner said. “[Considering] that money market rates have risen significantly over the past few years--and in many cases--are higher than 3.0%, all tiered rates need to be reviewed.” The Federal Reserve continued to meet market expectations on what the cut would be, Terrin Mendivil Griffiths, economist and industry analyst for the California Credit Union League, told News Now. “The Fed is making up for lost time--there was a lack of action previously,” she said. “The Fed wasn’t aggressive enough out of the gate in 2007,” she continued. “Different issues emerged, and inflation was considered a rival concern of economic growth. Now economic growth is taking precedence over inflation as far as the Federal Reserve is concerned.” Balancing economic growth and inflation has always been a concern of the Fed, but in the latter part of 2007, economic growth became more important than inflation, Griffith said. “It took awhile for the Fed to publicly acknowledge that,” she concluded.