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Fed decision maintains low cost of funds for CUs
WASHINGTON (3/20/14)--Even with the change in its forward guidance, the Federal Open Market Committee (FOMC) repeated that the interest rate will stay low for a "considerable time," possibly well into 2015, keeping credit unions' cost of funds low, according to a Credit Union National Association economist.
"The Fed, under Chair Janet Yellen's leadership, did what many were expecting--continuing to wind down longer-term asset purchases and removing the forward guidance on the 6.5% unemployment rate threshold," Mike Schenk, CUNA vice president of economics and statistics, told News Now.
With the unemployment rate nearing the 6.5% threshold, many observers were wondering if increases to the Federal funds rate were imminent, he noted. Labor market conditions, inflation expectations and financial markets will be taken into account for rate decisions, even after the Fed halts its monthly asset purchases.
If the Fed continues to reduce its asset-bond purchases by $10 billion per month, it will likely complete its quantitative easing program by its December meeting.  Beginning in April, the committee will add just $25 billion per month to its holdings of agency mortgage-backed securities instead of $30 billion per month. Longer-term Treasury securities will drop to $30 billion per month down from $35 billion per month.
On the flip side, low funding costs mean credit unions "will wrestle with relatively low short-term investment yields," Schenk advised.
"The good news is that as the weather becomes less of an issue CUNA economists expect to see a continuation of the expression of pent-up demand in the consumer sector," he said, adding, "That, in combination with low market interest rates, will help to continue to boost credit union loan growth."
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