Fed Kicks Off Two-Days of Meetings Today as Critics, Proponents Respond to Rate Increases; Plus, What CUs Should Expect

CUToday

WASHINGTON–The Federal Reserve’s Open Market Committee (FOMC) will kick off two days of meetings today and the decision they announce tomorrow will affect everything from the major U.S. markets to credit unions that are seeing strong loan growth to individual credit union members struggling with monthly bills.

The FOMC is widely expected to again raise its benchmark rate as it seeks to cool raging inflation.

Among those expecting rates to be higher by Wednesday afternoon is CUNA’s chief economist, Mike Schenk, who expects the Fed will push up rates by 75 basis points. That follows the full one percentage point increase made during the Fed’s July meeting.

“That’s pretty substantial, but inflation is over 9%,” said Schenk. “It’s the Fed’s job to slow that rate of inflation down.”

Schenk said any rate increase will have “implications” on credit union lending, which was roaring in the first half of 2022, when it was up 8%.

If the second half of the year were to match the first, overall loan growth at credit unions would finish 2022 at an astounding 20%, but Schenk said he does not expect that to happen and is instead projecting the year will finish with loans up 12%.

ROA will also be up substantially in 2022, he added.

Other Forecasts

Schenk is hardly alone in predicting the rate increase by the Fed.

“Many on Wall Street believe that the Fed is likely to raise interest rates by as much as a full percentage point. If that happens, it would be the first time the Fed has raised rates that much in one meeting since at least the 1980s,” noted the New York Times. “The central bank has vowed to do whatever it takes to lower inflation — much like it did in the 1980s under Paul Volcker.”

Critics of Policies

But the Fed has plenty of critics.In an opinion piece published in the Wall street Journal, Sen. Elizabeth Warren (D-MA) said the Fed’s interest-rate hikes “won’t address many causes of today’s inflation,” including skyrocketing energy prices.

And, as CUToday.info reported here, one new survey finds consumers  say they are “fed up” with the job the central bank is doing. That same analysis said consumers can expect to pay billions more in interest as the result of the rate increases.

Among the factors the Fed will be weighing as it makes its decision, according to the Times:

• Earnings slowdown
• An inverted yield curve (see CUToday.info report here)
• The job market

Room to Move Higher

“Still, some argue that there is room for interest rates to move higher without causing an economic crash,” the Times reported.

The publication quoted  Peter Berezin, a global strategist at BCA Research, as arguing that job openings, as well as solid reserves at most large banks, should buffer the economy from a recession even if the Fed raises interest rates.

“What’s more, the expiration of pandemic-related aid should slow the excess money injected into the U.S. economy,” Berezin added.