It Takes Time For Loan Portfolios To Reprice

If history is a guide, the average yield on loans will take time to adjust to the sharp increases in the federal funds rate.

Roman Ojala

FEDERAL FUNDS RATE VERSUS YEILD ON LOANS
FOR U.S. CREDIT UNIONS | DATA AS OF 06.30.22
© Callahan & Associates | CreditUnions.com

 

SOURCE: FEDERAL RESERVE BANK OF ST. LOUIS; CALLAHAN & ASSOCIATES

• The average yield on loans for U.S. credit unions historically lags changes in the federal funds rate by a minimum of one year.
  
  
• When the Federal Reserve cut the federal funds rate beginning in the second half of 2007, it wasn’t until mid-2009 that the yield on loans started to reflect the repricing of loan portfolios.
  
  
• Similarly, in 2016, loan yields at U.S. credit unions fell throughout the year despite the benchmark rate rising.
  
  
• The Fed has raised interest rates five times in 2022 — for a total of 300 basis points since March — and is expected to raise rates into 2023. The historical data above provides perspective on when credit unions might expect to see a change in their own loan yields.