Steve Rick CUNA Mutual’s chief economist.- Fed Likely to Push Rates Up at Next Meeting

MADISON, Wis.–The Fed is likely to push the Fed funds rate above 5% at its next meeting, according to CUNA Mutual’s chief economist.

Writing in the company’s newest Trends Report, Steve Rick noted that at its March meeting the Federal Open Market Committee increased the federal funds effective interest rate to 4.87%, up from 4.58%. The fed funds rate has increased 4.75 percentage points in the last year, the fastest increase in rates in over 40 years.

The FOMC will next meet later this month.

“We expect the Federal Reserve to push the fed funds rate over 5% this spring to bring inflation down to their 2% inflation target sometime in the next two years,” stated Rick.

What effect will a rising fed funds interest rate have on credit union lending and the economy in general?

According to Rick, “historically, a rising fed funds interest rate slows credit union loan growth, holding all other factors constant (see figure below). There have been three Fed hiking cycles since 1999. Every time, credit union lending fell from around an 11% seasonally-adjusted annualized growth rate at the start of the hiking cycle to around 7% at the end of the hiking cycle, with about an 18-month lag from the beginning of the hiking cycle until credit union lending began to slow.”

With Apologies to Mr. Clemens

Noting that Mark Twain once famously observed that “History doesn’t repeat itself, but it does rhyme,” Rick pointed out that January, credit union lending grew at a 17% seasonally-adjusted annualized growth rate, down from 19.5% in July 2022.

“So, it appears history does repeat itself with credit union lending slowing albeit at a very high growth rate,” Rick stated. “We expect credit union lending to continue to slow throughout 2023 with loan growth coming down to 9%.”