2 New ‘Main Changes’ in CUNA Forecast for CUs’ Bottom Lines, Fed Rate Activities

WASHINGTON–CUNA’s economists have published a new economic report that features two “main changes” from its earlier forecasts: it is going to take longer to tame inflation than had previously been predicted—meaning rates will stay higher, longer-- and  credit unions will experience a “pronounced earnings challenge.”

Dr. Dawit Kebede

According to CUNA Senior Economist Dawit Kebede, in the new year credit unions are likely to have to continue to pay up to manage their tight liquidity positions. That is taking place at the same time the economy continues to be resilient in 2023, said Kebede, noting CUNA has increased its projection for economic growth to 2.5% for this year, up from 2%.

Kebede noted third quarter GDP has been rounded up to 5.2% from 4.9%, which he said represents “big and robust economic growth,” reflected by a labor market that shows signs of moderation but remains strong.

The Challenge to the Fed

That, of course, all contributes to the challenge before the Federal Reserve when it comes to setting rates, with Kebede saying CUNA expects rates will remain high for longer than had originally been predicted.

“We anticipate no more rate hikes this year, Kebede said.

For 2024, he said the trade group expects the Fed will only cut rates once, and that the Fed fund rate will close out the new year around 5.1%.

Lending to Slow

For credit unions themselves, Kebede said the revised forecast envisions that in the wake of loan growth this year of between 7%-8%, lending will slow and grow by 4% in 2024.

CUNA is also revised down to 75 BPs from 80 BPs the delinquency rate, as the decline in asset quality deterioration slows a bit.

“We expect it to be around 90 basis points next year,” Kebede said.

Credit unions are also likely to face lower income and higher expenses in 2024, putting more pressure on bottom lines, according to Kebede.