WASHINGTON – The Federal Reserve again lowered short-term interest rates yesterday, in an action that is expected to put more pressure on credit unions’ profitability.
The Fed lowered the target rate for overnight funds by 75 basis points to 2.25%, as it seeks to add liquidity to the markets.
For credit unions, the move means rates on short-term loans, such as those for cars, home equity and adjustable-rate mortgages, will fall with the market, tightening margins even more, according to observers.
“Today's action,” said Brian Turner, manager of Southwest Corporate FCU’s advisory services, “increases the cost of liquidity during a period of time when most credit unions have experienced higher share growth due to year-end incentive bonuses, tax refunds and principal redemptions on option-based investments.”
“It also emphasizes the importance of taking a proactive stance on cost of funds,” he said, adding credit unions should consider extending their funding to lock in higher returns as market rates continue to fall.
