WASHINGTON – The Federal Reserve is expected to continue its efforts to pump more liquidity into the credit markets by cutting short-term interest rates again this afternoon.
But the Fed’s Open Market Committee is expected to go beyond what it has done in recent months by slashing the benchmark short-term rate by as much as 1% (100 basis points) from the current 3%, according to leading credit union economists.
“I wouldn’t be surprised with 75 basis points or even 100 basis points,” Bill Hampel, chief economist for CUNA, told The Credit Union Journal yesterday, noting the Fed’s increased efforts to stem the ongoing credit crisis. He pointed to the Fed’s action over the weekend–slashing the rate for emergency loans at its discount window to 3.25% from 3.50%.
Tun Wai, chief economist for NAFCU, also expects a further cut in the overnight rate today. The cut, he said, could be as much as 75 basis points, but he doubted whether it will be as much as 100 bps because of the action taken by the Fed last weekend aimed at stemming the liquidity crisis.
In an effort to keep the credit markets from seizing up, the Fed has cut short-term rates five times since last September, trimming 125 basis points off the benchmark rate in two slices in January.
The action on short-term rates has had very little impact on cost of funds for credit unions, as the average rates for the key regular shares and share draft accounts (checking) remain mired near all-time lows at 0.84% and 0.58%, according to DataTrac. CD rates have risen over the past six months as credit unions seek to attract longer-term funds.
