The Federal Reserve raised short-term interest rates for the 16th time in a row last week, boosting the target rate for overnight FedFunds to a five-year high of 5%. Credit union observers were expecting additional rate hikes, too.
"I don't think this is the last one," Tun Wai, chief economist for NAFCU, told The Credit Union Journal, noting that the Fed's efforts are aimed at stemming the rising tide of inflation, which continues to threaten. The rising short-term rates, coupled with long-term rates that have barely moved-creating a so-called inverted yield curve-has been problematic for credit unions, said Wai.
That's because CUs have been forced to raise the rates they pay on CDs and other savings products, while waiting until loans mature to raise those rates. The result has been a squeeze on the bottom line. He predicted a continued slump in credit union profitability- return-on-average assets, or ROAs, as a consequence.
