KEY WEST, Fla. – Yesterday’s dramatic rate cut by the Federal Reserve surprised credit union executives who were gathered here to discuss tightening margins and other immediate issues during the Pennsylvania CU Association’s annual CEO Summit – and several of them vowed to cut their own savings rates in concert with the Fed.
“This is going to squeeze us some more,” said Jeffrey Albert, chief operating officer at People First FCU, in Allentown, Penn. “It’s going to make it a lot more difficult to earn that interest margin and to get that margin in other areas, on loans and deposits.”
Thomas Dispenza, president of NARC FCU, said he planned to cut CD rates as soon as he returned to his office in Beltsville, Md.
“Obviously, it’s going to squeeze our margins,” said Maria LaVelle, president of Westmoreland Community FCU, in Greensburg, Penn., who said she expects to cut her credit union’s regular share rate in half, from the current 1%, and be forced to lower the rate on her credit union’s money market fund in order to retain some profitability. LaVelle said she expects her $32 million credit union, which earned a 0.94% ROA last year, to be pushed into the red for the first quarter.
Several CEOs said they expect to be inundated with cash as the agencies call their bonds, leaving them with plenty of liquidity in the low-rate environment. “We’ll have to think about repricing (deposits). Seventy-five basis points is a big drop,” said Debra Connors, president of Money One FCU, in Largo, Md., who said she expects some of her agency bonds to be called.
The surprise move by the Fed, aimed at stemming a broad sell-off in the stock markets, came a week before the Fed was scheduled to meet to discuss rates.
This morning's emergency action by the Fed was the biggest single downward move in the key Fed Funds interest rate – what banks and credit unions pay for overnight loans – since a 1% cut on Aug. 16, 1982. The key Fed Funds interest rate now stands at 3.5%.
