50 and 50

The Fed just dropped the discount window another 50 bps and the fed funds rate 50 bps.  The 50 bps drop in the funds rate was quite a surprise and the Dow jumped nearly 200 points immediately. 

Credit unions now need to carefully observe their balance sheets and manage appropriately if they are asset or liability sensitive.  All of those CD promos did good things for liquidity, but CU’s are going to be hurting if they are long on those CD’s.  Expect to see those CD promo rates drop as well as those wonderful money market funds.  Hold on to your balance sheets, it is going to be a wild ride!

2 thoughts on “50 and 50”

  1. The other problem with promo rates is the potential back lash from unhappy members who had a 5.00% or 5.25% and suddenly it is 4.50% or 4.75%.

    As far as being long, if the longer, higher rates were done in conjuction with good yielding loans, CUs should be okay. But, some credit unions (Pentagon) were offering CD rates (3Y – 7Y) back in January over 6.00% with loan offers at a lower yield. They are certainly large enough, but that could put you in a negative position quickly.

    On the investment front, if you locked in some good longer-term rates, you will probably end up ahead of the curve.

    Jumbo CD Investments, Inc.

  2. Yup, that is could very much be a problem. Members have gotten used to seeing promo rates and will want to continue to see promotions, but the rates we offer must be kept in line with our asset yield and life.

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