The September Federal Open Market Committee (FOMC) meeting marked a significant shift in monetary policy. The Federal Reserve implemented its first rate cut of the year, lowering the federal funds rate by 25 basis points to a target range of 4.00%–4.25%. The Fed cited worsening labor market conditions, such as slower job growth, which averaged just 29,000 new jobs added per month this past quarter.  

Key takeaways from the meeting include the following: 

  • We’re seeing a cautiously optimistic shift in the latest economic projections. GDP growth has been revised upward to 1.6% for 2025 and 1.8% for 2026, signaling steady momentum. The unemployment rate remains steady at 4.5% for 2025, with a slight improvement expected in 2026 at 4.4%. Meanwhile, core inflation is projected at 3.1% for 2025, reflecting continued efforts to stabilize prices while supporting growth.
  • The latest Fed dot plot reveals a wide range of opinions on the path of interest rates in 2025. For example, 10 members anticipate two additional rate cuts, while nine favor just one. Interestingly, one member projects a more aggressive approach, expecting rates to fall by a total of 1.25% next year. This divergence highlights the uncertainty surrounding future monetary policy and its potential impact on financial markets.

What are some potential implications for credit unions?

  • More loan demand (possibly). We have all probably heard that friend or family member say they want to buy a car or a house but that they’re waiting for lower interest rates. If we are at the beginning of a rate-cutting cycle, perhaps activity increases. For many of our partner credit unions, loans haven’t slowed down.
  • Lower funding costs. Credit unions will pay lower rates on deposits internally and in wholesale markets. 
  • Ongoing opportunities to help your members. If the slowdown in the labor market continues, coupled with a slower/uncertain economy, the mission-first opportunity to help members through education, loan and deposit products will continue to be there.  

What we are seeing in credit union investment portfolios and activities: 

  • Increasing duration of investments in the past 6-12 months. We have seen credit unions go out longer term in their investments, trying to lock in the higher, longer-term rates. We anticipate this will continue as the curve normalizes (steepens) while the FOMC cuts short-term rates.  
  • Liquidity management. Credit unions continue to manage liquidity, whether that is through traditional lines of credit or using wholesale funding through non-member deposits. 
  • Limiting optionality in portfolios. In anticipation of a declining rate environment, investors have looked more toward securities that have less call risk, whether that is favoring bullet securities (those without calls) or considering securities like  Agency multifamily mortgage-backed securities (DUS bonds, Freddie Mac PCs) and well-structured CMOs that offer similar characteristics to Agency bullet securities by limiting prepayment risk.  

The Federal Reserve is likely to continue to tread cautiously as they balance the weakening jobs market with stubborn inflation. 

Discover What’s Ahead: U.S. Economic Outlook & Its Impact on Credit Unions

Learn more about marketplace trends and the direction of the economy in this on-demand webinar with Steven Rick, Chief Economist at TruStage. Rick dives deep into:

  • The ripple effects of global economic shifts on U.S. interest rates
  • How labor market trends and financial sector dynamics shape credit union performance
  • Key benchmarks to measure your credit union’s financial health
  • Forecasts for savings, loan activity, and growth patterns through 2026

Whether you're steering strategy or managing operations, this webinar will equip you with the insights to make informed decisions and stay ahead of the curve.

Watch it now.