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Increased Uncertainty on Policy, Rates Will Shape the Economic Outlook in 2017 and Beyond
Wednesday, January 25, 2017 6:35 AM

According the latest National Credit Union Association Call Report, the economy headed into the new year in a solid position. The current consensus outlook for 2017 is mostly a continuation of 2016’s trends. For credit unions, the outlook for fundamentals like employment and consumer demand should help to support heathy credit union financial performance in 2017.

However, a lot of uncertainty exists about future economic policies and how they will influence the economy going forward, especially in the second half of 2017 and into 2018, the report said. This uncertainty could linger for several months or more, until specific policy proposals have been put into action.

In addition, the Federal Reserve has signaled that short-term interest rates are poised to rise further. Private forecasters think longer-term interest rates will be heading higher, too. The outlook for interest rates—specifically for longer-term rates and the shape of the yield curve—is more uncertain. That uncertainty may be reflected through increased volatility in long-term interest rates during the first part of the year.

That means the outlook for credit union net interest margins is also more uncertain. Because of this, now is an especially good time for your credit union to re-evaluate what its income and balance sheets might look like under a range of interest rate scenarios, including scenarios in which short-term rates rise relative to long-term rates and long-term rates rise relative to short-term rates.

For more detailed information or to review the report, please visit the NCUA Newsroom.