The national jobs picture is indicating that the recession risk which has hung over the economy this past year is as present as ever.

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Friday’s soft labor market data indicated that the US economy is consistent with the Fed’s goal of slowing the economy.

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A weak first quarter of economic data supported the thesis that a recession was around the corner, but continued strength in the labor market fueled a rebound in consumer spending which has failed to wilt in the face of higher interest rates.

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Credit unions are currently facing liquidity challenges as loan demand remains steady and deposits decline. Typically, loan demand remains high during the summer months, while members withdraw some of their deposits to fund vacations. In this article, we will provide an overview of strategic considerations when evaluating liquidity options, given the uncertainty of future interest rates.

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The combination of persistently high inflation and the Federal Reserve’s historically quick rate tightening has lifted longer-term yields and slowed mortgage prepayments, lengthening assets at many credit unions.  With 30-year mortgage rates currently near their highest levels in the past twenty years (currently revisiting the range of 7.00%+ levels, initially breached last fall), virtually all mortgages on credit union’s books are exhibiting very low prepayment speeds. 

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While the markets look forward for the direction of the economy, the Fed is still looking backward for hard evidence that inflation has been controlled. If we see additional data that indicates economic growth is reaccelerating, the prospects for a pause in rate hikes will certainly diminish. Until economic data forms a consistent narrative, we can anticipate that higher levels of volatility will persist.

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Accolade has compiled some data around auto lending trends that may help provide context for setting asset allocation in 2023. While many of the data trends we’re seeing are troubling for auto lenders, we are likely still in the normalization phase from the incredibly low levels of credit issues that we saw through the pandemic period.

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The NCUA Supervisory Test is intended to be used to measure asset sensitivity to rate changes by applying standardized market values to the credit union’s non-maturity shares. In early September the NCUA updated its interest rate risk supervisory framework to address concerns about the test's results.

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Now that we find ourselves in a more attractive rate environment credit unions have a golden opportunity to improve net interest margins and loan-to-share ratios – if only they had the liquidity to support it. This article offers ideas to help your credit union meet liquidity targets. 

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Over the last nine months we have seen the biggest yield curve shock in over twenty years. After the CPI print for May came in at a higher than expected 8.6% year-over-year rate, the yield curve has rocketed even higher and we are seeing red across virtually all bond prices.

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