5 things banking marketers should consider before responding to Fed rate cuts
The Federal Reserve's pivot to cutting interest rates presents a complex landscape for financial institutions, combining fresh opportunities with heightened risks. While lower rates typically spark increased lending activity, banks face unprecedented challenges: credit card delinquencies have hit a 12-year high, and nearly 40% of cardholders have maxed out cards since rates began rising.
Now that the U.S. Federal Reserve has finally started to cut interest rates to achieve an economic soft landing, expect activity to ramp up at banks and credit unions as consumers and businesses adjust their finances to reflect the new reality. Some will seek high-rate CDs while they’re still available, others will want to consolidate credit card debt, and mortgage activity may pick up, too.
This sounds positive, but for financial institutions the monetary policy shift reflects rising risks, from both new competitive pressures as well as the risks of serving debt-strapped consumers. A range of Federal Reserve Bank studies tell the story: Credit card delinquencies have hit 10.9%, a 12-year high. Subprime delinquencies hit 63% in 2023 vs. 38% in 2021. Meanwhile, nearly 40% of cardholders have maxed out a credit card or come close since the Fed started raising interest rates, according to a Bankrate credit utilization survey, which draws on data from the Fed and Equifax.
To better understand how banks and credit unions might react to the changing rate environment, The Financial Brand spoke with two executives — business analyst Kim Gaines and client strategist Wendy Erhart — both from Vericast, a firm that helps banks and credit unions improve their marketing engagement through more effective use of data.
Here are five suggestions they had for financial institutions as interest rates fall:
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