Uncertain Financial Markets Ahead

WRITTEN BY HILLARY

Five years after the onset of the global credit crunch, targeted U.S. short-term interest rates remain near zero and an anemic recovery poses the risk of the country slipping back into recession. Meanwhile, Euro-zone turmoil haunts the financial markets while regulatory burden increases. What’s a credit union manager to do? Here’s what you need to know about the months ahead.

Investment Landscape

For investors, the past five years have been characterized by steep declines in short-term interest rates. U.S. government bonds delivered exceptionally strong returns while the U.S. stock market has been somewhat lackluster. Given that yields are already low, our expectation is that returns on U.S. government investments will be less robust over the next two years, yet still slightly better than returns from large-company U.S. equity securities.

The looming “fiscal cliff,” characterized by across the board spending cuts scheduled to take effect in January 2013, has injected uncertainty into corporate decision making — stalling investment in plant, equipment and personnel for the second half of 2012. Without such investment, the outlook for employment growth is dim. The good news is that the uncertainty leading up to the presidential election should ease thereafter as our approach to tax policy and deficit reduction becomes clearer.

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