What credit unions should know about the uncertain economic environment
Focus on earnings and capital, and dissuade panic among members, PenFed’s CEO says.
There is a lot of uncertainty – and even panic – behind the current inverted yield curve, because an inverted yield curve has preceded every recession over the past 50 years (source: Financial Times). But this time our nation may not even be headed for a recession at all.
An inverted curve comes when interest rates for long-term bonds trade at a lower yield than short-term bonds. In March, the curve inverted for the first time since 2007, according to Forbes. Since then, the curve has been flat or dipped slightly back into the negative.
Yet an inversion is no guarantee of a recession. There is no doubt that a flat or inverted yield curve puts pressure on financial institutions. As credit unions, however, we are fortunate to function within a model that can weather the storm.
Credit unions operate at thinner margins because our earnings are not paid back to stockholders, as with banks. Thus credit unions can continue to deliver great rates to members, even in an economic slowdown.
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