WASHINGTON – The Federal Reserve cut the federal funds rate by 25 basis points to 1.75 % at its December 11 rate setting meeting and left the door open for another 25 basis point cut early next year. The action by the Federal Open Market Committee, the Fed's interest rate setting body, was the eleventh this year and was widely anticipated by credit union and other economists because of persistent signs that the economy is still weak. "Economic activity remains soft, with underlying inflation likely to edge lower from relatively modest levels," the FOMC said in a statement explaining its action. "To be sure, weakness in demand shows signs of abating, but those signs are preliminary and tentative." On the basis of the economic information available at the time of the meeting, the FOMC members decided "the risks are weighted mainly toward conditions that may generate economic weakness in the foreseeable future." This rate cut became almost a done deal with the release of the October unemployment figures the week before the meeting that showed joblessness had risen to 5.7%, a six-year high. Credit unions are wondering if the Fed has even more cuts in store for early next year. NAFCU economist Jeff Taylor said the unemployment numbers will continue to influence the Open Market Committee's action at next the meeting, scheduled for late January. "We'll see where the unemployment data comes out at the next meeting," Taylor said. "We'll have a lot of information about what the fourth quarter economy really looks like by then." Taylor noted that unemployment is a lagging indicator and that a large spike in the figure often signals the end of a recession. He is "not convinced" further increases will necessarily lead to further rate cuts if other indicators are showing more strength. It will be much harder to separate movement in the economy from the changes in spending and borrowing that occur at the start of every year, said CUNA Economist Mike Schenk. "The first quarter is typified by low spending and low loan demand," he said. "The members will have to decide what part of that is a reaction of holiday spending and what part is from the sagging economy. There is no question in my mind that unemployment will still be going up." The cut in short-term interest rates is not expected to affect long-term rates that have risen dramatically in recent weeks. Rates for 30-year mortgage commitments, now a staple of credit union lending activity, rose to 7% at the end of November from 6.75% only three weeks earlier. "The mortgage market is one of only a couple of bright areas in the credit union portfolio," Mr. Schenk said. "If refinancing goes away, credit unions should be prepared for less loan growth and falling asset yields." NAFCU economist Tun Wai said credit union managers have done a good job keeping their investments short-term. "They will be able to reinvest when the yield curve becomes more normal," he said.