WASHINGTON — Despite the increasing pressures of the downward spiral of the housing market, the Federal Open Market Committee decided at its Aug. 7 meeting to maintain the federal funds target rate at 5.25%.
"Financial markets have been volatile in recent weeks, credit conditions have become tighter for some households and businesses, and the housing correction is ongoing," the FOMC statement read. "Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters, supported by solid growth in employment and incomes and a robust global economy."
Additionally, the committee stated that economic growth was moderate over the first half of the year and, while "readings on core inflation have improved modestly in recent months…a sustained moderation in inflation pressures has yet to be convincingly demonstrated."
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The failure of inflation to moderate as expected is still the key concern at the FOMC, the statement indicated. "Future policy adjustments will depend on the outlook for both inflation and economic growth, as implied by incoming information."
Looking at it with a bird's eye view, Sunmark Federal Credit Union President/CEO Bruce Beaudette commented, "It was very expected. There was no surprise. I do agree with their position with the information they had to work with." Signals are mixed with the housing market slump and market volatility but low unemployment and the constant eye toward inflation.
However, putting on his credit union CEO hat, he added, "I'd like to see them a little less crazy over inflation." Beaudette explained that his credit union's spread and therefore earnings are suffering.
To compensate, Sunmark has cut expenses where it can and not filled some of its open positions. Additionally, the credit union has been closely monitoring its cost of funds, offering higher rates for new deposits than for existing members, which can be troubling philosophically.
Sunmark's return on average assets for the first half is still around 0.4%, according to Beaudette. His credit union's goal is around 0.5%, he explained, which his board is comfortable with after his coaxing and reinforcement from NCUA's letter last year.
"The good news is our capital is in the high 9% range," he said, plenty to weather the storm. Beaudette said on the whole the credit union system is well equipped to ride it out though the tight spreads will drive some additional mergers. He added, "I don't think we should be in a panic mode by any means."
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