A Direct Line Blog

By Tanner Pauls, AIM Financial Analyst

After holding interest rates steady through the first five meetings of 2025, the Federal Open Market Committee (FOMC) shifted course, implementing three consecutive 25-basis-point rate cuts at its final meetings of the year. These cuts were designed to address rising unemployment while inflation remained relatively stable. As credit unions look ahead to 2026, the focus now turns to whether the Federal Reserve will continue easing policy or pause rate cuts to prioritize inflation’s return to its 2% target.

The FOMC’s policy decisions are guided by its dual mandate: maximizing employment and maintaining price stability. The rate cuts late in 2025 were largely a response to softening labor market conditions. More recent data, however, suggests the labor market has stabilized. December’s unemployment rate declined to 4.4% from 4.5% in November, while initial jobless claims released on January 22 held steady at 200,000. This improvement follows a September peak of 264,000, which occurred before the first rate cut of the year.

For credit unions, this stabilization reduces near-term recession risk but increases the likelihood of a prolonged period of steady rates. Inflation remains elevated, ranging between 2.7% and 3.0% since June 2025, well above the Federal Reserve’s long-term target. Persistent inflation limits the Fed’s flexibility to cut rates further, particularly if employment conditions remain resilient.

Recent commentary from Federal Reserve officials reinforces this outlook. Chicago Fed President Austan Goolsbee noted in a CNBC interview that “the most important thing facing us is we’ve got to get inflation back to 2%.” Philadelphia Fed President Anna Paulson, who previously supported rate cuts, told The Wall Street Journal that she now favors holding rates steady. Reflecting this shift, Fed funds futures suggest that the next rate cut is unlikely before July.

Implications for Credit Unions

A steady rate environment in 2026 would have several important implications for credit unions:

• Margin management becomes critical. With fewer rate cuts expected, protecting net interest margin through disciplined loan pricing and deposit segmentation will be essential. Careful consideration should be given to certificate special rates and terms to ensure they complement the rest of the balance sheet.
• Deposit strategy should shift from rate to relationship. As pricing advantages diminish, credit unions that deepen primary financial institution (PFI) relationships will be better positioned to retain core deposits.
• Loan growth will depend on execution. Stable rates favor credit unions that compete on service, speed, and member experience rather than aggressive pricing.
• Balance sheet flexibility matters. Maintaining liquidity and avoiding overconcentration in long-duration assets will help institutions remain nimble should economic conditions change.

Key Economic Data to Monitor

It will be important to monitor economic data in the next couple of months. Here are some key releases to look for:

• Unemployment Rate — Next released on February 6
• Consumer Price Index — Next released on February 11
• Jobless Claims — Released weekly on Thursdays

Bottom Line

For credit unions, the outlook for 2026 points toward a period of rate stability rather than continued easing. Success in this environment will depend less on predicting the next Fed move and more on strong execution, disciplined risk management, and reinforcing the member-first value proposition.

AIM Solutions is a division of Millennium Corporate Credit Union. If you have questions regarding your credit union IRR risk or would be interested in financial modeling services, please feel free to contact them at AIM@millenniumcorporate.org or reach out at 1-800-721-2677.