Economic outlook remains “cautiously optimistic”
In the latest Economic Update, America’s Credit Unions Senior Economist Dawit Kebede outlines a fourth quarter economic forecast, noting that growth prospects have improved, recession risks have declined, and credit unions remain on solid footing despite challenges ahead.
Current economic situation
Kebede highlights that while the economy is performing better than anticipated, there are a variety of issues looming: trade policy uncertainty, the weakening labor market, rising costs of living, and the ongoing government shutdown. However, he added that consumer spending from the third quarter beat expectations and investments in the tech sector continue providing a lift.
Inflation also rose slightly to 2.9%, over half a percentage point higher than April’s inflation rate. The effective tariff rate also sits at 17.9%. This is notably lower than 28% in April, but substantially above the 2.4% rate from the beginning of the year.
Kebede points out that the Federal Reserve will likely have a more difficult time assessing economic conditions and adjusting monetary policy. With the government shutdown, many key data-collecting institutions are not operating.
Credit union forecast
Kebede goes on to explain that a consulted forecast group lowered the projected share growth for credit unions for the end of 2025 and into 2026.
“For loans, growth will remain below the long-run average,” says Kebede. “Auto and home prices are still high for the average member, and interest rates remain elevated despite some expected easing next year.”
However, mortgage activity should increase as supply rises and rates lower. Kebede also points out that the forecast group expects delinquencies to rise through the end of the year. He highlights student loan repayment, non-prime borrowers’ struggle to make auto and credit card loan payment, and a “denominator effect” due to slow pace of loan growth in recent years as key contributors to the forecast adjustment.
On the bright side, Kebede says the group expects earnings to increase for credit unions with rising net interest margins and stabilizing provisions for loan losses.
Watch the full Economic Update below.
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