What the Latest Economic Forecasts Mean for Lending

The economic landscape is a dynamic force, constantly shifting and presenting new challenges and opportunities for financial institutions. For credit unions, understanding these shifts isn't just an academic exercise; it's crucial for shaping lending strategies, managing risk, and fulfilling the mission of serving members. As we look ahead, a careful analysis of the latest economic forecasts reveals key trends that will significantly impact credit union lending.

So, what should credit union leaders and loan officers be paying attention to?

The Current Climate: A Mixed Bag of Signals

Before diving into forecasts, let's briefly acknowledge the current economic environment. We've seen persistent (though moderating) inflation, interest rates that have remained higher than in previous years, and a generally resilient job market. Consumer spending has held up, but there are signs of caution among households, with credit card balances rising and savings rates normalizing. This mixed bag sets the stage for what’s to come.

Key Economic Forecasts and Their Impact on Lending

Here’s a breakdown of what the latest projections suggest and what it means for your credit union's loan portfolio:

1. Interest Rate Trajectory: The Fed's Next Move

The Forecast: Most economists anticipate a period of stable or slightly declining interest rates in the latter half of the year, although the path is highly dependent on inflation data. Aggressive rate cuts are less likely unless there's a significant economic downturn. As of May 2025, the Federal Reserve has maintained the federal funds rate at 4.25%–4.5%, citing persistent inflation concerns and economic uncertainties stemming from recent tariff implementations. The Fed’s staff economists have revised down their economic growth forecasts for 2025 and projected a substantial weakening in the labor market, with elevated unemployment persisting through 2027. 

Impact on Lending:

• Mortgages & Auto Loans: Stable or slightly lower rates could stimulate demand for fixed-rate mortgages and auto loans, making financing more affordable for members. Credit unions should be ready to capture this demand.

•  Personal Loans/HELOCs: Variable-rate products might see increased interest as members seek relief from high-interest debt or look to consolidate.

• Net Interest Margin (NIM): Credit unions will need to carefully manage deposit rates to protect NIM, balancing member value with profitability.

2. Inflation's Grip: Easing but Not Gone

The Forecast: Inflation is expected to continue its downward trend, but likely to remain above the Federal Reserve's 2% target for some time. Supply chain improvements and cooling demand are helping, but geopolitical events could introduce volatility. Goldman Sachs predicts that recent tariffs will cause only a temporary increase in inflation, alleviating concerns of a repeat of the high inflation seen in 2022. 

Impact on Lending:

• Loan Affordability: Persistently higher prices for goods and services can squeeze household budgets, impacting members' ability to take on new debt or make timely payments on existing loans.

• Default Risk: For lower-income members, inflation can exacerbate financial stress, potentially leading to higher delinquency rates. Robust income and expense verification becomes even more critical.

• Operational Costs: Credit unions also face inflationary pressures on their own operational costs, which can indirectly affect lending capacity and pricing.

3. Consumer Spending & Savings: The Shifting Tides

The Forecast: While consumer spending has been robust, forecasts suggest a gradual deceleration as excess savings from the pandemic era diminish and higher interest rates take their toll. Retail sales growth in the U.S. is expected to slow in 2025, as consumer confidence is dampened by persistent inflation and concerns over new tariffs. 

Impact on Lending:

• Demand for Discretionary Loans: Demand for recreational vehicle loans, personal loans for major purchases, and even credit card utilization might soften.

• Focus on Essential Needs: Members might prioritize loans for essential items like home repairs, medical expenses, or debt consolidation, creating opportunities for targeted products.

• Delinquencies: As personal financial cushions shrink, credit unions could see an uptick in delinquencies across various loan types. Proactive member support and financial counseling will be key.

4. Job Market Strength: The Foundation of Repayment

The Forecast: The job market is projected to remain relatively strong, with unemployment rates holding steady or only modestly increasing. However, some sectors may experience headwinds.

Impact on Lending:

• Credit Quality: A healthy job market is generally positive for loan performance, as steady employment provides the income necessary for repayment.

• Underwriting Focus: While the overall picture is positive, credit unions should remain diligent in their underwriting, especially for members in potentially vulnerable industries or those with less stable employment histories.

Strategies for Credit Unions to Thrive

In light of these forecasts, credit unions should consider the following strategic adjustments:

Refine Underwriting & Risk Management: Double down on robust underwriting practices. Leverage advanced data analytics and real-time income verification to gain a clearer, more accurate picture of a borrower's true capacity to repay, mitigating potential default risks in a tighter economic environment.
Diversify Loan Portfolios: While mortgages and auto loans remain core, explore other product lines that align with member needs in varying economic conditions, such as debt consolidation loans, home equity lines of credit, or small business loans.
Emphasize Member Financial Health: Offer financial counseling, budgeting tools, and flexible loan terms. Helping members navigate economic stress not only reinforces your mission but also protects your portfolio.
Leverage Technology: Invest in technologies that provide deeper insights into market trends, member behavior, and loan performance. Digital platforms can also streamline the lending process, making it more efficient and accessible for members.
Stay Agile and Informed: The economic outlook can change rapidly. Regularly review economic indicators, adjust your lending strategies proactively, and communicate openly with your members about the resources available to them.

In today’s unpredictable economic environment, confidence in your lending decisions begins with better data and deeper member insight. Verify4 empowers credit unions to navigate change by providing real-time income and employment verification—reducing fraud, improving risk management, and supporting your mission to serve members responsibly.

Ready to strengthen your lending strategy and member relationships?

Learn more about how Verify4 can help your credit union thrive in any market. Contact us or schedule a demo today.