Entering 2026, inflation has continued to moderate from its post pandemic peak, though it remains above the Federal Reserve’s long run 2% target. Over the past year, price pressures have eased unevenly: goods inflation largely normalized, while services inflation, particularly healthcare and insurance, remains sticky. 

The U.S. labor market is cooling gradually, with slower job growth, more selective hiring and decelerating wage gains. Despite this, unemployment remains low and labor demand is above pre-pandemic levels. These trends, along with persistent inflation, have led policymakers to remain cautious, extending uncertainty about future interest-rate changes and influencing consumer and credit behavior for the year.

Against this backdrop, credit unions should expect the Federal Open Market Committee (FOMC) to maintain a cautious, data dependent posture throughout 2026. With inflation moderating but not yet fully anchored at the Fed’s 2% target and a labor market that remains resilient despite cooling, policymakers have signaled a preference for patience rather than urgency. 

As a result, policy rates are likely to remain steady through the first half of the year, with eventual adjustments coming gradually and later than markets once expected. For credit unions, this suggests a rate environment defined less by sharp pivots and more by prolonged plateaus, requiring disciplined balance sheet management, sustained focus on deposit pricing and careful positioning for eventual, measured policy easing rather than a rapid return to a low rate cycle.

In this environment, credit union investment strategies should emphasize patience, flexibility and balance‑sheet resilience rather than directional rate bets. With policy rates expected to ease gradually, institutions are best served by maintaining laddered portfolios, selectively extending duration at attractive points on the curve and prioritizing predictable cash flows. Incremental duration adds, rather than aggressive positioning, can help lock in yields while managing reinvestment and interest‑rate risk.

At the same time, strong liquidity buffers and diversified cash‑flow profiles remain essential as deposit behavior continues to normalize and loan demand evolves unevenly. The goal is not to time the first rate cut, but to remain well‑positioned across multiple scenarios, ensuring earnings stability today while preserving the ability to benefit as policy eventually transitions towards lower interest rates.

Here are three investment portfolio strategies that are primed to perform well in 2026 and beyond:

1. Maintaining and extending duration in a bond ladder:

Maintaining a well structured ladder remains a particularly effective strategy in the current rate environment, providing predictable cash flows, steady income and protection against interest rate uncertainty. Selectively extending the ladder’s duration, especially at today’s still elevated yields, can further enhance long term earnings by locking in attractive income while rates remain restrictive, without sacrificing liquidity or flexibility. This measured approach helps smooth volatility across rate cycles while positioning portfolios to perform whether rates remain higher for longer or gradually move lower over time.

2. Prioritizing call protection:

New issue agency callable bonds continue to be a popular asset class for credit unions. In an environment where future rate cuts remain a meaningful possibility, prioritizing strong call-protection features is critical. Structures with longer lockout periods and fewer call dates, such as annual calls instead of monthly calls, can help preserve yield and reduce reinvestment risk by limiting the issuer’s ability to refinance as rates fall. By emphasizing call protection rather than simply headline yield, institutions can better align callable exposure with balance sheet objectives while still capturing the relative value that these securities can offer within a diversified portfolio.

3. Seasoned mortgage-backed securities (MBS):

Seasoned mortgage-backed securities bring stability to credit union portfolios by offering steady cash flows and limited sensitivity to refinancing, even if rates drop. Since these pools mainly consist of loans from 2020–2022’s low-rate era, borrowers are unlikely to refinance unless rates fall sharply, keeping prepayment activity low. This reduces volatility, helps manage reinvestment risk and preserves yield, all while maintaining attractive spreads over U.S. Treasuries.

Together, moderating inflation and a cooling labor market highlight the importance of disciplined, long term investment strategies over short term market timing. Credit unions best positioned in this environment will focus on balance sheet resilience, income stability and thoughtful risk management – using tools such as ladders, well protected callable structures and seasoned MBS to navigate uncertainty while preserving opportunity. As rates move toward a more neutral stance, intentionally constructed portfolios will be better equipped to support earnings, liquidity and capital through the next phase of the cycle

As rate uncertainty persists, thoughtful portfolio construction matters more than ever. Connect with Catalyst’s investment experts to discuss how disciplined duration management, structure selection and portfolio design can help position your credit union for stability today and flexibility tomorrow. Schedule a complimentary portfolio review to evaluate how your current strategy aligns with the evolving rate environment.

All securities are offered through CU Investment Solutions, LLC. The home office is located at 8500 W 110th St, Suite 650, Overland Park KS 66210. CU Investment Solutions, LLC registered with the Securities and Exchange Commission (SEC) as a broker-dealer under the Securities Exchange Act of 1934. CU Investment Solutions, LLC is registered in the state of Kansas as an investment advisor. Member of FINRA and SIPC. All investments carry risk; please speak with your representative to gain a full understanding of said risks. Securities offered are not insured by the FDIC or NCUSIF and may lose value. All opinions, prices and yields are subject to change without notice. Any information contained in this email is for institutional investors only.