2024 Stress Testing Scenario Summary

February 2024

NCUA’s supervisory stress test (SST) consists of baseline and severely adverse scenarios, which regulation requires the NCUA to provide by 28 February each year. As in past SST exercises, the NCUA’s 2024 SST scenarios follow the domestic scenarios published by the Federal Reserve Board of Governors (FRB) for use in FRB’s stress testing of large banks.

The near-term portion of the baseline scenario is similar to the January 2024 consensus projections from Blue Chip Economic Indicators and Blue Chip Financial Forecasts. The scenario’s long-range forecast is comparable to the October 2023 Blue Chip releases. The severely adverse scenario depicts the onset of a hypothetical severe global recession, with prolonged declines in both residential and commercial real estate prices, which spill over into the corporate sector and affect investment sentiment. These scenarios follow the FRB’s Policy Statement on the Scenario Design Framework for Stress Testing and do not represent forecasts of the NCUA or the FRB.¹

A summary of each scenario follows:

Baseline Scenario – The baseline scenario for the United States features an initial slowdown and then a gradual recovery.

• Growth in real GDP increases from 1.5 percent at the end of 2023 to 1.9 percent by the end of the scenario.
• Unemployment increases from 3.7 percent at the end of 2023 to 4.1 percent at the end of the scenario.
• CPI inflation declines from 2.8 percent to a trough of 2.2 percent in the second quarter of 2025 and then remains relatively constant for the rest of the scenario.
• Short-term Treasury rates start at 5.3 percent, and then fall to 3.1 percent at the end of the scenario.
• 10-year Treasury securities decline from 4.5 percent to 3.6 percent over the 13-quarter scenario.
• Prime rates move in line with short-term Treasury rates. Mortgage rates and corporate bond yields decrease in line with long-term Treasury rates.
• Equity prices remain at their level for the fourth quarter of 2023 throughout the scenario. Equity market volatility, as measured by the U.S. Market Volatility Index (VIX), increases modestly over the scenario horizon.
• Nominal house prices and commercial real estate prices increase gradually by 1.5 percent per year over the scenario.

Severely Adverse Scenario – The severely adverse scenario characterizes a severe global recession, including prolonged declines in both residential and commercial real estate prices, which spill over into the corporate sector and affect investment sentiment.

• Real GDP declines significantly through the first quarter of 2025, before recovering.
• Unemployment increases in the scenario’s first quarter and peaks at 10 percent in 2025 Q3. Unemployment slow decreases through the rest of the scenario.
• Inflation, measured as the quarterly change in the CPI and reported as an annualized rate, falls from 2.8 percent at the end of 2023 to 1.3 percent in the third quarter of 2024 and then gradually increases to above 1.6 percent by the end of the scenario.
• Short-term Treasuries fall significantly to 0.1 percent by the third quarter of 2024 and remain there for the remainder of the scenario.
• The 10-year Treasury yield falls by nearly 3.7 percentage points by the second quarter of 2024, and then gradually rise in late 2024 to about 1.5 percent by the end of the scenario. These interest rate paths imply that the yield curve is inverted in the first quarter 2024. Thereafter, the slope of the yield curve becomes positive and steepens over the remainder of the scenario.
• Conditions in corporate bond markets deteriorate markedly. The spread between yields on BBB- rated bonds and yields on 10-year Treasury securities widens to 5.8 percentage points by the fourth quarter of 2024, an increase of 4.1 percentage points relative to the fourth quarter of 2023. Corporate bond spreads then gradually decline to 2.3 percentage points by the end of the scenario. The spread between mortgage rates and 10-year Treasury yields widens to 3 percentage points by the third quarter of 2024 before narrowing to about 1.6 percentage points at the end of the scenario.
• The House Price and Commercial Real Estate Price indices fall sharply through 2025 Q3 and modestly increase from the low by the end of the scenario.
• Equity prices fall 55 percent from the fourth quarter of 2023 through the fourth quarter of 2024, and do not return to their initial level until the end of the scenario.