NCUA’s supervisory stress test (SST) consists of baseline and severely adverse scenarios, which regulation requires the NCUA to provide by February 28 each year. As in past SST exercises, the NCUA’s 2025 SST scenarios follow the domestic scenarios published in the 2025 Stress Test Scenarios document released on February 5, 2025, 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 2025 consensus projections from Blue Chip Economic Indicators and Blue Chip Financial Forecasts. The scenario’s long-range forecast is comparable to the October 2024 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 decreases from 2.3 percent at the end of 2024 to 1.9 percent by the second quarter of 2025 and hovers around that rate for the rest of the scenario.
- Unemployment moves up to 4.3 percent in the first quarter of 2025, stays at that level until the end of 2026 before edging down to 4.2 percent at the beginning of 2027 and staying at that level for the rest of the scenario.
- CPI inflation increases from 2.7 percent at the end of 2024 to 2.8 percent in the first quarter of 2025. It then reaches a low of 2.1 percent in the fourth quarter of 2027, before edging up to 2.2 percent at the end of the scenario.
- Short-term Treasury rates start at 4.4 percent at the end of 2024 to 3.4 percent by the first quarter of 2027, where it remains until the end of the scenario.
- 10-year Treasury securities increase from 4.3 percent at the beginning of the scenario to 4.4 percent in the first quarter of 2025 and then decline gradually to 4.1 percent by the fourth quarter of 2026, where they stay for the rest of the scenario.
- Prime rates move in line with short-term Treasury rates.
- Mortgage rates decline gradually from 6.6 percent at the end of 2024 to 5.6 percent by the second quarter of 2027 and then remain there for the rest of the scenario.
- Corporate bond yields trend up gradually from 5.4 percent at the end of 2024 to 5.9 percent in the second quarter of 2026 and remain around that rate through the end of the scenario.
- Equity prices remain at their level for the fourth quarter of 2024 throughout the scenario. Equity market volatility, as measured by the U.S. Market Volatility Index (VIX), increases modestly over the scenario.
- Nominal house prices and commercial real estate prices increase gradually by 2 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, albeit to a lesser degree than in the 2024 severely adverse scenario.
- Real GDP declines significantly through the first quarter of 2026, before recovering.
- Unemployment increases and peaks at 10 percent in 2026 Q3, a 5.9 percentage point increase relative to its fourth-quarter 2024 level.
- Inflation, measured as the quarterly change in the CPI and reported as an annualized rate, falls from 2.7 percent at the end of 2024 to 1.3 percent in the third quarter of 2025 and then gradually increases to above 1.6 percent by the end of the scenario.
- Short-term Treasuries fall significantly from 4.4 percent at the fourth quarter of 2024 to 0.1 percent by the second quarter of 2025 and remain there for the remainder of the scenario.
- The 10-year Treasury yield falls 3.3 percentage points to 1.0 percent by the second quarter of 2025 and then gradually start to rise in late 2025 to 1.7 percent by the end of the scenario. These interest rate paths imply that the yield curve is inverted in the first quarter of 2025. 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 increases 3.9 percentage points to 5 percentage points by the third quarter of 2025. Corporate bond spreads then gradually decline to 2.0 percentage points by the end of the severely adverse scenario. The spread between mortgage rates and 10-year Treasury yields widens to 2.8 percentage points by the third quarter of 2025 before narrowing to about 1.5 percentage points at the end of the severely adverse scenario.
- The house prices and commercial real estate prices also experience large declines. House prices fall sharply through the third quarter of 2026, reaching a trough that is about 33 percent below their level in the fourth quarter of 2024. Commercial real estate prices experience a slightly smaller decline, reaching a trough in the fourth quarter of 2026 that is 30 percent below their level at the end of 2024. House prices and commercial real estate prices recover slowly and are well below their respective fourth-quarter 2024 values at the end of the scenario.
- Equity prices fall 50 percent from the fourth quarter of 2024 through the fourth quarter of 2025 and do not return to their initial level until the end of the scenario. The VIX, measured as the highest daily closing value per quarter, reaches a peak value of 65 in the second quarter of 2025 and then declines to about 31 at the end of the scenario.