The Federal Reserve's widely followed Senior Loan Officer Opinion Survey, which was published on Monday, demonstrated that as credit conditions were tightened, demand also decreased. Regarding consumer loans, the survey declared that banks "reported having made credit card loans and other consumer loans more rigorous."
On Monday, the Federal Reserve released its highly scrutinized Senior Loan Officer Opinion Survey showing that lending conditions in U.S. banks are tightening and likely to become more stringent. Demand for loans has decreased accordingly as well. This is an important development because economists anticipate that a likely cause of an impending recession will be sourced from the banking system, which has had to adjust to the eleven interest rate hikes and a brief crisis in March when three mid-size institutions failed. The survey summary from the Fed indicated that banks expect to further tighten standards for all loan categories in the second half of 2023, primarily due to an unfavorable economic outlook, the deteriorated value of collateral, and reduced credit quality. Regarding consumer lending, banks have strengthened credit requirements and decreased credit limits. The survey also noted that for the $2.76 trillion commercial and industrial loan sector, a 'major' share of banks reported lower demand for loans due to stricter standards. Similar trends were evident in the commercial real estate front. The Fed is fully aware of the situation in the banking sector, but is still raising the interest rate to try to regulate inflation. In his post-meeting conference last week, Powell declared that the loan survey result is expected to be in line with the expectation of "tight and getting tighter" credit conditions in the economy. The key interest rate has been raised to a target range of 5.25%-5.5%, its highest in over two decades.
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