Credit conditions for U.S. business and households continued tightening in the first months of the year, according to a Federal Reserve survey of bank loan officers, but the results seemed to mark the accumulating impact of Fed monetary tightening rather than the cliff-like decline in credit some feared after the March collapse of Silicon Valley Bank.
The Fed's quarterly Senior Loan Officer Opinion Survey, or SLOOS, among the first measures of sentiment across the banking sector since the recent run of bank failures, showed a net 46.0% of banks tightened terms of credit for a key category of business loans for medium and large businesses compared with 44.8% in the prior survey in January - a modest, stepwise change.
On the consumer side, banks said soft demand prevailed again for credit card, automobile and other forms of household credit, although not to the degree seen at the end of last year. Banks on balance showed diminished willingness to provide consumer installment loans, and were also limiting the size of auto loans for example."It wasn’t a sea change...The tightening in standards probably wasn’t as severe as one might imagine given the banking stress," wrote J.P. Morgan Chief U.S.
The Federal Reserve has been raising interest rates aggressively to control inflation since March of 2022, and a main way that works is by increasing the cost of borrowing money for businesses and households and discouraging major investments and purchases. The impact was felt quickly through things like rising home mortgage rates, and the last three SLOOS surveys, dating to the start of the rate hikes, have shown a rising net share of banks tightening standards.
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