The Fed's May 4 survey showed banks tightening lending standards at more than double the prior quarter's pace, a swing well past the range the central bank calls steady. A follow-up July reading found commercial and industrial loan standards basically unchanged, even as credit card standards tightened and demand for residential real estate loans weakened.
Lending standards double their pullback
The Fed's May 4 Senior Loan Officer Opinion Survey found the net percentage of banks reporting tighter lending standards dropped to -26.8%. That's more than double the previous quarter's -12.9% reading.
By the central bank's own scale, a net reading between 0% and 5% counts as basically unchanged. This quarter's figure landed far outside that range.
That survey polls roughly 80 large domestic banks and 24 US branches of foreign institutions on whether they tightened or eased credit standards, how loan demand shifted and what terms they offered borrowers. Because the results feed directly into Federal Open Market Committee deliberations, a pullback of this size acts like a form of monetary tightening on its own. It runs independently of whatever the Fed does with interest rates.
Commercial loans steady, other categories mixed
But one category held little changed by the Fed's next quarterly check. Reuters reported that banks described standards for commercial and industrial loans as basically unchanged for roughly the second quarter. Demand for such loans strengthened among large and middle-market firms.
Household lending told a different story. Standards for residential real estate loans stayed mixed while demand for them weakened.
Banks also tightened standards for credit card loans amid stable demand. Standards for auto and other consumer loans stayed unchanged, though demand for car loans eased.
Rates on hold as inflation lingers
Lenders are adjusting standards against a backdrop of persistently strong inflation, even as growth stays solid and the job market holds stable, Reuters said. The Fed held its benchmark rate range at 3.5% to 3.75% last week, with Chairman Kevin Warsh declining to give guidance on the path ahead.
The Fed releases its next SLOOS survey in August. Traders can track the weekly H.8 report on commercial and industrial loan growth for a more real-time read between now and then.
Sources: Crypto Briefing, Investing.com
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