by Brian Clark, Knowledge Leaders Capital
The Fed’s concern about U.S. banks dominated last month’s FOMC meeting. According to today’s release of the March 21-22 meeting minutes, the Fed was apparently so concerned over banking problems and the potential for an ensuing credit crunch that officials tempered calls for rate hikes, and now see a deceleration in inflation to 2% in 2024, faster than previously forecasted. In particular, the Fed worried about small businesses getting cut off from credit due to deposit outflows and concerns over profitability at regional and community banks. New data seems to be backing up these concerns.
Most recently, the NFIB’s Small Business Optimism Survey, which represents some 30 million independent businesses in the US, shows an increasing number of companies reported finding it more difficult to find loans. The NFIB’s Loan Availability measure indicates that on net, 9% of companies that regularly borrow are finding it harder to obtain loans, the highest since 2012.
Additionally, In the recent Dallas Fed’s Banking Conditions Survey, bankers reported loan demand falling for the fifth month in a row, possibly reflecting businesses giving up on obtaining loans.
While the definitive report on bank credit conditions, the Fed’s Senior Loan Officer Opinion Survey (SLOOS) doesn’t come out until early May, recent data and anecdotes suggest a continuing tightening of credit. As Steve wrote on Monday, bank deposit flight and the contraction of bank assets, along with these recent surveys, show that the Fed was right to be concerned about a worsening bank credit situation and its potential economic impact.
