US banks, on the other hand, are adopting a more cautious approach as Wall Street traders continue to be bullish about the Federal Reserve’s capacity to control inflation without sending the country into a recession.
Lenders anticipate tightening loan conditions across the board in the second half of the year, according to the Fed’s quarterly survey of lending activities, citing an uncertain economic outlook.
US Banks Warn of Tighter Loan Conditions
An increasing aversion to riskier loans was shown by the poll, which was conducted in June and received answers from banks. This resistance was attributed to worries about deposit withdrawals, potential regulatory issues, and increased operational expenses.
President Joe Biden’s economic plan, dubbed “Bidenomics,” may face difficulties as a result of this tightening of credit availability because it could slow the money flow needed for job and business growth.
This is especially true as the Federal Reserve raises borrowing costs in an effort to control inflation. Although US banks have been warning about the potential for tighter loan conditions for a while, some of their initial worries have subsided recently.
The KBW Nasdaq Regional Banking Index, which tracks the shares of smaller and mid-sized lenders, has significantly increased by more than 30% since mid-May, signaling this easing.
Jerome Powell, the chairman of the Federal Reserve, has issued a warning that banking conditions are certainly tightening despite the Fed’s officials no longer predicting a recession.
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Balancing Inflation and Growth
Despite the fact that bank lending increased significantly over the previous year, he pointed out that this process of tightening will probably slow economic growth.
The divergent viewpoints of Wall Street traders and US banks complicate the economic picture as it deals with inflation uncertainty and probable economic slowdowns.
Striking a balance between reining in inflation and retaining enough credit availability to support economic development and recovery will be a challenge for President Biden and policymakers.
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