Worrisome News From The Fed
From the Wall Street Journal’s Real Time Economics Blog yesterday:
U.S. banks continued to tighten their standards on loans to households and businesses in the second quarter, said a Federal Reserve study that also shows that many banks think the credit tightening trend could continue into the first half of 2009…
About 60% of the domestic banks surveyed reported having tightened lending standards to large and middle-market businesses. That’s up slightly from what was reported in the last Fed survey conducted in April and released in May. About 65% of the institutions, a percentage that is also up from the previous survey, also said they had tightened their lending standards on so-called commercial and industrial loans, also known as C&I loans, to small firms over the same period…
In addition, a significant portion of the banks surveyed reported having tightened their lending standards on prime, nontraditional and subprime residential mortgages over the previous three months. About 75% of domestic respondents, which is up from 60% in the previous survey released in May, said they had tightened their lending standards on prime mortgages. Also, six out of seven respondents that originated subprime mortgage loans, which is a higher proportion than what was reported in the previous survey, indicated that they had tightened their lending standards on those loans over the past three months.
Turning to the results of the survey’s consumer lending questions, about 65% of domestic banks indicated that they had tightened their lending standards on credit card loans over the past three months, which is up remarkably from the 30% reported in the survey released in May.
From Reuters’s John Parry earlier today:
U.S. economic growth is expected to slow more sharply in the coming months than previously forecast with employers shedding staff into next year, according to a Philadelphia Federal Reserve survey released on Tuesday.
Economists lowered their forecasts for third-quarter gross domestic product growth to a 1.2 percent annual rate from the previous 1.7 percent estimate, according to the bank’s quarterly Survey of Professional Forecasters.
“Growth in U.S. real output over the next few quarters looks slower now than it did just three months ago,” the Philadelphia Fed said on its Web site.
In the fourth quarter, the U.S. GDP growth forecast was slashed to 0.7 percent growth, from the previous 1.8 percent forecast…
The current survey also forecast the U.S. unemployment rate would be 5.7 percent in the third quarter, above its previous 5.4 percent forecast, then rising to 5.8 percent in the fourth quarter.
“A weaker near-term outlook for the labor market accompanies the outlook for slower output growth,” the Philadelphia Fed said.
From MarketWatch’s Rex Nutting today:
The U.S. economy faces a prolonged period of anemic growth, but that’s no reason to get complacent on inflation, said Dallas Fed President Richard Fisher in an interview with the Dallas Morning News published Tuesday. “I expect that in the second half of this year we will broach zero growth,” he said. Fisher, a voting member of the Federal Open Market Committee who’s been on the losing side on the past five votes on interest rates, said the credit crunch is worse than the S&L crisis of the late 1980s.
Sources:
“Fed Study: Banks Tighten Credit on Households, Businesses”
Night Editor
Wall Street Journal (Real Time Economics Blog), August 11, 2008
“UPDATE 1-US economy seen slowing more sharply-Philly Fed”
John Parry
Reuters, August 12, 2008
“Fed’s Fisher expects close to zero growth this year”
Rex Nutting
MarketWatch, August 12, 2008
Leave a Reply