Tougher lend­ing stan­dards pose risk to out­look for Fed

The Pak Banker - - FRONT PAGE -

A re­cent tight­en­ing of credit for U.S. com­pa­nies is threat­en­ing to un­der­mine eco­nomic growth, mak­ing it less likely the Fed­eral Re­serve will raise in­ter­est rates any­time soon.

Fed Chair Janet Yellen said this week it was still too soon for the cen­tral bank to change its view that rate hikes are needed, a po­si­tion sup­ported by a still-ro­bust pace of hir­ing that is help­ing con­sumers bor­row more read­ily.

But a tight­en­ing of lend­ing stan­dards for U.S. busi­nesses and ris­ing cor­po­rate credit spreads sug­gest global fi­nan­cial mar­ket tur­moil could lead the Fed next month to sig­nal fewer rate hikes this year than the four in­creases pol­i­cy­mak­ers sig­naled in De­cem­ber.

"Fi­nan­cial con­di­tions are tight­en­ing the Fed's belt," Deutsche Bank, which ex­pects one rate in­crease this year, said in a note to clients on Fri­day. A net 4.2 per­cent of banks tight­ened stan­dards on U.S. com­mer­cial and in­dus­trial loans to small firms in the fourth quar­ter, the high­est level since late 2009, when the United States was just emerg­ing from a deep re­ces­sion, ac­cord­ing to the Fed's Se­nior Loan Of­fi­cer Opin­ion Sur­vey. While U.S. banks are still mak­ing it eas­ier to get credit cards, tighter credit stan­dards for small com­pa­nies sug­gest global fi­nan­cial stress is spread­ing be­yond ex­port-ori­ented U.S. com­pa­nies.

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