Tougher lending standards pose risk to outlook for Fed
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.