US Economy News Today: Banks Made Loans Harder To Get In First Quarter

Federal Reserve Officials Say They Still Need More Inflation Data

On the first day of a busy week of public speaking engagements, Federal Reserve officials remained uncommitted to any definitive timeline for interest rate cuts.

With inflation climbing higher than expected, several Fed officials have remained vague about when investors could expect a change in interest rates, which currently sit at two-decade highs. 

In a question and answer session at the Milken Institute Global Conference, New York Federal Reserve Bank President John C. Williams didn’t offer any additional timeline on rate cuts, arguing that Fed officials needed to see more data on inflation.

Williams also said the war in Ukraine served to help amplify inflationary forces. If not for that conflict, inflation would have declined more rapidly, he said. 

In remarks to the Columbia, S.C. Rotary Club today, Richmond Fed President Tom Barkin preached more patience on interest rates, arguing the strong economy gave Fed officials more time to collect data on inflation. 

“Data matter for policy, and with this data whiplash over the last few months, it is natural to wonder whether we are experiencing a real shift in the economic outlook or merely one of the bumps we said we expected along the way,” Barkin said.

-Tery Lane

Banks Made Loans Harder To Get In First Quarter

The bar for borrowing money keeps getting higher, and fewer people are interested in clearing it.

Banks toughened lending standards in the first quarter, making it harder for individuals and businesses to borrow money, the Federal Reserve said Monday, citing a quarterly survey of bank senior loan officers carried out in April.

Banks tightened standards for car loans, credit cards, home equity loans, and other consumer loans, as well as commercial and industrial loans and commercial real estate loans according to the survey, which included responses from 66 domestic banks and 20 U.S. branches and agencies of foreign banks. There was less demand for those loans as well.

The report confirms that the Fed’s rate hike campaign has had the desired effect—discouraging borrowing and lending. However, high interest rates haven’t slowed the economy as much as anticipated, partly because many people and businesses secured loans during the easy-money pandemic era when interest rates were ultra-low.

How Is the Economy Still Going Strong?

Experts were caught off guard last week when a report showed employers added far fewer jobs in April than economists had expected. But perhaps the most surprising thing about the downshift in the labor market was that it didn’t happen sooner. 

Ever since the post-pandemic economic recovery began, many economists have been waiting for the other shoe to drop. They've thought the rapid economic growth of 2022 and 2023, fueled by ultra-low interest rates during the pandemic era, would come crashing down as the Federal Reserve’s campaign of anti-inflation interest rate hikes throws sand into the economic gears at every level.

Among the reasons that hasn't happened: A lot of people and companies are still benefiting from low-interest rate loans they secured during the pandemic, according to Torsten Slok, chief economist at Apollo, in a commentary Sunday. 

For example, 40% of homeowners don’t have a mortgage, and 95% of mortgages are 30-year fixed that are not sensitive to the Fed raising interest rates.

Slok isn’t the first economist to explain why the economy has defied expectations lately, but his commentary summarizes the leading reasons in one place.

Homebuyers, Renters See Housing Costs Rise Higher in 2024

Both homebuyers and renters are bracing for more inflation in the real estate market this year, reversing some of their optimism from last year that housing prices could slow.

In its 2024 housing survey, the New York Federal Reserve found consumers expect home prices to grow by 5.1% in the year ahead, the second-highest reading in the annual report that is part of the bank’s Survey of Consumer Expectations. Renters expect even more of a hike, with survey respondents pointing to a 9.7% annual rise in rent prices, coming after last year’s survey showed both renters and homeowners expected prices to cool. 

-Terry Lane