Future Growth Outlook and Price Changes
The U.S. central bank indicated that expectations for future growth were mostly unchanged, although two districts saw outlooks deteriorate. Contacts expected relief from input cost pressures but anticipated more frequent price changes compared to previous years.
Fed Report Addresses Impact of Regional Bank Failures
The Fed's latest report offers a snapshot of business, bank, and working conditions following the mid-March failure of two large regional banks, which prompted an emergency response from regulators to contain the fallout.
Interest Rate Hike and Inflation Concerns
Fed policymakers raised the benchmark overnight interest rate by a quarter percentage point despite concerns about high inflation. They also signaled the end of an aggressive policy tightening period, with one last quarter-percentage-point hike expected before a prolonged holding period.
Credit Tightening and Lending Activity Amid Bank Failures
Although the initial banking stress appears to have waned, Fed policymakers are closely watching for signs of banks pulling back on lending and tightening credit, which could further slow the economy and inflation.
Tighter Credit Conditions and Declining Loan Demand
The report highlighted tighter credit conditions following the banking sector issues, with lending volumes and loan demand decreasing for households and businesses. Last month's bank failures will reduce the credit supply in the coming months.
Regional Impact on Lending and Economic Outlook
Several Fed districts, including the San Francisco Fed district, reported tightened lending standards and weaker overall economic outlooks due to increased uncertainty and liquidity concerns.
Mixed Impact on Districts and Inflation Pressures
Some districts, such as Chicago and Cleveland, experienced little change in credit availability and limited impact on business activity following the collapse of Silicon Valley Bank.
Inflation Pressures Moderating
The Fed report stated that inflation pressures had moderated but remained widespread, with fewer businesses expecting price increases. Wage increase expectations were also anticipated to continue moderating.
Upcoming Rate-Setting Meeting to Assess Inflation
The Fed targets 2% inflation and will receive a fresh monthly read on the personal consumption expenditures price index just days before their May 2-3 rate-setting meeting.
