The latest Senior Loan Officer Opinion Survey on Bank Lending Practices reveals banks plan to continue tightening for the balance of 2023
The federal funds rate, the interbank lending rate set by the Federal Reserve, has increased from 5.25% to 5.5%, the highest level in 22 years. The Fed’s intention in recent increases of the federal funds rate is to slow growth by raising the cost of borrowing to help reduce inflation back down to its target of 2%.
In addition to rate increases, banks can tighten credit standards to slow growth. Tighter credit standards combined with a higher cost of borrowing can cause consumers to pull back on spending for goods and services.
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