As investors try to gauge the fallout from recent turmoil in the banking system, today’s release of the Senior Loan Officer Opinion Survey conducted by the Federal Reserve (Fed) takes on added significance.1 This quarterly survey, which showed credit standards tightening prior to the recent bank failures, will include new data on consumer and real estate lending conditions. Commercial real estate loans and the office property sector, in particular, are being followed closely as the next areas of potential stress emerging for small and medium-sized banks.
Last Friday’s employment report again came in stronger than estimates, with job gains of more than 250,000 and the unemployment rate at the lowest level since the 1960s.2 Labor market conditions remain too tight for Fed policymakers to take comfort that wage and inflation pressures may be easing.
Fed officials will be looking for better news in this week’s inflation data. A modest uptick is expected for the monthly data on consumer prices out Wednesday and producer prices on Thursday.3 The year-over-year data is expected to show more favorable trends but the Core Consumer Price Index is forecasted to come in at 5.5%, well above the Fed’s 2% target.4 The Fed’s balancing act between bringing inflation down to its target level and maintaining financial stability is almost certain to remain a challenge.
1Board of Governors of the Federal Reserve System – Senior Loan Officer Opinion Survey on Bank Lending Practices; 5/8/2023
2CNBC – Job growth totals 253,000 in April, beating expectations even as the U.S. economy slows; 5/5/2023
3MarketWatch – U.S. Economic Calendar; as of 5/8/2023
4Bloomberg Terminal; 5/8/2023
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