The prospect that interest rates won't fall until late next year — or even 2025 — may be dampening bankers' expectations about loan growth.
More than three-quarters of banking executives said in a recent survey that they expect the Federal Reserve to raise rates again before the end of this year. And over 80% of them said they don't expect rate cuts until at least the third quarter of 2024, according to the survey, which was conducted by the financial services firm IntraFi.
At the same time, some 75% of the bankers who participated in the survey said they expect loan demand either to decrease or remain level over the next 12 months.
Bankers remain pessimistic even though economic projections have
"The perception of the economic outlook has worsened as interest rates have increased," said Weinstein, who is also an economist at Johns Hopkins University. "There is a very strong correlation between loan demand, deposit competition and funding costs, and what the Fed is doing on interest rates."
IntraFi surveyed executives at nearly 600 U.S. banks, mostly smaller lenders.
Since the beginning of 2022, when the Fed began raising rates in response to inflation, the bankers who participate in the survey have become
In the most recent survey, which was conducted earlier this month, 85% of the respondents said they expect economic conditions to become "moderately worse" or stay the same over the next year.
After a series of bank failures earlier this year, and amid both ongoing liquidity constraints and concerns about unrealized losses on securities portfolios, bankers have
"At the beginning of the year, the
Anderson said he's been surprised at how regulatory support for the banking sector and a rebound in consumer spending have helped to prevent worsening economic conditions.
BMO Capital Markets is now forecasting a "sharp slowdown" into next year but no recession, he said.
Last month, economists at some of the country's biggest banks said in a report that
The latest IntraFi survey indicates that bankers' outlook on loan demand has improved somewhat since the end of last year. Some 43% of the respondents said they expect loan demand to worsen moderately or significantly over the next 12 months. At the end of last year's fourth quarter, that number was 53%.
Bankers also seem to have become slightly more optimistic about the outlook for their funding costs.
The number of survey respondents expecting funding costs to increase either moderately or significantly over the next 12 months fell to 77% at the end of the third quarter, compared with 85% during the second quarter and 89% at the end of 2022.
The survey results also suggest that fewer bankers are worrying about deposit competition than was the case previously. Some 77% of the respondents predicted that deposit competition will increase either moderately or significantly over the next 12 months, down from 84% at the end of last year.
Still, Weinstein suggested that high interest rates are likely affecting bankers' views about the economy.
"There's no doubt that rates very much color their outlook on the economy, to a certain extent," he said.
