Fed Finds Loan Demand Holding Steady, Economy Strong in Most Regions

The Federal Reserve Board on Wednesday said demand for commercial and consumer loans remains strong throughout the country, with some regions also experiencing reductions in delinquencies and personal bankruptcies.

Mortgage lending also rose in most regions as consumers rushed to take advantage of low rates by refinancing.

The Chicago and New York regions experienced a reduction in consumer loans delinquencies, the Fed said in the Beige Book, its periodic review of the country's economic condition. Chicago also saw an increase in credit card repayments and a drop in personal bankruptcy filings.

Still, the Fed warned that stiff competition caused banks to cut commercial loan rates.

Overall, the Fed said the economy remains strong, although it noted that some regions were reporting more moderate growth. Possible causes for the moderation include Asia's financial woes and a drop in new car sales, the Fed said.

Industrial production is on the rise nationwide, and labor markets remain historically tight. "Pressure on product prices remains eerily calm, as domestic competition, productivity gains, and the Asian situation help to constrain costs," the Fed said.

Members of the Federal Open Market Committee will review the Beige Book at their March 31 meeting on interest rate policy. The FOMC last changed rates in March 1997, when it raised the Fed Funds rate 25 basis points, to 5.5%.

Nicholas Perna, chief economist at Fleet Financial Group, discounted the credit quality warnings. "They have to say this," Mr. Perna said. "It's like when your kid goes out of the house on a date and you have to say 'Drive carefully.' If the statement was left out it would be more important."

Joel Naroff, chief economist at First Union Corp., said he does not expect the Fed to change rates on March 31 because it went out of its way to indicate that the Asia crisis is slowing the U.S. economy. "They are on hold," Mr. Naroff said.

Highlights from some Federal Reserve districts include:

Boston. Investors doubled the money earmarked for high-yield bond funds, while international and domestic stock funds experienced net outflows of investment dollars.

New York. Refinancing rose for all types of loans. Deposit rates fell moderately while loan rates dropped sharply.

Chicago. Unseasonably warm weather and low rates caused home-buying boom. Refinancing up sharply. Asian lenders withdrawing from commercial loan market.

St. Louis. Total loans up 2.4% from 1996, led by 3.3% increase in real estate lending.

Minneapolis. Price competition "intense." Bankers worried about future credit quality.

Kansas City. Loan-to-deposit ratios steady. Money market account balances up slightly, NOW account balances lower.

Dallas. Increase in home mortgages and refinancings. Seasonal drop in new car loans. Credit quality steady.

San Francisco. Banks "healthy" overall, but Pacific Northwest-based institutions report deteriorating credit quality. California banks experiencing personnel shortages.

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