WASHINGTON - Demand for loans remained strong last month, although banks in some regions are cutting rates and easing credit standards to retain their market share, the Federal Reserve Board reported Wednesday.
Competition is particularly fierce in the Atlanta and St. Louis districts, the Fed said in the Beige Book, its periodic review of the country's economic condition.
Consumer loans grew in the Cleveland, Kansas City, Dallas, and St. Louis districts, while mortgage lending rose in Atlanta, Richmond, New York, Cleveland, Dallas, and Philadelphia, the Fed said.
Overall, the Fed said the economy continued its slow-growth course, with inflation well under control. Retail sales were strongest in the center of the country, with both coasts reporting weaker numbers.
Labor markets remained tight, but wages were flat, the Fed said. Also, wholesale price increases moderated while retail prices were unchanged.
Bank economists said the Beige Book's economic forecast bodes well for financial institutions.
"From the point of view of credit quality and loan growth, the economy does not appear headed for recession," said Lynn Reaser, chief economist at First Interstate Bank in Los Angeles and incoming chairwoman of the American Bankers Association's Economic Advisory Committee. "That is good news for banks."
But Ms. Reaser said the torrid loan growth won't last. "Loan demand is likely to be slowing down from the pace we have seen as inventories are built up at a slower pace," she said.
Sung Won Sohn, chief economist at Norwest Corp., said banks should not overreact to the drop in credit quality standards. "It is still a much higher hurdle than in the 1980s," he said.
Mr. Sohn said he expects the Federal Open Market Committee - which sets interest rate policy for the central bank - to keep rates steady when it meets on Aug. 22. But cuts could come late this year or in early 1996, he said.
"That would help bank margins and their bond portfolios," he said.