WASHINGTON - Higher interest rates cooled loan demand around much of the country in the last six weeks, the Federal Reserve Board reported Wednesday.

"Looking ahead, the consensus among the bankers contacted for this report is that overall loan growth will slow during the second half of the year," the Federal Reserve Bank of Philadelphia reported.

Commercial lending and mortgage finance appeared to be hardest hit by the recent run-up in interest rates, according to the "beige book," a periodic survey of economic conditions in the Fed's 12 districts.

Growth "in lending activity slowed in recent weeks as interest rates moved higher," the Richmond Fed reported. "Most bankers we spoke with said that while their local economies remained vibrant commercial lending activity was losing steam."

New residential mortgage lending was "sluggish," and refinancings "dropped markedly," it added. "Lenders expressed growing concern that higher interest rates would reduce lending activity further."

The Federal Open Market Committee, the central bank's monetary policy panel, considers the beige book's contents when making interest rate decisions. The committee next meets June 27-28. In the past year the Fed has raised the federal funds rate six times; the last increase was 50 basis points, to 6.5%, on May 16.

The beige book said the most recent tightening appears to be having its intended effect.

"Reports from the Federal Reserve districts indicate that solid economic growth continued in April and May but that signs of some slowing from the rapid pace earlier in the year are also present," the Fed said. "All but Minneapolis said scattered signs of cooling are in evidence or the pace of growth is slowing."

According to the New York Fed, "virtually all survey respondents continued to report higher interest rates on all categories of loans. More than three-quarters also said they have raised the price paid for deposits."

Bankers told the Fed that credit quality remains good and underwriting standards steady.

The Chicago Fed quoted one banker as saying, "Nearly all banks are taking a closer look at deals, particularly for commercial real estate loans."


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