A key financial indicator has shifted into negative territory, signaling concerns for the U.S. economy.
What Happened: Bank credit has been shrinking for three consecutive quarters, a trend not seen since 2010 and only the second time in over half a century, with the last instance occurring during the Great Recession.
This contraction in bank credit, as reported by the Board of Governors of the Federal Reserve System, is raising alarms about the economic outlook.
Several prominent figures in the financial world, including investor Jeffrey Gundlach and private-equity billionaire Henry Kravis, have expressed a bleak outlook for the economy. Economists like David Rosenberg and Steve Hanke, along with market analyst Gary Shilling, are also predicting a significant downturn, with Shilling suggesting that a recession might already be in progress, reported Business Insider.
The decrease in bank credit signifies that companies are borrowing less due to the increased cost of loans, a consequence of the Federal Reserve’s interest rate hikes.
These hikes, which raised rates from near-zero to approximately 5.5% between March 2022 and July 2023, were aimed at curbing high consumer prices but have also made it more difficult for businesses to access credit.
Despite these challenges, the U.S. economy managed to evade a recession last year, partly due to robust consumer spending that led to a 4.9% GDP growth in the third quarter.
However, this growth is expected to have slowed to about 1.3% in the last quarter of 2023.
The concept of a “soft landing,” where inflation is reduced without triggering a severe recession, remains a topic of debate among economists and financial leaders.
While Treasury Secretary Janet Yellen has expressed optimism about achieving this balance, JPMorgan Chase CEO Jamie Dimon remains skeptical about such a scenario.
“I still think the chance of it not being a soft landing are higher than other people,” Dimon told Fox Business earlier this month.
This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.