Federal Reserve officials painted a bleak picture of the credit industry in its monetary policy meeting last month, pointing to a widespread contraction in commercial, industrial and household loans.
In addition, “consumer loans originated by banks declined, primarily reflecting a large drop in credit card loans,” according to the minutes released today from the Federal Open Market Committee meeting on March 16.
The Fed maintained the near zero benchmark rate, repeating the outlook that a moderate pace of economic recovery calls for “exceptionally low levels of the federal funds rate for an extended period.”
The target range for the federal funds rate has been at 0 to .25 percent since December 2008.
The meeting’s notes made clear that tightening of credit – combined with declining demand – continues, mostly unabated.
“Total bank credit contracted substantially in January and February,” the minutes read. “Banks’ securities holdings declined at a modest pace after several months of steady growth, and total loans on banks’ books continued to drop.”
Interest rate spreads on commercial and industrial loans over comparable-maturity market instruments climbed further in the first quarter, and “nonfinancial firms’ need for external finance apparently remained subdued. “
Household loans also contracted, partly because of a pickup in bank securitizations of first-lien residential mortgages with the government-sponsored enterprises, Fannie Mae and Freddie Mac, in February.
“In contrast, other consumer loans – including auto, student, and tax advance loans – were roughly flat during January and February,” the minutes read.
