Fed Beige Book "Financial Conditions Worsen After SVB Incident, Loan Decline"

The bankruptcy of the U.S. Silicon Valley Bank (SVB) has worsened financial conditions, leading to a decrease in loan volumes, according to reports. It was also diagnosed that employment growth is somewhat slowing down despite no significant changes in overall economic activity.

The U.S. central bank, the Federal Reserve (Fed), stated in its Beige Book economic report released on the 19th (local time) that "both consumers and businesses nationwide generally saw a decrease in loan volumes and loan demand." This assessment covers the economic conditions in the 12 Federal Reserve Bank districts from the end of February through the 10th of this month. It will be used as foundational data for the Federal Open Market Committee (FOMC) regular meeting scheduled for May 2-3.

[Image source=Reuters Yonhap News]

This Beige Book, the first released since the SVB incident, drew attention for including an analysis of the banking sector crisis. The Beige Book reported that "amid rising uncertainty and concerns about liquidity, many districts saw banks tighten lending standards," indicating a deterioration in financial conditions. It also mentioned that compared to the previous Beige Book release, banking and some commercial real estate activities have significantly retreated.

In the San Francisco Fed district, where SVB is located, it was reported that "residential and commercial real estate activities declined, and lending activities sharply decreased." It also included reports that some communities faced difficulties providing free food, shelters, and services due to worsening credit conditions and reduced donations. The New York Fed district also reported that "recent banking sector stress has sharply worsened conditions across the broad financial sector."

The Beige Book diagnosed that overall economic activity in the U.S. has seen little change in recent weeks. Nine districts reported no or slight changes in economic activity, while three districts showed modest growth. Consumer spending, which accounts for two-thirds of U.S. economic activity, was also confirmed to be "generally the same or slightly decreased" compared to the previous report.

However, employment growth appears to be somewhat slowing. It was mentioned that the pace of employment growth has slowed in many regions. Reports indicated that some companies announced large-scale layoffs and are freezing or reducing hiring. Wage growth has slowed but remains at a high level. Inflation was also reported as "overall price levels have risen at a moderate pace, but the rate of increase seems to be slowing."

Currently, the market strongly anticipates that the Fed will take a baby step by raising the benchmark interest rate by 0.25 percentage points in May. According to the Chicago Mercantile Exchange (CME) FedWatch, as of this afternoon, federal funds futures markets reflect more than an 86% probability of a baby step in May. The previously expected rate cuts in the second half of the year have weakened compared to a few weeks ago. Raphael Bostic, president of the Atlanta Federal Reserve Bank, appeared on CNBC yesterday and said, "One more move (a 0.25 percentage point rate hike) should be sufficient," but dismissed the possibility of cuts due to high inflation and other reasons. Major foreign media outlets evaluated that the Beige Book supports the Fed's baby step in May and a hold in June.

This content was produced with the assistance of AI translation services.