Banks Tighten Loan Standards, Fueling Recession Fears

U.S. banks are expected to tighten loan standards in the second half of the year due to an uncertain economic outlook, according to the Federal Reserve's quarterly survey of lending activity. Concerns over deposit outflows, potential regulatory risks, and rising funding costs have led to a decreased appetite for riskier loans. This tightening of credit availability could pose a challenge to President Joe Biden's economic agenda and slow down business and job growth as the Federal Reserve raises borrowing costs to combat inflation. While a recession is no longer forecasted, Federal Reserve Chair Jerome Powell acknowledges that banking conditions are tightening, which could restrain economic growth.