Economic outlook ‘stable,’ although ‘weakening’ financial conditions also indicated

Overall economic outlook over the next six months for business contacts remained stable and generally optimistic in the Federal Reserve’s latest survey, although an “elevated degree of uncertainty” was also highlighted, the agency said Wednesday.

Additionally, the Fed’s latest Beige Book reported that banking contacts in its reserve bank districts “indicated some weakening of financial conditions, although loan demand was generally unchanged.”

The Federal Reserve’s Beige Book, published eight times a year, summarizes comments received from outside the Federal Reserve System and, the Fed notes, is not a reflection of the views of Fed officials. The latest report covers the period ending Feb. 18.

Among districts reporting banking activity, the New York Fed said small to medium-sized banks across its district reported weaker demand for consumer loans and residential mortgages but steady demand for commercial loans and mortgages. The bank also noted refinancing activity was steady, “though one contact noted strong demand from the commercial segment, reportedly driven by the potential for higher rates in the coming months.”

The Atlanta bank reported “stable” conditions for financial institutions, but it noted that loan growth “across most portfolios was obscured by the number of forgiven commercial and industrial Paycheck Protection Program loans.”

In Chicago, the reserve bank reported financial conditions deteriorated some over the reporting period. It also noted that “while the quantity of auto loans declined, loan values were up enough to result in an increase in the dollar value of auto lending.“ In St. Louis, the reserve bank observed that liquidity for local banks remained elevated due to pandemic-related government assistance, “but bankers reported difficulties in finding investments to deploy excess funds.” Overall delinquency rates decreased modestly, with a report that asset quality metrics were “historically strong.”

Meanwhile, the San Francisco bank reported that a financier in Arizona “highlighted that lending conditions within traditionally underserved communities remained quite tight.”

Federal Reserve Beige Book, March 2, 2022