After First Republic Bank bit the dust last week, the Federal Reserve signaled a pause in rate increases could be on the table at the next meeting in June.
Tighter lending practices are to thank for that potential rate hike reprieve. On the heels of this year’s third bank collapse, regional lenders fearing liquidity issues will rein in debt offerings.
Fewer loans means less spending by consumers and businesses, which could satisfy the Fed’s quest to bring down inflation.
“The question becomes: Will the tightening of credit conditions to retain or improve liquidity by those banks be enough to significantly slow economic activity?” said Fannie Mae Chief Economist Douglas Duncan.
That is, will the banking sector do the Fed’s job for it?
Listen to the latest episode of The Real Deal’s Deconstruct podcast for a look at what the bank collapses and the Fed’s potential pause spell for mortgage rates and home sales, and how this financial downturn compares to the Global Financial Crisis of 2007-2008.
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Deconstruct is available on Apple, Spotify, Stitcher, Pandora and on TheRealDeal.com.