Curve Inversion May Lead U.S. Banks to Tighten Lending Standards
- Fed loan officer survey shows banks warning about inversion
- Lending shift by banks could add headwinds to economic growth
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For all the questions over the outlook for the U.S. Treasury yield curve, one thing looks clear: If it inverts, banks will tighten lending standards, potentially adding headwinds to economic growth.
Federal Reserve policy makers and market participants alike have been watching this year as the gap between short- and longer-term rates has narrowed. In August, the curve from 2 to 10 years reached the flattest since 2007, in part as traders priced in Fed policy tightening. Historically, recession has followed inversions, though it’s unclear why that relationship exists.