US banks have observed a fresh decline in loan demand for industrial purposes and household demand for credit during the first quarter of the year, according to a Federal Reserve survey of senior loan officers released Monday.

US Banks See Weaker Loan Demand

According to Reuters, Fed officials took these survey findings into account last week when they opted to maintain the policy rate within the 5.25%-5.5% range, indicating their intention to keep them there as long as necessary to bring down inflation. 

That is because tightening monetary policies usually alleviates inflationary pressures by curbing loan demand through increased borrowing costs. This trend was evident in the first quarter, with some exceptions noted in commercial real estate lending, where credit supply and demand improvements were observed.

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Weaker Economic Activity

Nationwide economist Ben Ayers told Reuters that reduced credit availability affects many consumers and businesses, especially with the Fed's plan to maintain higher interest rates until 2025. Ayers noted that this scenario could potentially weaken economic activity and make the economy more vulnerable to unexpected shocks.

According to the survey, a greater proportion of large and medium-sized banks reported tightening standards for commercial and industrial loans, at 15.6%, from 14.5%. Additionally, more banks reported a decrease in demand for commercial and industrial loans. 

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