Fed Loan Data Reveal the Waning Power of Rate Cuts
Sluggish demand after the most recent reduction indicates the central bank is pushing on a string at this point.
Fed rate cuts aren’t working the way they used to.
Photographer: Andrew Harrer/BloombergIf the ultimate goal of lower interest rates is to spark economic activity through demand for loans, then the Federal Reserve’s first cut in more than a decade can be deemed a failure.
After the central bank lowered its target rate for overnight loans between banks on July 31 to a range of 2% to 2.25%, demand for credit among companies of all sizes was little changed in August from the first seven months of the year, based on the Fed’s own data. Its weekly report on commercial and industrial lending – based on a sample of about 875 domestically chartered banks and foreign-related institutions and released every Friday afternoon – shows total loans outstanding rose by a seasonally adjusted $10.1 billion last month, to $2.36 trillion. That’s an increase of 0.43%, versus an average of 0.34% in the January-through-July period and 0.74% last year.