The message from the Fed after the last FOMC meeting was higher for longer, but we are going to make a pause to see how the rapid rate increases translate in to the economy. There might be other reasons for the pause: aside from yield curve inversion, one of the catalysts for a recession is bank credit growth. Over the last 50 years, in every recession except during Covid, where there were massive stimuli packages, credit growth has declined significantly and subsequently, or in parallel, the economy has entered into a recession. According to the chart below, not only has credit growth suffered the longest and deepest fall in recent history, it’s actually contracting. Banks are suffering after years of #zirp, and their balance sheets have not been repaired yet.
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Chart source: Incrementum.
