According to a Federal Reserve survey on Monday, U.S. banks indicated a strengthening demand for business loans in the fourth quarter. This was the first time in two years that the net share of banks reporting an increase turned positive.
In the fourth quarter of 2024, the net share of banks reporting stronger demand for commercial and industrial loans from large and medium-sized businesses rose to 9.4%, and to 3.4% for small firms. Simultaneously, banks tightened standards for those types of loans, as highlighted in the Fed's quarterly Senior Loan Officer Opinion Survey.
The survey results suggest that the Federal Reserve's 100 basis points of interest rate cuts last year might have stimulated business borrowing, with limited impact on the demand for other loans. For the commercial real estate sector, banks reported tighter lending standards, and mostly steady demand.
Regarding households, banks reported reduced demand for real estate loans, likely influenced by the rise in mortgage rates in the last quarter. There was also decreased demand for credit card and consumer loans, while auto loan demand remained relatively stable.
When deciding to maintain short-term borrowing costs in a range of 4.25%-4.50%, Federal Reserve officials took into account the survey results, acknowledging slower progress towards the 2% inflation target, a robust labor market, and the uncertainty surrounding the economic impact of policies under President Donald Trump.