WASHINGTON–While there are growing calls for the Federal Reserve to cut rates—including ahead of its next scheduled meeting in September—many of the nation’s banks are saying it will take more time than many expect for any relief to be visible, according to a new report.
"What we’re hearing from clients is that they need to see … somewhere between 75 or 100 basis points of rate cuts before they'll go from being cautious on investing in the business to being even more aggressive," Fifth Third CEO Tim Spence told Yahoo Finance.
Similarly, Phil Green, CEO of Frost Bank, told the news outlet that just one rate cut "is not going to make anyone's dreams come true.”
“Banks have been waiting two years for rates to come back down,” Yahoo Finance reported. “Elevated rates have proven to be a major challenge for lenders struggling with the high costs of funding, lower-yielding securities, and their exposure to the weaknesses of commercial and consumer borrowers.”
Fewer New Loans
The report added that high rates have also depressed new lending, making it more difficult for banks to grow, and noted that quarterly loan growth across all U.S. commercial banks has been falling for roughly two years, according to Federal Reserve data.
“As interest rates begin falling, the hope is that many of these problems will begin to ease,” the Yahoo Finance analysis stated. “How quickly that happens depends in part on how quickly the US economy begins to recover. If the US does, in fact, fall into a recession, loan demand will likely take longer to pick up.”
Election Playing Role
“Even if the economy avoids a recession, a rebound in lending is likely to lag the first interest rate cut by several months, said analysts and bankers,” Yahoo Finance added, further noting that uncertainty surrounding the outcome of the U.S. presidential election in November is also likely to play a role.