Fed's unwanted ally in bid to tame inflation: Credit crunch
The collapse of two major U.S. banks is raising the likelihood that lending standards will become sharply more restrictive
WASHINGTON (AP) — The Federal Reserve is getting some unwanted help in its drive to slow the U.S. economy and defeat the worst bout of inflation in four decades: a cutback in bank lending.
The upheaval in the financial system that's followed the collapse of two major U.S. banks is raising the likelihood that lending standards will become sharply more restrictive. Fewer loans would mean less spending by consumers and businesses. That, in turn, would make it harder for companies to raise prices, thereby reducing inflationary pressures.
At the same time, some economists worry that the slowdown might prove so severe as to send the economy sliding into a painful recession.
On Wednesday, the Fed raised its benchmark interest rate for the ninth time in just over a year. The central bank's policymakers are struggling with a persistently high inflation rate that has bedeviled American households and heightened the uncertainties overhanging the economy. At roughly 6%, U.S. inflation remains well below last year's peak yet is still far above the Fed's 2% annual target.
