In the eyes of bankers, the U.S. is about three to nine months from seeing its highest interest rates in more than 15 years and perhaps even closer to an economic slowdown.
Almost two-thirds of banking executives think the federal funds rate will peak in the first half of 2023, according to an IntraFi Network survey of more than 450 bank executives released Tuesday. Close to 60% of banking leaders expressed concern that the Federal Reserve will raise rates too quickly in its bid to tame inflation.
Those fears have created a consensus that a recession is on the horizon. About 52% of bank executives believe the U.S. economy has already entered a recession or will do so by the end of the year. That could mean trouble for bank profits, which often soar and fall alongside the economy. Executives said they anticipate both higher funding costs and depressed loan demand a year from now, when a recession may be in full swing.
"Most concerns about an upcoming recession are really built around inflation and interest rates, and this survey really confirms that," said Paul Weinstein, senior policy advisor at IntraFi Network.
At their last meeting, Fed officials said they expected to raise rates to a range between 4.25% and 4.5%, 125 basis points higher than their current level. The Fed has hiked rates by 75 basis points at each of its last three meetings and is expected to hike rates again in November and December.
"We haven't yet made meaningful progress on inflation, and until that progress is both meaningful and consistent, I support continued rate increases," Fed Gov. Christopher Waller
Businesses nervous about their economic prospects could pull back on planned expansions, while consumers wary of losing their jobs might delay big-ticket purchases.
About 56% of bank executives anticipate loan demand to decrease moderately or significantly 12 months from now, according to the IntraFi survey.
Most bank executives expect interest rates to peak in the first half of 2023. But they expect higher rates to weigh on business well past that period.
About 71% of bankers surveyed expect competition for deposits to be moderately or significantly higher in 12 months. More than 90% of bankers anticipate facing moderately or significant funding costs a year from now.
Banks were slow to raise interest rates when the Fed first hiked rates this year.
"It goes to show how much [banks] have flipped from having so much liquidity during the pandemic to staring down the fact that some of this money left them a lot more quickly than they thought it would," Weinstein said. "They're anticipating having to raise rates or make other moves to catch up."
Bank deposits
IntraFi collected responses from 454 bank executives — including chief executives, presidents, chief financial officers and chief operating officers — in late September and early October.
It's not just bank executives who believe an economic downturn is on the way. About 98% of CEOs surveyed by The Conference Board said they expected a recession within the next 12 to 18 months,
