The Federal Reserve’s “Senior Loan Officers” survey is considered one of the best leading indicators of the economy, but it’s only released four times a year. The latest report is scheduled to be released today at 2pm, providing insight into the extent to which recent stress in banks may impact broader economic growth. The report’s details could potentially move the market significantly. Despite being slightly below its peak during the 2008 global financial crisis and the 2020 pandemic, it’s worth noting that the Federal Reserve only examines around 88 banks, most of which are the largest in each district. US lending conditions are now among the toughest encountered outside of the worst recession in 30 years.
While the data is typically considered leading, it’s being released at the same time as preparations for the Fed’s May policy meeting. This raises questions around whether the Fed has confidence in leading economic data compared to investors. The report is historically one of three predictors of a recession, and a staple in the framework of the business cycle. The data reveals that soft landings in previous years occurred as banks eased lending standards and plunged into recessions. However, in January’s report, both consumer and business lending standards had significantly tightened, implying a hard landing is almost certain.
Despite the report being scheduled for release, it would have been ideal for at least one of the nine Fed officials to comment on why the Fed relies heavily on lagging data like inflation and employment, as opposed to leading indicators like the survey of loan officers. Nonetheless, investors are looking forward to the latest report, and many are hoping for better-than-expected results.