For the first time in nearly three years, lending conditions are expected to strengthen over the next six months for both consumers and businesses, according to the American Bankers Association’s (ABA) latest Credit Conditions Index.
The latest summary of ABA’s Credit Conditions Index examines a suite of indices derived from the quarterly outlook for credit markets produced by ABA’s Economic Advisory Committee (EAC). The EAC includes chief economists from North America’s largest banks. Readings above 50 indicate that, on net, bank economists expect business and household credit conditions to improve, while readings below 50 indicate an expected deterioration.
The Credit Conditions Index climbed above its neutral reading of 50 for the first time since early 2022, indicating that bank economists expect lending conditions to improve over the next six months. The overall trajectory of the economy has generally followed the EAC’s expected path: core inflation remains slightly elevated but continues to ease, and employment growth has slowed but remains above the economy’s replacement rate. EAC members pegged the probability of a 2025 recession at 30% (up slightly from 25% in June), but the consensus view is that the economy is on track toward a soft landing.
“ABA’s latest Credit Conditions Index reflects an economy that is on track for a soft landing, or even a no-landing,” Sayee Srinivasan, chief economist of ABA, said. “The Fed’s decision to cut interest rates by 50 basis points last month, combined with the likelihood of additional cuts in the months ahead, should benefit consumers and businesses by lowering borrowing costs and improving credit availability. Although the economy may slow in this year’s fourth quarter due to heightened uncertainty regarding geopolitical risk and the upcoming election, bank economists are generally optimistic about economic conditions in 2025.”
For the Q4 release:
Read the full report with detailed charts and a discussion of the broader economic context.
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