Is the Recovery Toast?
If bank lending doesn't pick up soon, the recovery is toast...
With the yield curve flatter than the last 3 recoveries, bank incentives to lend are lower than we saw in the 1993, 2002 and 2009 recoveries. The real question is where will bank lending growth bottom? What do you think?
My own view is that there is SOME incentive to lend, but not much from a yield curve perspective. What I find most interesting about this analysis is how ordinary this lending cycle is from a Fed policy perspective: in 2018 the Fed tightened, the yield curve flattened, and lending subsequently contracted. It seems all quite ordinary even though we know 2020 was an extraordinary year for all markets and activity. With the current shallow yield curve profile, I am expecting middling growth going forward.
Robert Lloyds, CFA®
Chief Investment Officer
Lloyds Intrepid Wealth Management
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