Fed’s May Interest Rate Hike Could Harm Regional Bank Lending

  • The Federal Reserve’s decision to raise interest rates at its May meeting may put too much stress on small regional banks’ ability to lend and, by extension, the housing market, according to Lawrence Yun, chief economist for the National Association of Realtors (NAR).
  • The Fed raised interest rates by another 25 basis points in May, raising the federal funds rate to a targeted range of 5% to 5.25%, the highest level in 16 years.
  • Yun said he believes that the Fed’s recent decision has been particularly harmful to the balance sheets of small regional banks and has impacted their ability to lend. The federal funds rate is the interest rate at which banks borrow and lend to one another. The Fed’s rate often influences mortgage rates but is not tied directly to them, NAR said.
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