Community bankers remain pessimistic about the economy as they lack confidence in the ability of the Federal Reserve to avoid an economic slowdown, according to the third quarter Community Bank Sentiment Index released by the Conference of State Bank Supervisors.
The index, released Oct. 4, increased seven points from a record low of 84 during the second quarter year to 91, nine points lower than 12 months ago. A reading of 100 indicates a neutral sentiment. A major source of pessimism for bankers is the Federal Reserve’s monetary policy. Sixty-eight percent of bankers said monetary policy will be worse 12 months from now. The Federal Open Markets Committee this month approved its third straight 75 basis-point rate increase, lifting the federal funds rate to a range of 3 to 3.25 percent. Fed officials have indicated that more increases are coming.
The United Nations is urging the Federal Reserve and other major central banks to put interest rate hikes on hold to avoid a potentially significant global recession. The United Nations Conference on Trade and Development’s annual report warned that interest rate hikes and austerity policies in wealthy countries risked backfiring, especially impacting lower-income nations.
The profitability component of the index, at 121, experienced the greatest quarterly improvement for the third straight time, 70 points higher than Q4 2021. Nearly 80 percent of bankers said regulatory burdens will be worse in 12 months than they are today. The outlook for future business conditions also remained historically low in the third quarter, with 61 percent of bankers saying they would be worse 12 months from now.
“Community bankers’ ongoing concerns over high inflation, tepid economic growth and a potentially more burdensome regulatory environment continue to weigh heavily on overall sentiment,” said CSBS Chief Economist Tom Siems. “The good news is that all seven components that comprise the CBSI rose from the previous survey, with the profitability outlook markedly higher.”