Bank loan worries make it easier for Fed to cut interest rates
As news of bad bank loans shook Wall Street, CNBC’s Jim Cramer said the developments would pave the way for the Federal Reserve to cut interest rates; This was a move all investors had been hoping for.
“It got really ugly today, but at least we have something that will make the Federal Reserve willing to lower interest rates sooner rather than later: bank lending has gone bad,” he said. “Nothing will motivate the Fed to act faster than credit losses, because they are a sure sign that the economy is deteriorating.”
Averages fell in Thursday’s session as fears grew about the health of regional banks’ lending businesses. Dow Jones Industrial Average While it lost value by approximately 0.7%, S&P 500 with a loss of 0.6 percent Nasdaq Composite It fell by 0.5 percent due to the decline in bank stocks.
Concerns about lending practices, particularly in the private credit market, have recently increased after Tricolor and First Brands, two companies with ties to the automotive industry, filed for bankruptcy. Zions Bancorporation On Wednesday evening it announced $50 million in losses on two commercial loans, and then on Thursday Western Alliance alleged fraud by a borrower.
Cramer said these bad loans are early warning signs that it’s time for the central bank to ease. He suggested that the banking system was now “giving us enough dubious loans in a week” that the Fed could quickly cut interest rates without worrying too much about inflation.
He emphasized that while low borrowing rates generally stimulate the economy, they also make it easier for borrowers to avoid default.
Cramer cited comments from the following people: JPMorgan CEO Jamie Dimon, who suggested earlier this month that auto bankruptcies are like cockroaches, said “when you see one cockroach, there’s probably more.” Cramer noted that Dimon’s comments turned out to be prescient.
But Cramer suggested that these credit problems might not hurt the broader market.
“It is now possible that there was fraud involved in First Brands’ multimillion-dollar problem,” he said. “But that doesn’t matter: a bad loan is a bad loan, and that’s good for the stock market, because those bad loans won’t hurt the profits of anything but the banks. I think the pain will be contained.”
