The bill is coming due on all of that easy money handed out during the pandemic. As interest rates continue to rise to historic levels, banks are tightening loan conditions for businesses and consumers. That includes raising the minimum credit score to qualify for a loan, and lowering credit limits. At the same time, banks are reporting a drop in demand for loans as conditions get stricter. "It has definitely gotten significantly tighter, and the banks are unfortunately in a bit of a vice," says Mitch Kramer, financial strategist and CEO of Texas-based Fluent Financial. "You've got credit card delinquency rates and bankruptcy rates approaching the 2008 levels."
Kramer believes this is part of a slowdown in the broader economy, which was inevitable. "All of the federal money that was passed out during the COVID pandemic is getting spent, and there's not much of it left," he tells KTRH. "Now we're starting to see a decline in retail sales for the first time since 2020, and starting to see some cracks in the employment market."
"As long as people have jobs, they'll spend money," he continues. "But when people start losing jobs, I think you're going to see us in a recession."
So far, the Federal Reserve's aggressive interest rate hiking over the past year has not pushed the economy into a full-blown recession (although GDP did decline for two straight quarters at the start of 2022.) However, with at least another rate hike coming before the end of the this year and banks anticipating a continued tight lending market, the overall economy remains on shaky ground.
For that reason, Kramer recommends shoring up your safety net, either with savings or available credit. "There's an old saying that the best time to get a loan is when you don't need one," he says. "Right now, you can go to some of the regional banks and get a home equity line of credit."
"It's always best to get credit when you don't need it, just in case you do have an emergency down the road."