Hartford Business Journal

14 HARTFORDBUSINESS.COM | May 23, 2022 Now Open in Unionville. James Murdick, SVP Chief Loan Officer Trish Tomlinson, VP Senior Commercial Loan Officer Antonella Calabrese, AVP Branch Manager, Farmington & Unionville Sherrie Dubois, Officer Cash Management Specialist Member FDIC | Equal Housing Lender ThomastonSB.com | 855.344.1874 | 2 South Main Street, Unionville Meet the Community Bankers for Your Local Business. Connecticut federally-insured banks held $83.8 billion in total loans and leases, down 6.3% from a year ago, FDIC data shows. "We still see, based on our pipeline, there is pretty good demand out there right now," Hermann said. "There is a big need for warehouse and distribution. There is still demand on the housing side. Our main defense manufacturers between Pratt [& Whitney], Sikorsky and Electric Boat have some pretty good contracts. A lot of subcontractors are humming along and have needs." Mixed forecasts Economic forecasts are murky and mixed. John Carusone, president of the Hartford-based Bank Analysis Center, said the mounting list of economic challenges creates strong potential for a downturn and slowing commercial loan demand. Overgenerous federal spending coupled with a late response to obvious inflationary risks has resulted in a 40-year inflationary high, Carusone said. It will take tough measures to curb it. "The likelihood is the recent 50-basis-point step-up in the rates is just the first in many such step- ups, because inflation won't really come into control until the Federal Reserve target rate is at or above the rate of inflation," Carusone said. In a statement May 4, Fed Chairman Jerome Powell said that additional half-percentage point rate hikes are possible. Today's extraordinary inflationary pressures resemble those of the early 1980s, when the Fed brought the reserve rate up to 18% to curb double-digit inflation, Carusone said. That caused home mortgage rates to hit almost 20%. "The issue is how can the Fed kill inflation without throwing the economy into a recession, a major economic slowdown or, more onerous, into a period of stagflation where you have high levels of inflation and a stagnant economy, as we had in the Carter years 50 years ago," Carusone said. Carusone agreed home loans are drying up and commercial lending hasn't been much impacted — at least not immediately. "Not yet, but the probability is pretty high there are going to be increasing pressures on credit quality and loan demand and changes in pricing as the Fed continues to run up interest rate increases to deal with this inflation," Carusone said. Fred Carstensen, director of the Connecticut Center for Economic Analysis at the University of Connecticut, predicts no short- term impacts from the rate hike. Builders and businesses are already committed to high-demand projects, like multifamily housing Fred Carstensen is the director of the Connecticut Center for Economic Analysis at UConn. PHOTO | CONTRIBUTED and warehousing. "It looks like the economy is doing really well so it can bear the costs of moderate increases in the interest rates," Carstensen said. "We used to celebrate when we could get rates down to 6%." Carstensen sees fundamental economic weaknesses in Connecticut and beyond. Income inequality, lack of affordable housing and growing monopolization of various industries are bigger challenges than inflation, which could be short-lived if the war in Ukraine and COVID-19-induced supply chain issues moderate, Carstensen said. Carstensen pointed to the most recent robust jobs report, which saw Connecticut's unemployment rate continue to drop, reaching 4.6% at the end of March. He also noted that interest rates remain historically low. Rates haven't climbed high enough to dissuade economic investment, and the hype around economic challenges, including the rate hike, is louder than the actual threat to economic activity, he said. "At the margins it will delay some major purchases, but for the most part, things look like people are being reasonably patient," Carstensen said.

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