Fed Minutes Say Credit Is 'Somewhat Tight' for Private Credit Loans

Credit was harder to get for private credit borrowers than for most of the economy in late summer, Federal Reserve staff told policymakers at the Sept. 15–16 meeting. Minutes released Wednesday, Oct. 7, say credit "continued to be generally available to most households and businesses, though it appeared to be somewhat tight for private credit loans and small businesses."

The staff review also said that "in the private credit market, direct lending issuance slowed in July amid subdued retail interest but resilient institutional demand."

What did the Fed minutes say about private credit?

The comments sit in the staff's review of the financial situation, not in officials' policy debate. They contrast with the rest of the credit picture the staff described: bank lending "continued to expand," corporate bond issuance "remained robust," and financing conditions "remained generally accommodative for larger businesses and municipalities but were somewhat restrictive for residential mortgage borrowers and small businesses."

Officials themselves took a broader view. "Several participants noted that credit appeared broadly available," citing new financing, robust corporate loan and bond issuance, or easier bank lending standards, the minutes say. "A few participants" said housing was a sector where financial conditions did not appear supportive, "with mortgage rates remaining at elevated levels."

Why it matters for lenders' funding costs

The minutes point to higher rates ahead. "Most participants assessed that another increase in the target range for the federal funds rate would likely be appropriate by year end," the document says. At the meeting the Fed raised its target range by a quarter point to 3.75% to 4%, with no dissents. The next meeting is Oct. 27–28.

The Fed's open market manager reported that nominal Treasury yields rose about 35 basis points across the 2- to 10-year part of the curve between meetings. Market commentary pointed to geopolitical developments, Treasury's buyback program and "competition for capital from heavy private debt issuance to finance the development of artificial intelligence (AI) infrastructure" as factors behind higher term premiums, the minutes say.

Since then, long rates have stayed high. The 10-year Treasury par yield closed at 5.22% on Oct. 8, according to the Treasury Department, and Freddie Mac said the average 30-year fixed mortgage rate rose to 7.40% in the week to Oct. 8 from 7.28% a week earlier.

Measure	Latest	Source
Fed funds target range	3.75% to 4%	Federal Reserve
10-year Treasury par yield, Oct. 8	5.22%	U.S. Treasury
2-year Treasury par yield, Oct. 8	4.75%	U.S. Treasury
30-year fixed mortgage, week of Oct. 8	7.40%	Freddie Mac

What does tighter private credit mean for borrowers?

For borrowers who rely on nonbank loans, the minutes suggest that private credit was a tighter part of the market this summer, while officials expected rates to keep rising. That combination can weigh on deal volume and refinancing for borrowers with floating-rate debt.

Lenders are also feeling it. Business development company Saratoga Investment said this week that spreads on its new loans were 220 basis points below those on loans that repaid. See our report on Saratoga's NAV decline, our coverage of the September Fed hike and the 7% prime rate, and the latest benchmarks on our rates and data page. More stories are in the Private Credit section.