US banks expect stronger loan demand in 2026, Fed survey shows

• Business loan demand from large and medium-sized firms increased in Q4 2025, while demand from small firms remained flat
• Banks reported they are more likely to lend to firms with high exposure to artificial intelligence
• The Fed held its benchmark rate at 3.50%-3.75% last week and signaled rates will likely remain stable due to higher-than-optimal inflation and stabilizing labor markets

Summary

Key Findings:

U.S. banks anticipate stronger business loan demand throughout 2026, driven by expectations of lower interest rates and increased corporate spending and investment needs, according to the Federal Reserve's quarterly Senior Loan Officer Opinion Survey released February 2.

Q4 2025 Performance:

• Business loan demand from large and medium-sized firms increased in Q4 2025
• Small business loan demand remained flat
• Household loan demand weakened across most categories, except credit card demand which held steady

Lending Standards:

Banks generally tightened lending standards for businesses during Q4 2025 but do not expect further tightening in 2026. This shift removes a significant constraint on credit growth that limited lending activity in the previous year.

AI Impact:

Banks reported increased willingness to lend to firms with high artificial intelligence exposure, signaling confidence in AI-related business opportunities.

Monetary Policy Context:

The Fed maintained its benchmark interest rate at 3.50%-3.75% last week, citing a stabilizing labor market and above-target inflation. Policymakers indicated rates would likely remain unchanged for an extended period, though banks still expect sufficient rate relief to stimulate loan demand.

Market Implications:

The survey suggests improving credit conditions for businesses in 2026, potentially supporting economic expansion through increased investment and spending. The combination of stable-to-lower rates and relaxed lending standards could benefit corporate borrowers, particularly those in AI-related sectors. However, weaker household loan demand may indicate continued consumer caution.