Federal Reserve’s Musalem flags uneven credit tightening across the US economy

St. Louis Federal Reserve President Alberto Musalem is sounding the alarm on a growing divide in American credit markets. Some parts of the economy, particularly small businesses, are experiencing real credit tightening, even as the overall lending landscape avoids full-blown distress. A two-speed credit market Musalem’s core observation is deceptively simple: monetary policy can be restrictive for certain segments of the economy while remaining accommodative for others. In practice, that means large corporations with access to capital markets and strong balance sheets are navigating current conditions just fine. Small firms, the ones that typically rely on bank lending and lack the luxury of issuing bonds, are running into walls. This isn’t necessarily a crisis. Musalem himself has said the overall credit picture is “not worrisome.” But the divergence matters because small businesses account for a disproportionate share of US employment and local economic activity. The comments came as Musalem continues to position himself as one of the more hawkish voices on the Federal Open Market Committee. He has advocated for a 25-basis-point rate increase at the latest FOMC meeting, driven b...