Fed Gov. Adriana Kugler said the growth of private lending in the wake of the global financial crisis created a market that was relatively immune to the central bank’s restrictive policy stance. “One implication of this strong growth during this past policy tightening is that monetary policy transmission to private credit markets appeared more muted relative to financing through public credit markets or bank commercial and industrial lending,” Kugler said. Kugler attributed the proliferation of private credit to structural advantages such lenders have over banks, including their ability to offer “higher customization” to borrowers and investors alike. The resilience of nonbank lenders was not the Fed’s only takeaway from its post-pandemic tightening cycle. Kugler said the central bank also learned about the impact of excess savings on monetary policy transmission. She noted that the combination of government stimulus and curtailed spending as a result of COVID-19 social distancing “led the personal savings rate to soar.” The saving glut, she said, effectively created a buffer between consumers and higher borrowing costs. “If households are flush with excess cash, they are less likely to respond to elevated interest rates by curtailing demand,” Kugler said. “Instead, they may have funds to avoid financing or may feel they are able to afford higher monthly payments.” Those excess savings have largely evaporated, Kugler said, allowing monetary policy to impact the economy in a more typical fashion. But, she added, the effects have been more pronounced for less creditworthy borrowers, pointing to credit card and auto loan delinquencies, which have risen above pre-pandemic levels. Kugler said the disparate impacts between prime and subprime borrowers could play out in the inverse, once the Fed resumes lowering interest rates. “For these [lower credit] households, easing monetary policy may have larger effects,” she said. Kugler said financial conditions — namely the willingness of banks to provide credit — have front-run some of the Fed’s monetary decisions. She noted that conditions began easing last year even before the Fed began cutting interest rates in September, which corresponded with an increased demand for loans by households and businesses. But, overall, she said banks have only reduced the interest rates they charge modestly from their post-pandemic peaks and stopped doing so early this year in accordance with the Fed’s pause on policy adjustments. “Banks stopped tightening lending standards after nine consecutive quarters, but they left standards unchanged in January,” she said.