During a recession the FED applies expansionary monetary policies while during high inflation periods it contracts the money supply which respectively lowers and raises interests rates.

Given that someone is willing to pay a fixed interest on their loan are they more likely to get it during the recession or during the high inflation period?

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    $\begingroup$ Are you assuming that this someone's income source/return on investment is completely immune to whether there is recession or not? And if so, it is verifiable by the banker? If yes to both (a very unlikely hypothetical scenario), then whether s/he can borrow will be hardly dependent of state of economy. From bank's point of view this is a risk free investment. In periods of boom, the opportunity cost for lending to this individual may increase for bank but lending and investments have this difference, that rarely, banks evaluate 'opportunity cost' in lending (as opposed to in investment). $\endgroup$ – Dayne Jan 22 at 15:25
  • $\begingroup$ It can vary by recession: in 2008 some credit markets came close to freezing while in 2020 funds were more easily available $\endgroup$ – Henry Jan 23 at 0:23

The question wording is somewhat vague, so I am interpreting it as follows: assuming an entity wants to borrow at some fixed interest rate, is it more likely to be able to do so in a recession or in a high inflation period?

The following factors matter.

  • The willingness of lenders to lend depends up on the state of the cycle. As noted by Henry in a comment, lenders were largely unwilling to extend new loans during the Financial Crisis of 2008. Since defaults generally rise in recessions, lending generally tightens up even under less extreme conditions.
  • The risk-free curve generally falls in a recession (for countries that control their currency, like the United States). This would make it easier to get a loan versus a fixed rate. However, credit spreads tend to widen (due to greater default risk), so depending on the credit quality of the borrower, the borrowing rate might go up.
  • Risk-free rates tend to rise in an inflationary period, which might partially be offset by tighter credit spreads.

These factors pull in different directions, so there is not enough information to answer the question as stated.


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