and curtail lending. tighter financial conditions or other lending conditions would likely cause households to reduce spending and businesses to pull back on investment and hiring, all of which will help move supply and demand back into better balance and help bring inflation down toward our 2 percent target. it is important to note that there were indications of tightening credit conditions this year before the problems emerged in the banking system. in the board's january senior loan officer opinion survey, bank officials reported higher interest rates for loans and tighter lending standards, relative to the end of last year. 2 these loan officers also said they expected to continue tightening lending standards over the course of 2023. they cited an expected deterioration in collateral value, a reduction in risk tolerance, and a deterioration in the credit quality of bank portfolios, which mirror the factors that contributed to the recent turmoil in banking. the failure of svb and signature bank and related developments might have solidified and pulled forward factors that were already working to tighten lending conditions, or it may be that credit conditions will now be even tighter than they were on track to be. i say this because, all else equal, a significant tightening of credit conditions could obviate the need for some additional monetary policy tightening, but making such a judgement is difficult, especially in real time. 3 regarding the economic outlook, the data in hand for the first quarter of 2023 continue to surprise me, with stronger growth and job creation than i expected late last year. the fomc has significantly raised the target range for the federal funds rate to dampen aggregate demand, but u. s. consumers and businesses are showing remarkable resilience. the atlanta fed's gross domestic product ( gdp ) growth tracker, which 2 / 4 bis - central bankers'speeches reflects the most up - to - date data, estimates that gross domestic product grew by 2. 2 percent in the first quarter, in line with many private sector estimates and higher than most estimates of potential growth provided by fomc participants. this growth would mean that, so far, tighter monetary policy and credit conditions are not doing much to restrain aggregate demand. some data for march point to moderation in economic activity. the institute for supply management's ( ism ) survey of purchasing managers indicated that manufacturing contracted in march, and the ism's survey related to non - manufacturing indicated that activity outside the manufacturing sector decelerated in march to a modest pace. just a few minutes ago data on retail sales for march

##defense capital goods have declined since autumn. moreover, weakness emerged more recently among our trading partners in europe, asia, and latin america. the interaction of slowdowns in a number of countries simultaneously has magnified the softening each of the individual economies would have experienced on its own. because the extent of the slowdown was not anticipated by businesses, some backup in inventories occurred, especially in the united states. innovations, such as more advanced supply - chain management and flexible manufacturing technologies, have enabled firms to adjust production levels more rapidly to changes in sales. but these improvements apparently have not solved the thornier problem of correctly anticipating demand. although inventory - sales ratios in most industries rose only moderately, those measures should be judged against businesses'desired levels. in this regard, extrapolation of the downtrend in inventory - sales ratios over the past decade suggests that considerable imbalances emerged late last year. confirming this impression, purchasing managers in the manufacturing sector reported in january that inventories in the hands of their customers had risen to excessively high levels. as a result, a round of inventory rebalancing was undertaken, and the slowdown in the economy that began in the middle of 2000 intensified. the adjustment process started late last year when manufacturers began to cut production to stem the accumulation of unwanted inventories. but inventories did not actually begin falling until early this year as producers decreased output levels considerably further. much of the inventory reduction in the first quarter reflected a dramatic scaling back of motor vehicle assemblies. however, inventories of computers, semiconductors, and communications products continued to build into the first quarter, and these stocks are only belatedly being brought under control. as best we can judge, some progress seems to have been made on inventories of semiconductors and computers, but little gain is apparent with respect to communications equipment. inventories of high - tech products overall have probably been reduced a bit, but a period of substantial liquidation of stocks still seemingly lies ahead for these products. for all inventories, the rate of liquidation appears to have been especially pronounced this winter, and the available data suggest that it continued, though perhaps at a more moderate pace, this spring. a not inconsequential proportion of the current liquidation undoubtedly is of imported products, and thus will presumably affect foreign production, but most of the adjustment has fallen on domestic producers. at some point, inventory liquidation will come to an end, and its termination will spur production and incomes