Monetary Normalizations and Consumer Credit: Evidence from Fed Liftoff and Online Lending

On December 16, 2015, the Federal Reserve initiated "liftoff," a critical step in the monetary normalization process. We use a unique panel data set of 640,000 loan-hour observations to measure the cross-sectional impact of liftoff on interest rates, demand, and supply in the peer-to-peer market for uncollateralized consumer credit. We find that the spread decreased by 17 percent, driven by an increase in supply. Our results are consistent with an investor-perceived reduction in default probabilities and suggest that liftoff provided a strong, positive signal about the future solvency of high credit risk borrowers.