Array
The latest turmoil in the banking sector could bring the United States closer to a recession, Minneapolis Fed President Neel Kashkari has warned.
Speaking on CBS’s “Face the Nation” on March 26, Kashkari was asked whether the collapse of Silicon Valley Bank (SVB) and regional lender Signature Bank, as well as the recent rescue takeover of Credit Suisse by rival UBS, could tip America toward an economic downturn.
“It definitely brings us closer,” Kashkari said. “What’s unclear for us is how much of these banking stresses are leading to a widespread credit crunch. That credit crunch … would then slow down the economy. This is something we are monitoring very, very closely.”
“Now, on one hand, such strains could then bring down inflation. So we have to do less work with the federal funds rate to bring the economy into balance. But right now, it’s unclear how much of an imprint these banking stresses are going to have on the economy. But it’s something to watch very carefully. And that’s what we’re focused on,” Kashkari added.
Federal Reserve Chairman Jerome Powell said last week that the recent turbulence in the financial system following the collapse of two major U.S. banks has raised the chances that there will be further credit tightening for U.S. households and businesses.
A cutback in bank lending would result in less spending by both consumers and businesses and make it more difficult for companies to increase prices, reducing inflationary pressures.‘Concerning Signs’
“Such a tightening in financial conditions would work in the same direction as rate tightening,” Powell told reporters during a press conference in Washington.
