Bank pressure brings the US closer to recession

  • Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, said in an interview on CBS’ “Face The Nation” that the recent banking turmoil could bring the US closer to recession.
  • “What is not clear to us is the extent to which these banking pressures lead to a full-scale credit crunch,” he said.

Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said in an interview with CBS: “What is not clear to us is how much banking stress leads to a broad credit crunch. And then that credit crunch will, just like you said, to a slowdown in the economy. face the nation.

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“It definitely brings us closer now,” was Minneapolis Federal Reserve Bank President Neel Kashkari’s response to a question, during CBS’s “Face The Nation.” interviewon whether the recent turmoil in the banking sector could bring the United States closer to recession.

“What’s not clear to us is how much of these banking stresses lead to a large-scale credit crunch. And then this credit crunch will, as you said, slow the economy,” he said.

Kashkari added that Fed officials are watching the impact of the banking sector fallout “very closely,” and the current system has the “full support” of the Fed.

“The banking system is well capitalized and highly liquid and has the full support of the Federal Reserve and the other regulators behind it,” he said.

“The American banking system is resilient, and it’s sound,” Kashkari said, when asked about the stability of the banking system’s ability to control more risks that we’re seeing in California and New York.

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Kashkari’s words echoed those of officials at the Financial Stability Monitoring Board, which held a closed-door meeting last week as Federal Reserve data showed US customers withdrew nearly $100 billion from banks for the week ending March 15, though that represented a small fraction of the total. Total.

Separately, sources told CNBC that the movement of deposits from small banks to large institutions, such as JPMorgan Chase and Wells Fargo, has slowed considerably in recent days.

Kashkari described the development as “positive” and a sign of restored faith.

“There are some worrying signs, and the positive sign is that deposit outflows seem to be slowing. Some confidence has returned among smaller and regional banks,” he said.

Keshkari said it’s too early to predict what any of this will mean at the upcoming meeting of the Federal Open Market Committee in May. The Fed raised interest rates by 25 basis points last week.

“It is too early to make any predictions about the next interest rate meeting we have, the next FOMC meeting,” he said, adding that stress in the banking sector would be the “factors that will be in greater focus.”

He added that banking problems may make it easier for the central bank to achieve its goal of controlling inflation.

“On the other hand, pressures like this can lower inflation, so we have to work less with the federal funds rate to balance the economy,” he said.

“But right now, it’s unclear what footprint these banking pressures will have on the economy. But this is something that needs to be watched very carefully,” he added.

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Mark Mobius, founding partner of Mobius Capital Partners, told CNBC that banking concerns in the United States and Europe appear to be less pronounced in the Asia-Pacific region.

“The banks here are much more careful, much more careful, making sure they have a strong balance sheet,” Mobius said on CNBC’s “Squawk Box Asia” Monday.

“I think in some ways this is a kind of safe haven. The banks in Singapore, the banks in Thailand and so on are doing very well,” he said.

Mobius’s comments come after Deutsche Bank shares fell on Friday, recording losses for the third day in a row, after the high cost of insurance against any default on the part of the German institution.

Over the weekend, the head of the International Monetary Fund, Kristalina Georgieva, confirmed that risks to financial stability had increased.

— CNBC’s Jeff Cox and Hew Soon contributed to this report

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