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US is heading towards recession due to banking tensions, Fed spokesman warns

Recession fears keep the United States on its toes. | Fountain: EFE

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The possibility of a recession in the United States is getting closer due to the situation faced by the financial system, said Neil Kashkari, President US Federal Reserve System (FRS) from Minneapolis.

The official believes that recent tensions in the banking sector, such as the collapse of the Silicon Valley bank, contributed to the possibility Credit crisis.

Asked about the likelihood of a US recession, Kashkari said the current outlook “definitely brings us closer.”

“We do not understand to what extent you banking tensions lead to a widespread credit crunch. This credit crunch (…) will slow down the economy. It’s something we’re following very closely,” he told CBS’s Face the Nation.

For now, Kashkari said it is too early to assess the size of the impact of banking stress on the economy.

He also noted that it is too early to say how this may affect the next decision on interest rates.

Recall that the Fed recently raised rates by a quarter of a point, but opened up the possibility of holding further increases until it becomes clear how bank lending practices could change after the recent failures of institutions such as SVB and Signature Bank.

“There are some worrying signs. The good news is that the departure deposits They seem to have slowed down. Some trust between smaller and regional banks is being restored,” the official said.

However, the Minneapolis Fed President points out that the capital markets appear to have been largely closed over the past few weeks.

“If these markets remain closed due to borrowers and banks they are still nervous, this will tell me that this is likely to have a greater impact on the economy,” he added.

The Fed has now launched an emergency lending program aimed at keeping other regional banks out of trouble in the event of increased withdrawals.

Source: RPP

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