Fed chief in Minneapolis, Neel Kashkari, says it is uncertain how hard the banking chaos will hit the economy. At the same time, the top central bankers believe that the US banking system is healthy and resilient.
Kashkari was interviewed on Sunday by CBS News about the turmoil that has ravaged the banking sector and stock markets in the last couple of weeks.
When asked if the banking crisis could have real consequences for the economy, pushing the US into recession, Kashkari acknowledged that it increases the risk. Recession is often defined as a permanent decline in the economy.
– It definitely brings us closer right now. What is unclear to us is the extent to which this banking crisis leads to a widespread credit crunch, he says to the channel.
Neel Kashkari heads one of the twelve regional banks of the United States’ central bank, the Federal Reserve, as head of the Fed in Minneapolis. He is among the top central bankers who vote on interest rate decisions in 2023.
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The safe haven of the banking crisis?
In the interview, Kashkari emphasizes that they are following the situation closely. At the same time, he points out that a possible cooling down of the economy as a result of banking problems can dampen the sharp rise in prices, and make there is less need for further interest rate hikes.
– But right now it is unclear how big an impact the banking crisis will have on the economy.
“Healthy and resilient”
The statements of the top central banker come after the US central bank raised interest rates once again earlier this week, despite the market turmoil.
Federal Reserve Chairman Jerome Powell then referred to the US banking system as “healthy and resilient”.
Kashkari used the same wording on Sunday. He also stated that it is too early to say anything about how the situation will affect the next interest rate decision at the beginning of May.
– I am not saying that all the turmoil is behind us, I expect that this process will take some time. But fundamentally, the banking system is healthy, says Fed chief in Minneapolis to CBS.
Bank collapse hearings
The banking chaos really intensified just over two weeks ago, when the regional US bank Silicon Valley Bank collapsed.
A number of both large and small banks have subsequently had to be reviewed on the stock exchanges. In Europe, things went badly for Credit Suisse, and the crisis ended with the major Swiss bank being acquired by rival UBS last weekend. The turmoil also continued that week, including a heavy stock market fall for Deutsche Bank on Friday.
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Here, the bank is part of the people’s soul
Next week, several top central bankers will be questioned and give their views on this banking crisis.
In the US Congress, hearings will be held in the Senate and the House of Representatives. Among others, Michael Barr, one of the Federal Reserve’s board members, will meet there.
Also in Great Britain, Central Bank Governor Andrew Bailey is to be questioned by the Parliament’s Finance Commission about the bank collapses.
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