Fed’s Kashkari warns of recession risks amid banking sector stress

Fed President Neel Kashkari expressed concerns in a recent CBS “Face the Nation” interview about the recent stress in the banking sector, warning that it could lead to a widespread credit crunch and ultimately push the US into a recession. Kashkari stated, “What’s unclear for us is how much of these banking stresses are leading to a widespread credit crunch. Would that slow down the economy? This is something that we’re monitoring very, very closely.”

He acknowledged that the situation is still relatively new, saying, “Right now, the stresses are only a couple of weeks old.” However, Kashkari pointed out some positive signs, such as a slowdown in deposit outflows and a restoration of confidence among smaller and regional banks. He noted, “There are some concerning signs. The positive sign is deposit outflows seem to have slowed down. Some confidence is being restored among smaller and regional banks.”

Despite these positive developments, Kashkari emphasized the potential risks if capital markets remain closed due to nervous borrowers and lenders, stating, “If those capital markets remain closed because borrowers and lenders remain nervous, then that would tell me, okay, this is probably going to have a bigger impact on the economy.”