Minneapolis Federal Reserve Bank President Neel Kashkari warned that tightening credit conditions due to banking stress and monetary policy actions could lead to an economic downturn or even a recession.
He said, “It could be that our monetary policy actions and the tightening of credit conditions because of this banking stress lead to an economic downturn. That might even lead to a recession.”
Kashkari acknowledged that bond markets seem to expect a quick drop in inflation, allowing Fed to cut rates. However, he expressed less optimism, predicting inflation to reach “the mid threes” by the end of the year, which remains above the Fed’s 2% target.
Regarding recent financial stress, Kashkari cautiously noted that there are hopeful signs that risks are better understood and calm is being restored, but he is not yet ready to declare all clear.
