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Kashkari, who has been one of the most belligerent Fed policymakers in advocating higher interest rates to fight inflation, said it was still too early to gauge the size of the “footprint “that banking stress will have on the economy.
He added that it is therefore also too early to tell how it might influence the upcoming interest rate decision of the Federal Open Market Committee.
The Fed raised rates a quarter of a point this week, but opened the door to pausing further rate hikes until it is clear how bank lending practices may change following the recent failures of Silicon Valley Bank and Signature Bank.
“Right now the tensions are a couple of weeks old,” Kashkari said. “There are some worrying signs. On the bright side, deposit outflows appear to have slowed. Some confidence is being restored among smaller and regional banks.”
“At the same time,” he continued, “we’ve seen that the capital markets have been largely closed for the last two weeks. If those markets remain closed because borrowers and banks remain nervous, that would tell me that it’s probably going to have a bigger impact on the economy. So it’s too early to make any forecasts about the next FOMC meeting.”
The Fed has launched an emergency lending program aimed at keeping other regional banks out of trouble if deposit withdrawals increase.
Recent data showed that money moved from smaller to larger banks in the days after SVB’s collapse on March 10, though Fed Chairman Jerome Powell said he thought the situation had “stabilised.” “.
