A senior official of the U.S. Federal Reserve (Fed), classified as a 'hawk' (favoring monetary tightening), has expressed concerns that issues in the banking sector have increased fears of an economic downturn.
According to Bloomberg on the 26th (local time), Neel Kashkari, President of the Minneapolis Federal Reserve Bank, said in an interview with CBS that when asked if concerns about a recession had increased due to banking sector pressures, "Certainly, we are closer (to a recession)."
He added, "It is unclear how widespread the banking sector stress will lead to a credit crunch," and "We are closely examining whether this will cause the economy to slow down."
He noted, "On the positive side, the pace of deposit withdrawals seems to be slowing, and trust is being restored among U.S. small and regional banks," but also warned, "If banks and lenders remain uneasy and capital markets effectively stay closed, there will be a greater impact on the economy."
President Kashkari holds voting rights at this year's Federal Open Market Committee (FOMC) meetings. Known as a hawk within the Fed, his remarks have led to analyses suggesting that his views on interest rate hikes may have shifted.
Bloomberg described Kashkari's comments as more cautious compared to other Fed officials who still prioritize curbing inflation as their top goal.
However, Kashkari took a cautious stance, saying it is premature to judge how banking sector stress will affect the interest rate decision at the next FOMC meeting in May.
Earlier, as concerns about a financial crisis grew following the collapses of Silicon Valley Bank (SVB) and Signature Bank, the Fed opted for a 'baby step' (0.25 percentage point increase in the benchmark interest rate) instead of a 'big step' (0.50 percentage point increase) at the FOMC meeting on the 22nd, signaling a slowdown in tightening pace.
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