The President of the Minneapolis Federal Reserve Bank is issuing a warning, saying that a recession could be around the corner as a banking crisis puts pressure on the US economy.
According to a new report by Reuters, President Neel Kashkari says that even though the Fed’s current tactics to combat inflation could cause a recession, the central bank plans on continuing to raise interest rates.
Kashkari says that while a recession may be undesirable, higher inflation would be even worse. He says that the Fed is still committed to lowering inflation, but that its 2% target likely won’t be hit by the end of the year.
“It could be that our monetary policy actions and the tightening of credit conditions because of this banking stress leads to an economic downturn.
That might even lead to a recession. We need to get inflation down… If we were to fail to do that, then your job prospects would be really hard.”
Last month, in an interview with CNBC, Kaskhari said that the banking crisis will take center stage in the Fed’s upcoming FOMC (Federal Open Market Committee) meeting in May.
“It’s too soon to make any forecasts about the next interest rate meeting that we have, the next FOMC meeting.
On one hand, such strains [on banking] could then bring down inflation, so we have to do less work with the federal funds rate to bring the economy into balance.
But right now, it’s unclear how much of an imprint these banking stresses are going to have on the economy. But it’s something to watch very carefully.”
On Wednesday morning, the U.S. Bureau of Labor Statistics released its monthly Consumer Index Report (CPI), which keeps track of price changes experienced by consumers minus food and gas. The CPI print recorded a 0.1% increase in inflation, lower than expected.
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