The Fed raised interest rates a quarter of a point this week but opened the door to pause further increases until it is clear how bank lending practices may change following the recent collapse of the Silicon Valley Bank and New York-based Signature Bank.
"Right now the stresses are only a couple of weeks old,” Kashkari said. “There are some concerning signs. On the positive side is deposit outflows seem to have slowed down. Some confidence is being restored among smaller and regional banks."
"At the same time," he continued, "we've seen that capital markets have largely been closed for the past two weeks. 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. So it's too soon to make any forecasts about the next FOMC meeting."
The Fed has rolled out an emergency lending program meant to keep other regional lenders from trouble should deposit withdrawals increase. Recent data showed money moving from smaller to larger banks in the days following SVB’s March 10 collapse, though Fed chair Jerome Powell said last week he thought the situation had “stabilized.”
Congress this week holds its first hearings on the SVB
failure, which has sparked calls for tighter supervision of
mid-sized banks, prompted the Fed to launch its own internal
review of bank supervision, and led to calls for a broadening of
the federal government’s deposit insurance program.
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WRAPUP 9-Deutsche Bank tumbles as jittery investors seek safer
shores WRAPUP 1-Fed officials say sense of financial stability cleared
path for rate hike WRAPUP 7-Yellen tries to assuage investor fears as bank stocks
slide WRAPUP 10-U.S. Fed delivers small rate hike amid global banking
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(Reporting by Howard Schneider
Editing by Nick Zieminski)
