Fed's Kashkari Warns Bank Strains Boost US Recession Risk

Minneapolis Fed President Neil Kashkari has been warning that recent bank turmoil has increased the risk of a US recession. He spoke on CBS's Face the Nation over the weekend. What's unclear for us is how much of these banking stresses are leading to a widespread credit crunch. And then that credit crunch, you're right, just as you said, would then slow down the economy. This is something we are monitoring very, very closely. Is that credit crunch phrase again? Minneapolis Fed President Neil Kashkari speaking there just yesterday. What is his view? I mean, that's his view on where the credit story, I suppose, goes.

But what about his view on deposit flight? Do we get any insight there? He was a bit more positive about it. Echoing the similar comments we heard from Powell and from Bostick on Friday, saying that the deposit outflows seem to have slowed down. And now I think the positivity around these comments we heard from him yesterday is allowing the two year yield to rise overnight. As we maybe think that the regional bank worries will quickly be over and will be back to thinking about how high and how quickly the Fed's going to hike rates into restrictive territory. Now, the pessimists would say these regional bank worries are not going to abate until the Fed cuts rates. They have a hard time competing with money markets to keep these deposits and their business model isn't as profitable when the front end of the yield curve is this inverted. So the pessimists out there really think that this regional bank will continue until the Fed cuts.

Bloomberg