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Kashkari Sees Banking Sector Quite Stable But Doesn't Give The All Clear

FED

MN Fed's Kashkari ('23 voter) still appears comfortable with banking sector developments but doesn't rule out a further flare up. Paraphrasing his live remarks:

  • "Right now things appear quite stable, the banks have got through [prior pressures] reasonably well. The risk is that if inflation isn’t completely under control and we have to raise rates further, that the banks might face more losses with pressures flaring up in the future.
  • It seems like things are stable today, things are calm and that’s good news, but I’m not yet comfortable to say it’s all clear because we have not yet got inflation all the way back to the 2% target. That will ultimately be what determines whether there are more flare ups in the banking sector."
This commentary is similar to Jul 12: "However, if inflation proves to be more entrenched than expected, policy rates might need to go higher, which could further reduce asset prices, increasing pressure on banks. In such a scenario, policymakers could be forced to choose between aggressively fighting inflation or supporting banking stability.”
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