Fed's Neel Kashkari Says Banking Panics Tend To Linger Longer Than Anticipated

Federal Reserve Bank of Minneapolis President Neel Kashkari reportedly said that banking panics and stresses tend to take longer than anticipated to settle down, and its impact on the economy isn't clear yet.

What Happened: "What’s unclear right now is how much of the banking stresses of the past few weeks is leading to a sustained credit crunch which would then slow down the U.S. economy," Kashkari said, according to a Bloomberg report.

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Kashkari said that during the global financial crisis in 2008, every time the authorities thought they are through with the situation, "there was another shoe yet to drop."

"So, I am prepared that this could take a little longer than we expect until we fully get behind it. But the banking supervisors are very focused on it and the vast majority of banks have taken potential interest rate risk seriously and have positioned themselves for that," he said.

Kashkari also expressed confidence in the banking system and said banks on average have a lot of capital while the Federal Reserve and other banking regulators are standing behind it.

"That should give us all confidence. But it’s going to probably take us a while till we fully understand are there more losses out there," he said.

Inflation: The Fed official observed the services sector inflation is still high and and more work is needed to tackle it.

"The services part of the economy has not yet slowed down and wage growth is — we want higher wages — but wage growth is still growing faster than what is consistent with our 2% inflation target," he said. "That tells me we still have more work to do to bring the services side of the economy back into balance."

Photo courtesy: propublica on Flickr

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