Current Events > Federal Reserve expects banking crisis to cause a recession later this year.

(+) Yeah! (+)

https://www.msn.com/en-us/money/markets/fed-expects-banking-crisis-to-cause-a-recession-this-year-minutes-show/ar-AA19Ms1n

Fallout from the U.S. banking crisis is likely to tilt the economy into recession later this year, according to Federal Reserve documents released Wednesday.

Federal Reserve staff gave FOMC members a presentation about potential repercussions from the failure of Silicon Valley Bank and other tumult in the financial sector that began in early March.

Though Vice Chair for Supervision Michael Barr said the banking sector "is sound and resilient," staff economists said the economy will take a hit.

WASHINGTON Fallout from the U.S. banking crisis is likely to tilt the economy into recession later this year, according to Federal Reserve documents released Wednesday.

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Fed expects banking crisis to cause a recession this year, minutes show
Story by Jeff Cox 7h ago

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Fallout from the U.S. banking crisis is likely to tilt the economy into recession later this year, according to Federal Reserve documents released Wednesday.
Federal Reserve staff gave FOMC members a presentation about potential repercussions from the failure of Silicon Valley Bank and other tumult in the financial sector that began in early March.
Though Vice Chair for Supervision Michael Barr said the banking sector "is sound and resilient," staff economists said the economy will take a hit.
Federal Reserve Board Chair Jerome Powell speaks during a news conference at the Federal Reserve in Washington, DC, on March 22, 2023.
Federal Reserve Board Chair Jerome Powell speaks during a news conference at the Federal Reserve in Washington, DC, on March 22, 2023.
Provided by CNBC
WASHINGTON Fallout from the U.S. banking crisis is likely to tilt the economy into recession later this year, according to Federal Reserve documents released Wednesday.

Minutes from the March meeting of the Federal Open Market Committee included a presentation from staff members on potential repercussions from the failure of Silicon Valley Bank and other tumult in the financial sector that began in early March.

Though Vice Chair for Supervision Michael Barr said the banking sector "is sound and resilient," staff economists said the economy will take a hit.

"Given their assessment of the potential economic effects of the recent banking-sector developments, the staff's projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years," the meeting summary said.

Projections following the meeting indicated that Fed officials expect gross domestic product growth of just 0.4% for all of 2023. With the Atlanta Fed tracking a first-quarter gain around 2.2%, that would indicate a pullback later in the year.

That crisis had caused some speculation that the Fed might hold the line on rates, but officials stressed that more needed to be done to tame inflation.

FOMC officials ultimately voted to increase the benchmark borrowing rate by 0.25 percentage point, the ninth increase over the past year. That brought the fed funds rate to a target range of 4.75%-5%, its highest level since late 2007.

The rate hike came less than two weeks after Silicon Valley Bank, at the time the 17th largest institution in the U.S., collapsed following a run on deposits. The failure of SVB and two others spurred the Fed to create emergency lending facilities to make sure banks could continue operations.

Since the meeting, inflation data has been mostly cooperative with the Fed's goals. Officials said at the meeting that they see prices falling further.

"Reflecting the effects of less projected tightness in product and labor markets, core inflation was forecast to slow sharply next year," the minutes said.

But concern over broader economic conditions remained high, particularly in light of the banking problems. Following the collapse of SVB and the other institutions, Fed officials opened a new borrowing facility for banks and eased conditions for emergency loans at the discount window.

The minutes noted that the programs helped get the industry through its troubles, but officials said they expect lending to tighten and credit conditions to deteriorate.

"Even with the actions, participants recognized that there was significant uncertainty as to how those conditions would evolve," the minutes said...

I'm not reading all that, SMAL.

Weve been in a recession for years

Isn't this literally what they wanted? They raised interest rates to cause a recession. The bank crash was in large part caused by increased interest rates. So this is just that with extra steps.

legendary_zell posted...

Isn't this literally what they wanted? They raised interest rates to cause a recession. The bank crash was in large part caused by increased interest rates. So this is just that with extra steps.

They kept saying they thought they could achieve a "soft landing."

We've been in one since last year headed for a crash landing by the looks of it.

Gonna hit hard. Which is why I did everything to pay off my credit cards and move out of a rent house.

If a big (bigger?) recession does hit as we get closer to election year, could make for some interesting times.

It could have a big impact on the 2024 election.

modena posted...

Gonna hit hard. Which is why I did everything to pay off my credit cards and move out of a rent house.

I bought a house and moved in November 21, am I fucked?

https://www.cnbc.com/2023/04/15/yellen-says-us-banks-may-tighten-lending-and-negate-need-for-more-fed-rate-hikes.html

Yellen says U.S. banks may tighten lending and negate need for more Fed rate hikes

U.S. Treasury Secretary Janet Yellen said banks are likely to become more cautious and may tighten lending further in the wake of recent bank failures, possibly negating the need for further Federal Reserve interest rate hikes.

Yellen said in a CNN Fareed Zakaria GPS interview that policy actions to stem the systemic threat caused by last months failures of Silicon Valley Bank and Signature Bank had caused deposit outflows to stabilize, and things have been calm, according to a transcript released on Saturday.

Banks are likely to become somewhat more cautious in this environment, Yellen said in the interview, which is scheduled to air on Sunday. We already saw some tightening of lending standards in the banking system prior to that episode, and there may be some more to come.

She said that would lead to a restriction in credit in the economy that could be a substitute for further interest rate hikes that the Fed needs to make.

But Yellen said she was not yet seeing anything dramatic enough or significant enough in this area to alter her economic outlook.

So, I think the outlook remains one for moderate growth and (a) continued strong labor market with inflation coming down, she said.

Yellen is far from the only finance official expecting some retrenchment in bank credit as a result of the financial sector upheaval in the last month. Some Fed officials have said the U.S. central bank should adopt a more cautious footing as they expect banks to restrict lending in the months ahead.

Weekly bank balance sheet data published by the Fed has yet to show a material deterioration in bank lending, while also showing that deposit outflows have stabilized in the last two weeks after an initial flood of withdrawals around the time of the SVB and Signature failures in mid-March.

Yellen was asked, in the wake of concerns about the safety of deposits, whether it would be wise to develop a central bank digital currency that would allow U.S. consumers to have accounts directly with the Fed.

There are important pros ... and there are some cons with such a decision, so its one that needs to be seriously analyzed, but it could be something that is in Americans future, Yellen said...

Yeah, it was those couple banks that did it.

Payzmaykr posted...

Weve been in a recession for years

Best recession we've ever had

Gee, who would have thought that letting banks run rampant would destroy the economy...again.

https://www.msn.com/en-us/money/savingandinvesting/commercial-real-estate-market-could-crash-soon-here-s-why/ar-AA19RtrA

Commercial real estate market could crash soon. Heres why

The commercial real estate market may be headed for a crash that rivals the 2008 financial crisis this year.

Office and retail property valuations could plummet as much as 40% from peak to trough this year as higher interest rates make it harder for investors to refinance trillions in looming debt, according to Lisa Shalett, chief investment officer for Morgan Stanley Wealth Management.

"MS & Co. analysts forecast a peak-to-trough CRE price decline of as much as 40%, worse than in the Great Financial Crisis," Shalett wrote in a weekly investment note. "More than 50% of the $2.9 trillion in commercial mortgages will need to be renegotiated in the next 24 months when new lending rates are likely to be up by 350 to 450 basis points."

Complicating the matter is the fact that small and regional banks are the biggest source of credit to the $20 trillion commercial real estate market, holding about 80% of the sector's outstanding debt. Regional banks are at the epicenter of the upheaval within the financial sector, and there are concerns that the turmoil could make lending standards drastically more restrictive.

During a credit crunch, banks significantly raise their lending standards, making it difficult for businesses or households to get loans. Borrowers may have to agree to more stringent terms like high interest rates as banks try to reduce the financial risk on their end.

Banks were already tightening lending standards before the crisis within the industry began. A quarterly survey of loan officers published by the Fed showed that a growing number of banks tightened lending standards and saw reduced demand in the final three months of 2022.

"Refinancing risks are front and center" for commercial property owners, a separate Morgan Stanley note said. "The maturity wall here is front-loaded. So are the associated risks."

Even before the collapse of Silicon Valley Bank and Signature Bank in early March, the commercial real estate market was struggling with a number of challenges, including higher interest rates and waning demand for office space as more companies allow employees to work from home.

"Commercial real estate, already facing headwinds from a shift to hybrid/remote work, has to refinance more than half of its mortgage debt in the next two years," Shalett wrote in a weekly report published this week.

The Federal Reserve has raised interest rates nine times from near zero to upwards of 4.75%, and it is expected to approve a 10th rate hike during its next meeting that is scheduled for May 2-3. It is the steepest jump in borrowing costs since the 1980s.

Still, others are less pessimistic about the future of the commercial real estate market. Solita Marcelli, UBS Global Wealth Management chief investment officer of Americas, said the headlines regarding office space "are worse than reality."...

Our future is fucked. But hey, corporations will be just fine and the wealthy will be able to control even more of our lives.

tremain07 posted...

Our future is fucked.

Seems possible for a lot of people.

This is good, maybe then housing prices will go down

Woo, getting to live through yet another financial crisis. Whatever at this point. As long as food and housing prices go down I can't really say I care.

user isn't... fuckin whatever man

FigureOfSpeech posted...

user isn't

his account is dead = suspended. purgatory or banned.
forever dead

GOP deserves full credit for this mess they wanted looser restrictions and it costed everyone.

we've long been aware of zombie corporations thriving on 15 years of subzero real interest rates, but we failed to consider the possibility that the entire financial sector was, too, long zombified as the fed moves to curb inflation

there will be hell to pay for the macro bed we've made for ourselves

if we enter a recession we'll be fucked for a decade, this isn't a good sign

TheMikh posted...

we've long been aware of zombie corporations thriving on 15 years of subzero real interest rates, but we failed to consider the possibility that the entire financial sector was, too, long zombified as the fed moves to curb inflation

there will be hell to pay for the macro bed we've made for ourselves

No, people who pay attention to this shit have been warning about this years. It's just that there was a vested interest by those who profit from it to lie about it for as long as possible.

Calling it a banking crisis at this point after JPM posted record profits and Citi and WF also having blowout quarters sounds like cryptobro level FUD

real shit wont happen until 2024

Eramir posted...

this isn't a good sign

carthy is going for "burning the whole mother fucker down" scenario if he doesn't get his way.

seems like it's going to do that with 2 month's to go.

what should I do with my monies CE?

so rich when?