We spoke with George Goncalves, head of overall economic strategy at MUFG Securities America in New York, about the impact of the successive failures of two U.S. banks.

How do you analyze the current situation?

Financial markets are worried that there is a bigger problem not only with the two failed banks, but with the American banking system.

Furthermore, the market is nervous about the uncertainty of whether there is a possibility that banks will go bankrupt or that there is a possibility of reducing lending and reducing economic activity and triggering a recession.

What was the problem with the banking system this time?

It is still unclear, but the losses incurred by banks are due to the Fed = Federal Reserve's interest rate hike.

The price of bonds held by banks fell sharply due to rising interest rates.

Before and after the pandemic, interest rates were very low and banks were buying bonds at high prices.

However, the price of bonds has dropped significantly due to the rise in policy interest rates, and if you sell it, you may lose capital.

Is it possible that bank failures will cascade?

I don't know yet.

Many other banks also have the problem of falling bond prices.

If those banks are forced to sell their bonds, they could go bankrupt.

What impact will the bankruptcy have on the Fed's rate hikes?

Our view was that the Fed would continue to raise rates until something broke.

If the economy slows under pressure from banks to raise interest rates, there will be a recession.

I believe that the risk of a recession has increased.

If that happens, inflation will subside and the Fed won't have to raise interest rates as much.

What will happen at the Fed monetary policy meeting scheduled for next week?

Until the 13th, we predicted that the Fed would raise rates by 0.25%.

We now predict that we will stop raising interest rates.

The reason is that the future is uncertain.