Neil Kashkari, chairman of the Federal Reserve in Minneapolis, told CBS on Sunday that pressure on the banking sector and the prospect of a credit crunch are bringing the United States closer to recession, with economists predicting it will face high inflation until 2024.

"It definitely brings us closer. "What's unclear to us is to what extent these banking pressures will lead to a full-scale credit crunch."

"This credit crunch... "It will then slow down economic activity, and that's something we're watching very closely." Kashkari, one of the Federal Reserve's most vocal advocates of raising interest rates to counter inflation, said it was still too early to gauge the impact of banking pressure on the economy, and then see what impact it would have on the FOMC's next decision on interest rates.

The Fed raised interest rates by a quarter of a percentage point on Wednesday, but left open the possibility of pausing them until a clear view of changing bank lending practices after the collapse of Silicon Valley and Signature banks in New York this month.

"The pressure started only two weeks ago. There are some worrying indicators. On the positive side, the exit of deposits seems to have slowed, (while) smaller and regional banks are starting to regain some confidence."

"We've seen a lot of financial markets shut down over the last couple of weeks. If markets continue to be closed due to the anxiety of borrowers and lenders, it will indicate the potential for a greater impact on the economy."


Extensive lending program

The Fed introduced an emergency lending program aimed at protecting other regional banks in the event of increased deposit withdrawals.

The latest data showed money moving from small banks to big banks in the days after the Silicon Valley Bank crash on March 10, although Federal Reserve Chairman Jerome Powell said last week he believed the situation had "stabilized."

In response to a twice-yearly survey by the National Association for Business Economics (NABE), economists predicted that the United States would likely enter a recession this year and face high inflation through 2024.

More than two-thirds of respondents in the survey from the National Association for Business Economics said inflation would remain above 4% at the end of this year.

A total of 217 members of the association took part in the survey, which was conducted between March 2 and 10, the foundation said in a statement.

Economists slightly increased the Fed's chances of achieving a so-called "soft landing", that is, reducing inflation while avoiding a recession, from 27% in the August 2022 poll to 30% in the March 2023 poll.