St. Louis Fed President James Bullard stated on Thursday that he does not believe that the effects of the recent instability across the U.S. banking sector will drive the economy into a recession on their own.
I’m less enamored with the story that credit conditions will tighten appreciably enough to send the U.S. economy into recession,” Bullard stated during a call with reporters. “You’re only talking about a portion of the total amount of intermediation that’s going on. It’s not big enough by itself to send the U.S. economy into recession. Other things would have to happen.”
In Bullard’s view, with only 20% of bank deposits leaving the system, there doesn’t seem to be enough of a change to affect lending. Bullard believes that lending will persist so long as banks maintain enough liquidity and capital to extend loans.
While some have suggested that the Federal Reserve lower its interest rate on its reverse repo facility to encourage money market funds to lend back to banks, Bullard stated that the Federal Reserve does not currently have plans to change that.