Goldman Sachs: Likelihood of U.S. Recession Increases to 35% on Bank Stress 

Goldman Sachs warned on Thursday that the chances of the US falling into recession in the next 12 months increased to 35 percent due to “near-term uncertainty about the economic effects of pressure from small banks.”

After the collapse of Silicon Valley Bank and Signature Bank, which has put pressure on additional institutions, such as Credit Suisse in recent days, Goldman Sachs’ view of the US economy has soured amid several crises under the Biden administration.

banking pressure is expected That is felt by the local community banks. according to BarronThe pressures would cause small banks with a low share of deposits covered by the FDIC to cut lending by 40%, they estimated, with other banks to cut lending by 15%.

“Any lending impact is likely to be concentrated in a subset of small and medium-sized banks,” the bank’s analysts cautioned. “The macroeconomic impact of the decline in lending will remain highly uncertain until the extent of the stress on the banking system becomes clear.”

The Goldman Sachs forecast is bad news for the Biden administration. under its management, The nation has already felt the impact of rising inflation, the invasion of the southern frontier, and international instability with China and Russia.

With the banking sector now under pressure, questions remain about whether the Fed will continue to raise interest rates, one of the only tools it has used to bring down inflation. John Carney of Breitbart News explained the predicament:

Since the Fed started raising interest rates at a rapid pace last year, people have been saying that the Fed will keep rising until “something happens.” Something broke. So, what now?

One reason to expect that the current stress in the banking system can convince the Fed to take its foot off the accelerator pedal is that markets accomplish quite a bit of fiscal tightening on their own. Bank lending It is likely to shrink sharply, as banks try to stockpile cash to stave off sudden funding crises. The Fed’s goal of tightening financial conditions is happening even without a rate hike.

However, it seems unlikely that the Fed will end the rate hike cycle here. the Latent inflationary pressures Very high demand, very low unemployment, and the recent experience of high inflation linger. Barring the unlikely development of a severe financial crisis, inflation is likely to persist, and financial conditions are likely to deteriorate as the immediate market panic subsides.

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