Posted on 03/16/23
| News Source: FOX45
The U.S. economy that has withstood aggressive interest rate hikes, an oil shock from the war in Ukraine, a labor shortage and stubborn inflation is still facing an uncertain future coming out of the coronavirus pandemic.
A strong labor market and signs of slowing inflation have kept the U.S. from falling into a recession despite the Federal Reserve increasing its interest rates at a historically fast pace over the last year to cool the economy.
The Fed is trying to navigate a tight line of cooling inflation without tipping to economy into recession and achieving a soft landing. So far, the economy has been able to weather the rapid rate hikes and inflation is down from record highs seen last summer, though is still triple the central bank’s goal of 2%.
Wage gains have slowed over the last several months and unemployment — while still low compared to historical standards — has inched up as more people enter the labor market. Officials at the Fed have said they want to see cooling in the labor market before they are ready to declare inflation to be in definite decline.
“While there is still some uncertainty, it seems like things are generally heading in a positive direction compared to where we were before,” said Jadrian Wooten, collegiate associate professor of economics at Virginia Tech. “It appears that the biggest financial stability problems have been resolved and discussions about the debt limit are moving in a positive direction. While it's easy to be pessimistic about any one of these things, overall, it seems like we are moving in the right direction.”
The unexpected collapse of two banks over the weekend has added to the unknown as the federal government has scrambled to create a backstop against further bank runs and tried to reassure consumers that their money is safe in the U.S. banking system.
The downfall of Silicon Valley Bank and Signature Bank have rattled Wall Street, with shares of other regional banks down so far this week and raising questions about how Americans will respond.
Losses have been concentrated in small and mid-size banks, which face the greatest risk of bank runs where customers would rush to withdraw their money and move it into larger financial institutions they consider to be “too big to fail.”
Officials at the Treasury Department and Fed are closely monitoring the country’s banks and have already taken steps to avoid more bank runs. All deposits at SVB and Signature have been guaranteed and the Fed has created a fund offering other banks loans on generous terms to help provide liquidity in the event they run into issues with customers withdrawing funds.
Analysts and investors are also expecting the collapses to force the Fed to reconsider its plans regarding its next interest rate hike during the next Federal Open Markets Committee meeting on March 22.