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Stable Bank Deposits Amid High Inflation, Says Fed's Barkin

Fed's Barkin highlights stable bank deposits despite high inflation, emphasizing resilience and flexibility in addressing economic challenges.

Thomas Barkin
Thomas Barkin

Stability in U.S. Bank Deposits

Deposit flows in U.S. banks seem to be "relatively stable," according to Richmond Federal Reserve Bank President Thomas Barkin. Despite recent stress in the banking industry, the policy focus remains on persistently high inflation.

Not All Bank Failures Are Equal

Barkin pointed out that not every bank failure leads to a crisis like Lehman Brothers, referring to the financial collapse 15 years ago. He acknowledged that some individual banks are working through their issues.

Resilience in the Banking Industry

In his comments to the Virginia Council of CEOs, Barkin praised the resilience and efforts of banks in maintaining adequate liquidity. He shared positive observations from his interactions with banks in his district.

Openness to Future Rate Increases

While Barkin did not commit to another rate increase at the upcoming May 2-3 Fed meeting, he emphasized his willingness to be "nimble" and consider various options based on recent data and potential banking system weaknesses.

Possible Factors for Faster Inflation Decline

Barkin suggested that the failures of Silicon Valley Bank and Signature Bank might lead to banks becoming more conservative, tightening credit, and possibly contributing to a quicker decline in inflation due to the impact of tight U.S. monetary policy.

Uncertainty on Inflation's Return to Target

Barkin acknowledged that it is too early to determine if the current situation will lead to a faster return to the Fed's 2% inflation target. Inflation currently stands at more than double the target rate.

Reasons for Prolonged High Inflation

Barkin identified several factors that could contribute to the persistence of high inflation, including businesses feeling more empowered to raise prices after years of aggressive pricing strategies to protect market share.