The banking crisis that began just a few months ago is seeming to have differing effects from what we originally thought. It appears that it may be a slow bleed that trickles through the economy and acts as a catalyst to the recession that everyone has been predicting. The current consensus is that large banks have not seen major implications yet while smaller banks are taking most of the hits. This is an issue because if smaller banks are now lending less this is a hit on middle America which is a negative for overall economic growth.
The immediate future does seem to look good as first quarter GDP growth is predicted to be 2% or more. However this is not expected to last as the Fed continues to spike interest rates and small banks begin to lend less. This decline is seen in the $563 billion drawdown this year among US banks.
The good news is that any recession on the horizon is likely going to be brief and the banking crisis appears to have been confined. Many different reports have said that the crisis is not as serious as it was originally perceived to be with the Federal Reserve’s “Beige Book” saying demand for loans “generally declined”. The chief economist at Moody’s Analytics also said “The fallout from the crisis seems less serious than I had expected just a few weeks ago.” While a recession is thought to be short-lived, the direction of the economy is now up to the consumers.
Source - https://www.cnbc.com/2023/04/25/the-banking-crisis-is-having-a-slow-burn-impact-on-the-economy.html
Although it is encouraging to learn that the crisis may not be as severe as first believed, the potential effects on smaller banks and middle America are alarming.
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