Fed's Kashkari: Banks Must Be Prepared for Higher Rates

The video discusses the dual objectives of central banks, which aim to support both economic stability and inflation control. However, these goals can conflict, as seen in recent issues with some US regional banks. Poor risk management and rising interest rates have stressed these banks, though the overall banking system remains resilient. The future of these banks depends on inflation trends. If inflation decreases, policy rates may fall, easing bank pressures. Conversely, persistent inflation could lead to higher rates, further stressing banks. Policymakers may face a dilemma between combating inflation and ensuring banking stability.

What are the potential consequences if inflation proves to be more entrenched than expected?

In what scenario might policymakers have to choose between fighting inflation and supporting banking stability?