Sorin M. Sorescu, a finance professor at Texas A&M’s Mays Business School, recently joined First News at Four to discuss the economic outlook following recent bank failures and federal interest rate hikes. In an article published in Texas A&M Today, Sorescu referred to the Fed’s rate hike as “unprecedented,” noting that it had been over four years since interest rates in the United States and national debt had seen a significant rise.
Sorescu explained that two major bank collapses contributed to the increase in interest rates. However, if the banking crisis is contained, the economic impact will be minor with losses of approximately 33 billion dollars. These losses were compensated for by the FDIC’s insurance fund and did not affect taxpayers directly. Nonetheless, Sorescu warned that there could be more bank failures if the crisis continues. He identified unaccounted losses exceeding $1 trillion across the banking sector, which were mostly due to interest rate hikes by the Federal Reserve.
Sorescu noted that depositors may look to withdraw money from the banking system, which could result in additional losses and more bank failures. Thus, a sound support system is necessary for the banking sector to function effectively. “Some economists, including myself, believe we need to address the root cause of inflation, which is overspending,” Solescu said, adding that he remained “cautiously optimistic” about the future.
Sorescu acknowledged that policymakers needed to address challenges such as the national debt, ballooning deficit, and declining middle-class standard of living. In the meantime, he advised individuals to prepare for possible prolonged inflation and invest in asset classes that thrive on inflation and are secured against treasuries, bonds, and inflation.