US: Banking System Stress Tightens Financial Conditions, Rendering Rate Hikes Unnecessary

We believe increased financial stress in the US banking sector is likely to significantly constrain bank lending, which could negatively affect US economic growth. As we have long argued, cumulative rate hikes disproportionately reduce bank lending, which we expect to lead to a recession in H2 2023. However, that process could accelerate in a non-linear way as financial stress rises.