Silicon Valley Bank's collapse has made the Fed's job way harder, top economist says

• The Federal Reserve will struggle to achieve a "no landing" scenario now that Silicon Valley Bank has collapsed, according to Apollo Global Management's chief economist.
• Torsten Sløk said he's expecting the regional banking crisis to lead to a fall in lending levels.

The Federal Reserve's job just got a whole lot harder, according to Apollo Global Management's chief economist.

Torsten Sløk warned that the collapse of Silicon Valley Bank last week and the regional banking crisis that followed has made it much less likely the central bank is able to navigate toward a "no landing" scenario – where it is able to bring inflation down to its 2% target level without cratering the economy.

"The risk with that is that the slowdown that was already under way because of the Fed raising rates might come faster because of this banking situation," he told Bloomberg's "What Goes Up" podcast Friday. "That's why I changed my view from saying 'no landing, no landing – everything is fine' to now saying 'wait a minute – there is a risk that things could slow down faster'."

SVB failed after disclosing massive losses on its bond portfolio, which led to customers like Peter Thiel's Founders Fund pulling their money from the bank.

Its stock then cratered 87% in two days before it was taken over by regulators – and the share prices of other regional banks like First Republic and Western Alliance have also plunged since its collapse.

Sløk pointed out that the banks lend around two-fifths of all money borrowed by Americans – so if the crisis causes them to pull back from that market, there'll be an economic slowdown because people have less to spend.

"What is really the major issue here, in my view, is that we just don't know now what is the behavioral change in terms of lending willingness in regional banks," he said.

"Given that regional banks make up 30% of assets and roughly 40% of all lending, that means that the banking sector now has such a significant share of banks that are now really at the moment thinking about what is going on," Sløk added.

The banking crisis has led to some of Wall Street's top names raising alarm bells about the Fed – which is still upping borrowing costs in a bid to tame inflation.

Investors have trimmed their view of how much the US central bank will raise interest rates at its meeting next week, according to CME Group's Fedwatch tool – but a huge majority still expect it to lift the cost of borrowing by 25 basis points.

Read more: Legendary investor Carl Icahn warns of more SVB-style fiascos, sounds the inflation alarm, and predicts stocks will tumble