The Federal Reserve (Fed) warned that the economy is likely to experience a “mild” recession in late 2023as a result of the banking crisis in the United States.
The prediction was given during the March meeting of the Federal Open Market Committee, where a presentation was made on the possible repercussions of the failure of Silicon Valley Bank and other entities in the financial sector.
Although Fed Vice President of Supervision Michael Barr said the banking sector “is strong and resilient,” central bank economists said the economy will take a hit.
Post-meeting projections indicated that Fed officials expect GDP growth of just 0.4% for all 2023.
“Given their assessment of the potential economic effects of recent developments in the banking sector, the staff projection at the time of the March meeting included a mild recession that would begin at the end of this yearwith a recovery during the following two years”, indicated the summary of the meeting.
Although that crisis had initially sparked some speculation that the Fed might keep the rate cap in place, officials emphasized that more needed to be done to control inflation.
Several policymakers questioned whether to hold rates steady as they watched the crisis unfold. However, they gave in and agreed to vote for another rate hike.
But concerns about general economic conditions remained high, particularly in light of the banking problems.
Following the collapse of SVB and two other institutions, Fed officials opened a new lending facility for banks and they softened the conditions for emergency loans at the discount window.
The minutes said the programs helped the industry overcome its problems, but officials said they hope the loans will adjust and credit conditions deteriorate.
The personal consumption expenditures price index, which is the most closely watched indicator of inflation by politicians, rose just 0.3% in February and rose 4.6% on an annual basis. The monthly profit was lower than expected.
Earlier Wednesday, the consumer price index rose just 0.1% in March and slowed to a 5% annual pace, the latter one percentage point below February.
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Source: La Opinion