Lede

The Federal Reserve predicts a mild recession will occur later this year due to the U.S. banking crisis, according to minutes from the March meeting of the Federal Open Market Committee.

Summary

• Federal Reserve documents indicate that the banking crisis will lead the economy into a recession later in the year.
• The staff economists believe the economy will recover over the next two years, but gross domestic product growth is projected to be 0.4% for all of 2023.
• Projections from the Atlanta Fed suggest a first-quarter growth of 2.2%, which would indicate a pullback in the latter part of the year.
• The meeting ultimately resulted in the decision to increase the benchmark borrowing rate by 0.25 percentage point, the ninth increase in the past year.
• The rate hike was implemented less than two weeks after Silicon Valley Bank, the 17th largest institution in the U.S., collapsed due to a run on deposits, prompting the Fed to create emergency lending facilities to ensure banks could continue operations.
• Inflation data has largely been supportive of the Fed's objectives since the meeting, but economic conditions remain a cause for concern.
• Several policymakers were inclined to hold rates steady in light of the crisis, but ultimately agreed to a vote for another rate hike due to elevated inflation and strong economic data.
• Markets are currently predicting a 72% chance of one more quarter percentage point rate hike in May before a policy pivot where the Fed cuts before the end of the year.