The fallout from the U.S. banking crisis is likely to push the economy into recession this year. This is what the minutes of the Federal Reserve meeting, released on Wednesday, showed.
The minutes of the March meeting included discussions among Fed members about the potential fallout from the Silicon Valley collapse and subsequent financial sector turmoil that began in early March.
The minutes noted that interventions had helped the sector overcome its troubles, but officials said they expected lending to tighten and credit conditions to deteriorate.
“Even with the proceedings, participants recognized that there was a great deal of uncertainty about how these conditions evolved,” the minutes said.
“Given their assessment of the potential economic impacts of recent developments in the banking sector, Fed officials’ expectations at last month’s meeting included a mild recession starting later this year, with a rebound over the next two years.”
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Central bank officials estimated that the worst banking crisis may be limited to “a small number of banks with weak risk management systems and that the banking sector in general remains strong and resilient.”
Forecasts that followed the meeting indicated that Federal Reserve officials expect U.S. GDP growth of just 0.4 percent for 2023.
The previous Fed meeting resulted in a 0.25 basis point rate increase, the ninth consecutive increase to the range between 4.75 percent and 5 percent, the highest rate level since late 2007.
“Reflecting the effects of tightening in the labor market and production, core inflation was expected to slow sharply next year,” the minutes of the meeting read.
“Even with the actions taken, members recognized that there was a great deal of uncertainty about how these conditions would evolve.”
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