Federal Reserve expects recession in US economy by end of 2023

Further tightening is likely, albeit at a slower pace
Federal Reserve expects recession in US economy by end of 2023
Federal Reserve

The Federal Reserve Board expects a recession to hit the US economy later this year. 

A decrease in the country’s GDP is also predicted to affect the economy by the last quarter of 2023, and the first quarter of 2024, according to the meeting minutes of the Federal Reserve’s June meeting, published on Wednesday. 

The statement read, “The effects of the expected further tightening in bank credit conditions, amid already tight financial conditions, would lead to a mild recession starting later this year.”

It continued on to report, “Real GDP was projected to decelerate in the current quarter and the next one before declining modestly in both the fourth quarter of this year and first quarter of next year.”

Read more: The Fed holds interest rates, Powell thwarts investors’ hopes for a cut soon

Nearly all officials at the Reserve indicated in their June meeting that further tightening was likely, even if at a slower pace than the rapid interest rate hikes that characterized their monetary policy since early 2022.

In the meeting, policymakers decided against raising interest rates amid concerns about economic growth. Most members believed that more hikes were imminent, and saw room for exceeding following ten consecutive rate increases.

Officials saw that, “leaving the target range unchanged at this meeting would allow them more time to assess the economy’s progress toward the Committee’s goals of maximum employment and price stability.”

Members of the Federal Open Market Committee expressed hesitation in regards to several details. They stated that a pause would provide the committee with time to evaluate the effects of the increases, which amounted to a total of 5 percentage points, making them the most aggressive moves since the early 1980s.

The minutes stated, “The economy was facing headwinds from tighter credit conditions, including higher interest rates, for households and businesses, which would likely weigh on economic activity, hiring, and inflation, although the extent of these effect remained uncertain.”

The decision to unanimously not raise interest rates was made, “in consideration of the significant cumulative tightening in the stance of monetary policy and the lags with which policy affects economic activity and inflation.”

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