Fed warns of impending recession due to banking crisis

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Due to the ongoing banking crisis, the FED has warned that a recession could occur later this year. The minutes of the March meeting of the Federal Open Market Committee disclose a staff presentation on the effects of Silicon Valley Bank’s failure and the broader financial crisis that began in early March. While Vice Chair for Supervision Michael Barr stated that the banking sector “is sound and resilient,” staff economists predicted that the economy will decline. The staff predicted a modest recession beginning later this year, followed by a recovery over the next two years.

Fed forecasts a 0.4% GDP growth rate for 2023.

The Federal Reserve meeting minutes indicate that officials anticipate a 0.4% GDP growth rate for the entirety of 2023. The Atlanta Fed anticipates a first-quarter increase of approximately 2.2%, indicating a decline later in the year. The failure of Silicon Valley Bank, the seventeenth largest institution in the United States, and two others prompted the Federal Reserve to establish emergency lending facilities so that institutions could continue operations.

Concerns regarding broader economic conditions persist.

Officials of the Federal Reserve opened a new financing facility for banks and loosened requirements for emergency loans at the discount window to assist the industry in overcoming its difficulties. Officials anticipate a tightening of lending standards and a worsening of credit conditions, despite the fact that the programs have aided. The inflation data has been largely supportive of the Fed’s objectives, but some policymakers have questioned whether rates should remain unchanged as they monitor the crisis. Officials voted in favor of a rate increase due to “elevated inflation, the strength of recent economic data, and their commitment to bring inflation down to the Committee’s longer-term goal of 2%.”

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