Federal Reserve economists were projecting a “mild recession” when the US central bank decided to further raise interest rates last month, according to the minutes of the meeting published Wednesday.
“The staff’s projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years,” according to the minutes.
Members of the Fed’s policy-setting committee voted unanimously last month to raise its benchmark lending rate for a ninth time in just over a year, the minutes showed, as they sought to balance curbing high inflation and averting further banking sector upheaval following the rapid collapse of Silicon Valley Bank (SVB).
The quarter-point increase, which was in line with expectations, lifted the Fed’s interest rate target to between 4.75 and 5 percent, with the Federal Open Market Committee (FOMC) adding in a statement that “some additional policy firming may be appropriate” to help bring inflation down to the Fed’s target of two percent.
All members of the FOMC favored the quarter-percentage-point rise last month, according to minutes.
But “several participants” had considered holding interest rates steady due to the turbulence in the banking sector unleashed by SVB’s collapse, the Fed said in a statement on Wednesday.
Some members had also noted that they would have pushed for a larger hike of 50 basis points, “in the absence of the recent developments in the banking sector.”
Since the Fed’s decision, the economic picture has improved somewhat, with the personal consumption expenditures (PCE) price index -– the Fed’s favored measure of inflation –- slowing to an annual rate of five percent in February.
Much of the market turbulence unleashed by SVB’s collapse has also receded, with the VIX index down more than 30 percent over the last month.
That lower metric, which is often used to gauge the level of market volatility, suggests traders see less risk in the financial markets.
But core PCE inflation, which excludes volatile food and energy prices, remained elevated, suggesting the US central bank has more work to do.
A majority of futures traders expect the Fed will hike interest rates by a further 25 basis points at its next meeting in May, according to data from CME Group.
