US Federal Reserve economists were projecting a “mild recession” when it decided to further raise interest rates last month, minutes of the meeting published on Wednesday showed.
“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,” the Federal Open Market Committee minutes said.
Members of the Fed’s policysetting committee voted unanimously last month to raise its benchmark lending rate for a ninth time in more than a year, as they sought to balance curbing high inflation and averting further banking sector upheaval following the rapid collapse of Silicon Valley Bank (SVB), the minutes said.
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 committee adding in a statement that “some additional policy firming may be appropriate” to help bring inflation down to the Fed’s target of 2 percent.
All committee members favored the quarter-percentage-point rise last month, the minutes said.
However “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 5 percent in February.
Much of the market turbulence unleashed by the SVB collapse has also receded, with the Chicago Board Options Exchange Volatility Index down more than 30 percent during the past four weeks.
That lower metric, which is often used to gauge the level of market volatility, suggests that traders see less risk in financial markets.
However, core PCE inflation, which excludes volatile food and energy prices, remained elevated, suggesting that the US central bank has more work to do.
A majority of futures traders expect the Fed to hike interest rates by a further 25 basis points at its meeting next month, CME Group data showed.
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