WASHINGTON — The fallout from the US banking crisis is likely to push the economy into a recession later this year, according to Federal Reserve documents released Wednesday.

Minutes from the March meeting of the Federal Open Market Committee included a presentation by staff members on the potential fallout from the Silicon Valley Bank bankruptcy and other turmoil in the financial sector that began in early March.

Although vice president of supervision Michael Barr said the banking sector «is strong and resilient,» staff economists said the economy will take a hit.

«Given their assessment of the potential economic effects of recent developments in the banking sector, the staff projection at the time of the March meeting included a mild recession beginning at the end of this year, with a recovery over the next two years.» , indicated the summary of the meeting. .

Post-meeting projections indicated that Fed officials expect GDP growth of just 0.4% for all of 2023. With the Atlanta Fed tracking a first-quarter gain of around 2.2%, that would indicate a setback later in the year.

That crisis had sparked some speculation that the Fed might keep the rate cap, but officials stressed that more needed to be done to control inflation.

Federal Open Market Committee officials ultimately voted to increase the benchmark lending rate by 0.25 percentage points, the ninth increase over the past year. That brought the fed funds rate into a 4.75%-5% target range, its highest level since late 2007.

He rate hike It came less than two weeks after Silicon Valley Bank, at the time the 17th largest institution in the US, collapsed following a run on deposits. The failure of SVB and two others prompted the Fed to create emergency credit lines to make sure banks could continue to operate.

Since the meeting, inflation data has been mostly cooperative with the Fed’s targets. Officials said at the meeting they see prices falling further.

«Reflecting the effects of projected less tightness in labor and product markets, core inflation is forecast to slow sharply next year,» the minutes said.

But concerns about general economic conditions remained high, particularly in light of the banking problems. Following the collapse of SVB and two other institutions, Fed officials opened a new lending facility for banks and eased conditions for emergency lending at the discount window.

The minutes said the programs helped the industry overcome its problems, but officials said they expected loans to tighten and credit conditions to deteriorate.

«Even with the actions, the participants acknowledged that there was significant uncertainty about how those conditions would evolve,» the minutes said.

Half a point rise if it weren’t for the crisis?

Several policymakers questioned whether to hold rates steady as they watched the crisis unfold. However, they relented, agreeing to vote for another rate increase «due to high inflation, the strength of recent economic data and their commitment to bring inflation down to the Committee’s long-term target of 2 percent.»

In fact, the minutes noted that some members favored a half-point rate hike before the banking troubles. Officials said inflation is «too high,» though they stressed that incoming data and the impact of increases will need to be taken into account when formulating future policy.

“Several participants emphasized the need to maintain flexibility and optionality in determining the appropriate monetary policy stance given the highly uncertain economic outlook,” the minutes read.

Inflation data has generally been cooperative with the Fed’s targets.

The personal consumption expenditures price index, which is the most closely watched indicator of inflation by politicians, rose just 0.3% in February and rose 4.6% on an annual basis. The monthly profit was lower than expected.

The previous Wednesday, the consumer price index showed an increase of only 0.1% in March and slowed to an annual rate of 5%, the latter figure one percentage point below February.\

However, that General reading of the CPI was retained mainly by control food and energy prices, and a rise in housing costs pushed core inflation up 0.4% for the month and 5.6% year-on-year, slightly above what it was in February. The Fed expects housing inflation to slow during the year.

There was some bad news on the inflation front: A New York Fed monthly survey showed that inflation expectations for the coming year rose half a percentage point to 4.75% in March.

As of Wednesday afternoon, markets were assigning about a 72% chance of an additional quarter percentage point rate hike in May ahead of a policy change that sees the Fed cut before the end of the year. , according to data from CME Group.

Although the FOMC approved an increase in March, it changed the language in the post-meeting statement. Where earlier statements referred to the need for «continued increases,» the committee changed the wording to indicate that further increases «may be appropriate.»