Economists at the Federal Reserve have predicted a slight recession for the second half of this year due to the recent bank failures, which might be problematic for President Biden and his party in the run-up to the presidential race in 2024.
According to minutes from the Federal Reserve’s meeting on March 21-22, the central bank predicted a slight recession beginning later this year and a turnaround over the next two years.
Federal regulators had taken control of Signature Bank and Silicon Valley Bank weeks before the meeting. Before the banks fell, depositors withdrew billions of dollars, sending shockwaves through the financial system.
The Biden administration took heat for mishandling the largest bank failures in American history. According to several lawmakers and columnists, there were not enough regulators in place, so the administration was reluctant to respond.
President Joe Biden has declared he will compete for reelection but has not officially announced his choice. A recession may hurt his chances, as it did for former President Jimmy Carter.
According to reports, rate hikes have brought the United States to the verge of a recession, and subsequent economic estimates have shown that GDP will drop dramatically this year while unemployment will continue to rise to 4.5 percent. As higher rates continue to impact, the Fed predicts the unemployment rate will stay high in 2024 and 2025.
The Federal Reserve has continued its war against inflation despite fears that the economy may enter a recession this year. At the meeting, officials voted to boost the average interest rate by a quarter point to an estimated range of 4.75% to 5% and indicated that a further increase is possible in May. However, they stressed that future rate hikes would depend on new information.
After some debate, the Fed decided to raise interest rates again due to higher inflation, the confidence of current economic indicators, and its resolve to bring inflation lower to the Committee’s two percent longer-run goal. This decision came after several Fed members had considered pausing the rate hikes to see what would happen in the banking system.