Economists at the Federal Reserve predict that the recent banking instability will cause a slight recession later this year, which could be a concerning development for President Joe Biden as he prepares for an election campaign.

In their briefing to policymakers before interest rate decisions, the central bank staff had previously anticipated a deceleration in GDP growth this year due to the Fed’s efforts to combat inflation.

However, last month, they increased the chances of an economic downturn, as revealed in the minutes from the Fed’s March 21-22 meeting, Politico reported.

A few weeks before the meeting, two regional banks, Silicon Valley Bank and Signature Bank, collapsed when depositors withdrew billions of dollars in cash. This event created ripples throughout the industry.

The Fed’s economists’ outlook, as revealed in the minutes released on Wednesday, was for a “slight recession starting later this year, with a recovery over the next two years.”

This projection would result in an increase in unemployment. They predicted that the economy would regain its strength by 2025.

Written by staff