For some time, the forecast for the U.S. economy prepared by the staff had featured subdued real GDP growth for this year and some softening in the labor market. Given their assessment of the potential economic effects of the recent banking-sector developments, 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.
From the Fed: Minutes of the Federal Open Market Committee March 21–22, 2023. Excerpt:
In their discussion of monetary policy for this meeting, members agreed that recent indicators pointed to modest growth in spending and production. They also concurred that job gains had picked up in recent months and were running at a robust pace, that the unemployment rate had remained low, and that inflation remains elevated. Members concurred that the U.S. banking system is sound and resilient. They also agreed that recent developments were likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation, but that the extent of these effects was uncertain. Members also concurred that they remained highly attentive to inflation risks.
Members agreed that the Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, members agreed to raise the target range for the federal funds rate to 4-3/4 to 5 percent. Members agreed that they would closely monitor incoming information and assess the implications for monetary policy. Given recent developments, members anticipated that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. Members concurred that, in determining the extent of future increases in the target range, they would take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, members agreed that they would continue reducing the Federal Reserve’s holdings of Treasury securities and agency debt and agency MBS, as described in its previously announced plans. All members affirmed that they remained strongly committed to returning inflation to its 2 percent objective.
emphasis added