Image from Fed gallery, caption mine

Please consider Minutes of the Federal Open Market Committee for March 21–22, 2023. 

Staff Economic Outlook - Twelve Key Things

1. 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.
2. If banking and financial conditions and their effects on macroeconomic conditions were to deteriorate more than assumed in the baseline, then the risks around the baseline would be skewed to the downside for both economic activity and inflation, particularly because historical recessions related to financial market problems tend to be more severe and persistent than average recessions.
3. Real GDP growth in 2024 was projected to remain below the staff’s estimate of potential output growth, and then GDP growth in 2025 was expected to be above that of potential. 
4. Resource utilization in both product and labor markets was forecast to be much less tight than in the January projection.
5. The level of real output was projected to move below the staff’s estimate of potential output in early 2024, more than a year sooner than in the previous projection. 
6. The unemployment rate was projected to rise above the staff’s estimate of its natural rate early next year. 
7. The staff judged that the uncertainty around the baseline projection was much greater than at the time of the previous forecast. In particular, the staff viewed the risks around the baseline projection as determined importantly by banking conditions and the implications for financial conditions.
8. Based on incoming economic data, participants’ assessments of the effects of cumulative policy firming, and their initial views on the likely economic effect of the recent banking-sector developments, participants generally expected real GDP to grow this year at a pace well below its long-run trend rate.
9. Regarding the business sector, participants observed that growth in business fixed investment was being restrained by tighter financial conditions that reflected cumulative policy firming to date.
10. Participants generally observed that the recent developments in the banking sector had further increased the already-high level of uncertainty associated with their outlooks for economic activity, the labor market, and inflation.
11. Participants emphasized that the Federal Reserve should use its liquidity and lender-of-last-resort tools, as well as its microprudential and macroprudential regulatory and supervisory tools, to address stress in the banking sector and to mitigate future financial stability risks.
12. 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.

Recession Coming or Has it Started?

For what I believe to be a historic first, the Fed is forecasting a recession before it started.

Or has it started already?

On February 12, I posted Let's Discuss the Rolling Recession Idea and How Long It Might Last

"We are already in a recession," says Charles Schwab Chief Investment Strategist Liz Ann Sonders. "It's just of a rolling variety."

Real Recession or Rolling Recession?

I think we are in recession and a real one. But I also think there will not be a big jump in the unemployment rate.

Expect a Long Period of Weak Growth, Whether or Not It's Labeled Recession

And I agree with Sonders that it's an academic exercise and said so months ago.

On August 19 2022, I commented Expect a Long Period of Weak Growth, Whether or Not It's Labeled Recession

The Fed is now downgrading its economic forecast for 2024. That's no shock in this corner.

In terms of unemployment, I happen to agree with the Fed. The recession will be mild. But my baseline assumption is not a return to above trend growth in 2025. 

The Fed has so distorted money supply and housing with its totally flawed QE policy we may not return to normal financial conditions for years.

Factor in boomer retirements and the massive inflationary policies of President Biden on energy and regulations, and the Fed will have its hands full for potentially a long time.

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