Some Fed officials consider a pause in interest rate hikes in March

WASHINGTON ( – Several Federal Reserve policymakers last month considered halting interest rate hikes after the failure of two regional banks and forecasts from Fed staff that banking sector pressure would push the economy into recession.

But even they concluded that high inflation remained so important that they pressed ahead with rate hikes despite the risks.

After an unexpectedly complex debate that reshapes several policy views in a critical way real-timethe dramatic developments following Silicon Valley Bank’s March 10 failure ultimately did little to derail the Fed’s rate hike campaign, with officials confident they can fight inflation with one set of tools and stabilize financial markets with another.

“Several participants … considered whether it would be appropriate to maintain a steady target range at the meeting” to assess how developments in the financial sector could affect lending and the path of the economy, according to the minutes of the March 21-22 meeting of the Federal Open Market Committee (FOMC) released on Wednesday (12/4/2023).

Fed staff assessing potential fallout from banking sector pressures project a “mild recession” from later this year, with a recovery in 2024-2025, the minutes showed.

Even so, some Fed policymakers who debated an eventual pause in favor of a quarter-percentage-point rate hike, agreed along with other policymakers that the actions taken by US financial regulators and the Fed have “helped calm conditions in the banking sector and mitigate short-term risks to activity.” economy and inflation,” the minutes said.

Inflation, meanwhile, “remains well above the Committee’s long-term goal of 2.0 percent,” and Fed officials “agreed … that recent inflation data provide little sign that inflationary pressures are easing at a sufficient pace to bring inflation back.” to 2.0 percent.”

The minutes show a committee forced by the failures of Silicon Valley Bank and Signature Bank into an unexpectedly complex debate, but ultimately moving forward with higher interest rates.

“Several participants noted… they would consider a 50 basis point hike… unless there are recent developments in the banking sector,” the minutes said. “Participants agreed that recent banking developments will factor into the Committee’s monetary policy decisions to the extent these developments affect the employment and inflation outlook and the risks surrounding those prospects.”

Most Fed policymakers since the March meeting, with the exception of Chicago Fed President Austan Goolsbee and San Francisco Fed President Mary Daly, have focused their statements on the need to reduce inflation rather than the risks of tightening credit conditions.

Policymakers at a March meeting weakened their commitment to further rate hikes, removing the stated need for “ongoing hikes” from the policy statement and saying only that “further” tightening would likely be required.

It is clear from the minutes that the failure of the SVB and Signature Bank introduced a new sense of caution, with officials ignoring the half-point hike consideration, and indicating financial stability issues would be closely watched.

The projections published at the meeting showed that most policymakers expected one more rate hike before stopping.

“Participants observed that inflation remains too high and the labor market remains too tight; as a result they anticipate that some additional policy strengthening may be appropriate,” the minutes said.

Financial markets were little changed after the minutes.

“I don’t see anything new that’s so significant in this FOMC report that it’s going to change my mind on anything. They’re going to move by 25 basis points and then it’s going to stop,” said Ken Polcari at Kace Capital Advisors.

Also read: Wall Street closes lower after Fed minutes and inflation data
Also read: IMF urges tighter fiscal policy to help tame inflation
Also read: The US dollar dips as US inflation continues to cool in March 2023

Translator: Apep Suhendar
Editor: Biqwanto Situmorang


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