The Federal Reserve building, in Washington, on March 19, 2019.Leah Millis/Reuters
Several Federal Reserve officials at the U.S. central bank’s policy meeting last month considered pausing interest rate increases until it was clear the failure of two regional banks would not cause wider financial stress, but even they ultimately concluded high inflation remained the priority.
“Several participants … considered whether it would be appropriate to hold the target range steady at the meeting” to assess how financial sector developments might influence lending and the path of the economy, according to the minutes of the Federal Open Market Committee’s March 21-22 meeting, which were released on Wednesday.
However, those officials, along with others, agreed that actions taken by U.S. policy-makers and the Fed had “helped calm conditions in the banking sector and lessen the near-term risks to economic activity and inflation,” the minutes said, and supported a quarter-percentage-point rate increase despite the new uncertainty around the financial sector.
Inflation, meanwhile, “remained well above the Committee’s longer-run goal of 2 per cent,” and Fed officials “concurred … that the recent data on inflation provided few signs that inflation pressures were abating at a pace sufficient to return inflation to 2 per cent over time.”
The minutes showed 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.
“Some participants noted … they would have considered a 50-basis-point increase … in the absence of the recent developments in the banking sector,” the minutes said. “Participants agreed that recent banking developments would factor into the Committee’s monetary policy decisions to the extent these developments affect the outlook for employment and inflation and the risks surrounding the outlook.”
Policy-makers at the March meeting weakened their commitment to further rate hikes, dropping the stated need for “ongoing increases” from the policy statement in favour of saying only that “some further” tightening would likely be needed.
“Participants observed that inflation remained much too high and that the labour market remained too tight; as a result they anticipated that some additional policy firming may be appropriate,” the minutes said.