Newly Released Fed Minutes Show Policymakers Seeking to be Flexible on Rates

04/13/2023 

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WASHINGTON — Newly released minutes from the Federal Reserve’s March meeting show officials are seeking to remain flexible when it comes to future rate decisions. The paradox for the Fed remains that the labor market remains strong, even as inflation continues to be high, although it cooled in March, according to new data from the Bureau of Labor Statistics.

“Central bankers have spent more than a year waging a battle against the most painful burst of price increases in decades, raising interest rates to slow the economy and to wrestle price increases under control,” noted the Wall Street Journal. “After lifting their main rate to nearly 5% over the past 12 months, policymakers are contemplating when to stop those moves. But that choice has been complicated by recent high-profile bank blowups.”

The latter is a reference to the failure of Silicon Valley Bank and Signature Bank.

The Fed raised rates by 25 basis points at its March meeting, when analysts had been divided on whether the Fed would raise rates at all or push rates up 50 basis points.

“Some” had even thought a large half-point rate move might be appropriate at the March 21-22 gathering, the minutes from the meeting showed.

‘Shock to the System’

“But officials adjusted their views after the shock to the banking system, the minutes…made clear,” the Journal added.

As CUToday.info reported earlier, following the most recent Fed meeting Chairman Jerome H. Powell said during a news conference that policy going forward would hinge on what happened both to credit conditions and to incoming economic data.

At the meeting, “several participants emphasized the need to retain flexibility and optionality in determining the appropriate stance of monetary policy given the highly uncertain economic outlook,” the minutes showed, according to the report.

‘Inflation Too High, But…’

The report added that officials on the policy-setting Federal Open Market Committee thought that “inflation remained much too high and that the labor market remained tight,” on one hand, but that they would also need to watch for signs that the bank issues had curbed bank lending and business and consumer confidence enough to meaningfully slow the economy.

The minutes show members of the FOMC thought it would be “particularly important” to watch data on credit and financial conditions, which signal how difficult and expensive it is to borrow or raise money, the minutes showed.