FOMC MINUTES: Participants left rate projections unchanged from December after taking into account banking sector stresses; Many lowered views of rate peak on bank strains

March Meeting

• Several participants noted they considered whether it would be appropriate to leave rates unchanged at this meeting. However these participants noted actions taken helped calm conditions and lower near-term risks, allowing them to judge an increase as appropriate.
• Prior to banking stresses many had seen the appropriate policy path as being somewhat higher than in December.
• Pre-meeting data indicated slower than expected progress on inflation.
• Participants agreed there was little evidence pointing to disinflation for core services excluding housing.
• Participants assessed labor demand as substantially exceeding supply.

Policy Outlook

• Several participants emphasized the need to retain flexibility and optionality in determining the appropriate stance of monetary policy given the highly uncertain economic outlook.
• Some participants observed that downside risks to growth and upside risks to unemployment had increased because of the risk that banking-sector developments could lead to further tightening of credit conditions and weigh on economic activity.
• Some participants also noted that, with inflation still well above the Committee's longer-run goal and the recent economic data remaining strong, upside risks to the inflation outlook remained a key factor shaping the policy outlook, and that maintaining a restrictive policy stance until inflation is clearly on a downward path toward 2% would be appropriate from a risk-management perspective.
• Several participants noted the importance of longer-term inflation expectations remaining anchored and remarked that the longer inflation remained elevated, the greater the risk of inflation expectations becoming unanchored.
• Participants generally agreed on the importance of closely monitoring incoming information and its implications for the economic outlook, and that they were prepared to adjust their views on the appropriate stance of monetary policy in response to the incoming data and emerging risks to the economic outlook.
• Participants observed that inflation remained much too high and that the labor market remained tight; as a result, they anticipated that some additional policy firming may be appropriate to attain a sufficiently restrictive policy stance to return inflation to 2% over time (in line with March statement guidance).

Fed Staff

• Fed staff projected a mild recession starting later in 2023.
• 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.

Banking

• Banking sector developments likely to result in tighter credit conditions and weigh on activity, hiring and inflation.
• Several participants noted regional and community banks as providing critical financial services to many communities and industries.
• Participants agreed that the U.S. banking system remained sound and resilient.
• Actions taken so far by Fed, US authorities and Foreign authorities, had helped calm conditions in the banking sector.
• Participants noted that recent developments in the banking sector and the associated rise in uncertainty would likely weigh on consumer sentiment and that increased caution on the part of consumers could restrain spending.

via Fed