Federal Open Market Committee members all accepted raise the federal funds rate by 25 basis points at their conference previously this month however were divided on whether more financial policy tightening up would be required, according to FOMC minutes launched today. The FOMC revealed raised the target variety for the rate to 5% to 5.25% at its May 2-3 conference. The minutes reveal that individuals were worried that inflation stayed too expensive, and some were doubtful that tighter credit conditions triggered by current banking sector tension would suffice to tame it. But while accepting raise the rate, “the extent to which additional increases in the target range may be appropriate after this meeting had become less certain.”
“Many participants focused on the need to retain optionality after this meeting,” according to the minutes. “Some participants commented that, based on their expectations that progress in returning inflation to 2% could continue to be unacceptably slow, additional policy firming would likely be warranted at future meetings. Several participants noted that if the economy evolved along the lines of their current outlooks, then further policy firming after this meeting may not be necessary.”
As for the banking sector, FOMC kept in mind that conditions had actually broadly enhanced because the Silicon Valley Bank and Signature Bank failures in March, with the preliminary deposit outflows experienced by some local and smaller sized banks moderating considerably. “A number of participants noted that the banking sector was well capitalized overall, and that the most significant issues in the banking system appeared to be limited to a small number of banks with poor risk-management practices or substantial exposure to specific vulnerabilities,” according to the minutes. The committee will next satisfy June 13-14.