Federal Open Market Committee members all agreed to raise the federal funds rate by 25 basis points at their meeting earlier this month but were divided on whether further monetary policy tightening would be needed, according to FOMC minutes released today. The FOMC announced raised the target range for the rate to 5% to 5.25% at its May 2-3 meeting. The minutes show that participants were concerned that inflation remained too high, and some were skeptical that tighter credit conditions caused by recent banking sector stress would be enough to tame it. But while agreeing to 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 noted that conditions had broadly improved since the Silicon Valley Bank and Signature Bank failures in March, with the initial deposit outflows experienced by some regional and smaller banks moderating substantially. “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 meet June 13-14.
