Federal Reserve — FOMC Statement (USA, 2023)

Minutes of the Federal Open Market Committee May 2 3, 2023 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve Sys- tem was held in the offices of the Board of Governors on Tuesday, May 2, 2023, at 10:00 a.m. and continued on Wednesday, May 3, 2023, at 9:00 a.m.1 Attendance Jerome H. Powell, Chair John C. Williams, Vice Chair Michael S. Barr Michelle W. Bowman Lisa D. Cook Austan D. Goolsbee Patrick Harker Philip N. Jefferson Neel Kashkari Lorie K. Logan Christopher J. Waller Thomas I. Barkin, Raphael W. Bostic, Mary C. Daly, Loretta J. Mester, and Sushmita Shukla, Alternate Members of the Committee James Bullard and Susan M. Collins, Presidents of the Federal Reserve Banks of St. Louis and Boston, respectively Kelly J. Dubbert, Interim President of the Federal Reserve Bank of Kansas City Joshua Gallin, Secretary Matthew M. Luecke, Deputy Secretary Brian J. Bonis, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Richard Ostrander, Deputy General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Shaghil Ahmed, James A. Clouse, Anna Paulson, Andrea Raffo, Chiara Scotti, and William Wascher, Associate Economists Roberto Perli, Manager, System Open Market Account Julie Ann Remache, Deputy Manager, System Open Market Account Stephanie R. Aaronson,2 Senior Associate Director, Division of Research and Statistics, Board Jose Acosta, Senior Communications Analyst, Division of Information Technology, Board Andre Anderson, First Vice President, Federal Reserve Bank of Atlanta Kartik B. Athreya, Executive Vice President, Federal Reserve Bank of Richmond Penelope A. Beattie,2 Section Chief, Office of the Secretary, Board Daniel O. Beltran, Deputy Associate Director, Division of International Finance, Board Carol C. Bertaut, Senior Adviser, Division of International Finance, Board Mark A. Carlson,2 Adviser, Division of Monetary Affairs, Board Michele Cavallo, Principal Economist, Division of Monetary Affairs, Board Juan C. Climent, Special Adviser to the Board, Division of Board Members, Board Stephanie E. Curcuru, Deputy Director, Division of International Finance, Board Ahmet Degerli, Economist, Division of Monetary Affairs, Board John C. Driscoll,2 Principal Economist, Division of Research and Statistics, Board Wendy E. Dunn,2 Adviser, Division of Research and Statistics, Board Burcu Duygan-Bump, Associate Director, Division of Research and Statistics, Board Rochelle M. Edge, Deputy Director, Division of Monetary Affairs, Board 1 The Federal Open Market Committee is referenced as the  FOMC  and the  Committee  in these minutes; the Board of Governors of the Federal Reserve System is referenced as the  Board  in these minutes. 2 Attended Tuesday s session only. Page 1_____________________________________________________________________________________________ Matthew J. Eichner,3 Director, Division of Reserve Bank Operations and Payment Systems, Board Andreas Lehnert, Director, Division of Financial Stability, Board Eric C. Engstrom, Associate Director, Division of Kurt F. Lewis, Special Adviser to the Board, Division Monetary Affairs, Board of Board Members, Board Jon Faust, Senior Special Adviser to the Chair, Division of Board Members, Board Laura Lipscomb, Special Adviser to the Board, Division of Board Members, Board Giovanni Favara, Assistant Director, Division of David L pez-Salido, Senior Associate Director, Monetary Affairs, Board Division of Monetary Affairs, Board Glenn Follette, Associate Director, Division of Kurt Lunsford, Senior Research Economist, Federal Research and Statistics, Board Reserve Bank of Cleveland Jennifer Gallagher, Assistant to the Board, Division of Patrick E. McCabe, Deputy Associate Director, Board Members, Board Division of Research and Statistics, Board Peter M. Garavuso, Senior Information Manager, Davide Melcangi, Research Economist, Federal Division of Monetary Affairs, Board Reserve Bank of New York Carlos Garriga, Senior Vice President, Federal Reserve Ann E. Misback, Secretary, Office of the Secretary, Bank of St. Louis Board Michael S. Gibson, Director, Division of Supervision David Na, Lead Financial Institution and Policy and Regulation, Board Analyst, Division of Monetary Affairs, Board Christine Graham,2 Special Adviser to the Board, Makoto Nakajima, Vice President, Federal Reserve Division of Board Members, Board Bank of Philadelphia Joseph W. Gruber, Executive Vice President, Federal Michelle M. Neal, Head of Markets, Federal Reserve Reserve Bank of Kansas City Bank of New York Valerie S. Hinojosa, Section Chief, Division of Giovanni Olivei, Senior Vice President, Federal Monetary Affairs, Board Reserve Bank of Boston Jane E. Ihrig, Special Adviser to the Board, Division of Board Members, Board Michael G. Palumbo, Senior Associate Director, Division of Research and Statistics, Board Ghada M. Ijam, System Chief Information Officer, Marcel A. Priebsch, Principal Economist, Division of Federal Reserve Bank of Richmond Monetary Affairs, Board Michael T. Kiley, Deputy Director, Division of Nitish Ranjan Sinha, Special Adviser to the Board, Financial Stability, Board Division of Board Members, Board Kyungmin Kim, Senior Economist, Division of John J. Stevens, Senior Associate Director, Division of Monetary Affairs, Board Research and Statistics, Board David E. Lebow, Senior Associate Director, Division Paula Tkac, Senior Vice President, Federal Reserve of Research and Statistics, Board Bank of Atlanta Sylvain Leduc, Director of Research, Federal Reserve Clara Vega, Special Adviser to the Board, Division of Bank of San Francisco Board Members, Board 3 Attended through the discussion of developments in finan- cial markets and open market operations. Page 2Federal Open Market Committee_____________________________________________________________________________________________ Annette Vissing-J rgensen, Senior Adviser, Division of Monetary Affairs, Board Jeffrey D. Walker,3 Associate Director, Division of Reserve Bank Operations and Payment Systems, Board Min Wei,2 Senior Associate Director, Division of Monetary Affairs, Board Paul R. Wood, Special Adviser to the Board, Division of Board Members, Board Rebecca Zarutskie, Special Adviser to the Board, Division of Board Members, Board Developments in Financial Markets and Open Market Operations The manager turned first to a review of developments in financial markets. Asset prices were less volatile and financial market conditions eased somewhat over the intermeeting period as investor sentiment around the banking system stabilized. On net, nominal Treasury yields declined, equities appreciated, credit spreads tightened, and the trade-weighted value of the dollar de- preciated. Measures of implied volatility declined across markets. Policy-sensitive rates, however, fluctu- ated a fair amount over the period, particularly in re- sponse to economic data but also because of market perceptions of risk and liquidity conditions. Treasury market liquidity improved somewhat over the period but remained challenged. Treasury cash and futures markets continued to function in an orderly manner de- spite the lower-than-normal liquidity. Regarding developments late in the intermeeting pe- riod, the closure and acquisition of First Republic Bank were seen as orderly, though investors remained fo- cused on stresses in the banking sector. In addition, the U.S. Treasury Department announced it may not be able to fully satisfy the federal government s obligations as early as June 1 if the debt limit is not raised or sus- pended, but that the actual date this event would occur might come a number of weeks later. Yields on Treas- ury bills and coupon securities maturing in the first half of June increased notably amid significant volatility. Deposit outflows from small and mid-sized banks largely stopped in late March and April. Although eq- uity prices for regional banks fell further over the pe- riod, for the vast majority of banks these declines ap- peared primarily to reflect expectations for lower prof- itability rather than solvency concerns. Market partici- pants remained alert to the possibility of another inten- sification of banking stress. Responses to the Open Market Desk s Survey of Pri- mary Dealers and Survey of Market Participants suggest that investors  macroeconomic outlooks were little changed from March despite ongoing focus on the im- plications of the expected tightening of credit. Re- spondents saw upside inflation risks, albeit less than in March. Market participants broadly expected a 25 basis point rate increase at the May meeting and saw the resulting rate as the likely peak for the current tightening cycle. Survey respondents assigned a much higher probability to the peak federal funds rate being between 5 and 5.25 percent than they did in March. However, re- spondents still assigned a substantial probability that the peak rate may turn out to be above 5.25 percent. Re- spondents expected the peak rate to be maintained through the January 2024 FOMC meeting. Regarding the balance sheet and money markets, bal- ance sheet runoff continued to proceed smoothly and overnight secured and unsecured rates continued to trade well within the target range for the federal funds rate. Respondents to the Desk s surveys generally ex- pected that overnight reverse repurchase agreement (ON RRP) balances wil