Federal Reserve — FOMC Statement (USA, 2023)

Minutes of the Federal Open Market Committee March 21 22, 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, March 21, 2023, at 10:00 a.m. and contin- ued on Wednesday, March 22, 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,2 Alternate Members of the Committee James Bullard and Susan M. Collins, Presidents of the Federal Reserve Banks of St. Louis and Boston, respectively Roberto Perli, Manager, System Open Market Account Julie Ann Remache, Deputy Manager, System Open Market Account Jose Acosta, Senior Communications Analyst, Division of Information Technology, Board David Altig, Executive Vice President, Federal Reserve Bank of Atlanta Kartik B. Athreya, Executive Vice President, Federal Reserve Bank of Richmond Becky C. Bareford, First Vice President, Federal Reserve Bank of Richmond Penelope A. Beattie,5 Section Chief, Office of the Secretary, Board Daniel O. Beltran, Deputy Associate Director, Division of International Finance, Board Jennifer J. Burns,5 Deputy Director, Division of Supervision and Regulation, Board Mark A. Carlson, Adviser, Division of Monetary Affairs, Board Kelly J. Dubbert, Interim President of the Federal Todd E. Clark, Senior Vice President, Federal Reserve Reserve Bank of Kansas City Bank of Cleveland 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,3 Economist Shaghil Ahmed,4 Roc Armenter, James A. Clouse, Brian M. Doyle, Andrea Raffo, Chiara Scotti, and William Wascher, Associate Economists Daniel Cooper, Vice President, Federal Reserve Bank of Boston Stephanie E. Curcuru, Deputy Director, Division of International Finance, Board Wendy E. Dunn, Adviser, Division of Research and Statistics, Board Burcu Duygan-Bump, Special Adviser to the Board, Division of Board Members, 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 Elected as an Alternate by the Federal Reserve Bank of New York, effective March 2, 2023. 3 Attended through the discussion of the economic and finan- cial situation. 4 Attended from the discussion of the economic and financial situation through the end of Wednesday s session. 5 Attended through the discussion of developments in finan- cial markets and open market operations. Page 1_____________________________________________________________________________________________ Matthew J. Eichner,5 Director, Division of Reserve Bank Operations and Payment Systems, Board Fernando M. Martin, Assistant Vice President, Federal Reserve Bank of St. Louis Ozge Akinci Emekli, Economic Research Advisor, Thomas Mertens, Vice President, Federal Reserve Bank Federal Reserve Bank of New York of San Francisco Jon Faust, Senior Special Adviser to the Chair, Division Ann E. Misback, Secretary, Office of the Secretary, of Board Members, Board Board Andrew Figura, Associate Director, Division of Giovanni Nicol , Senior Economist, Division of Research and Statistics, Board Monetary Affairs, Board Glenn Follette, Associate Director, Division of Research and Statistics, Board Michael G. Palumbo, Senior Associate Director, Division of Research and Statistics, Board Michael S. Gibson, Director, Division of Supervision Marcel A. Priebsch, Principal Economist, Division of and Regulation, Board Monetary Affairs, Board Christine Graham,5 Special Adviser to the Board, Linda Robertson, Assistant to the Board, Division of Division of Board Members, Board Board Members, Board Joseph W. Gruber, Executive Vice President, Federal Achilles Sangster II, Senior Information Manager, Reserve Bank of Kansas City Division of Monetary Affairs, Board Valerie S. Hinojosa, Section Chief, Division of Krista Schwarz, Principal Economist, Division of Monetary Affairs, Board Monetary Affairs, Board Jane E. Ihrig, Special Adviser to the Board, Division of Nitish Ranjan Sinha, Special Adviser to the Board, Board Members, Board Division of Board Members, Board Michael T. Kiley, Deputy Director, Division of Yannick Timmer, Senior Economist, Division of Financial Stability, Board Monetary Affairs, Board Don H. Kim, Senior Adviser, Division of Monetary Clara Vega, Special Adviser to the Board, Division of Affairs, Board Board Members, Board Spencer Krane, Senior Vice President, Federal Reserve Annette Vissing-J rgensen, Senior Adviser, Division of Bank of Chicago Monetary Affairs, Board Andreas Lehnert, Director, Division of Financial Jeffrey D. Walker,5 Associate Director, Division of Stability, Board Paul Lengermann, Assistant Director, Division of Reserve Bank Operations and Payment Systems, Board Research and Statistics, Board Min Wei, Senior Associate Director, Division of Kurt F. Lewis, Special Adviser to the Board, Division Monetary Affairs, Board of Board Members, Board Paul R. Wood, Special Adviser to the Board, Division Laura Lipscomb, Special Adviser to the Board, Division of Board Members, Board David L pez-Salido, Senior Associate Director, Division of Monetary Affairs, Board Francesca Loria, Senior Economist, Division of Monetary Affairs, Board Byron Lutz, Deputy Associate Director, Division of Research and Statistics, Board of Board Members, Board Rebecca Zarutskie, Special Adviser to the Board, Division of Board Members, Board Recent Developments in the Banking Sector Before turning to other agenda items, the Chair asked the Vice Chair for Supervision to provide an update on recent developments in the banking sector. The Vice Chair for Supervision described the developments, in- cluding those at Silicon Valley Bank, Signature Bank, and Page 2Federal Open Market Committee_____________________________________________________________________________________________ Credit Suisse. He also described actions taken by the Federal Reserve and other regulatory agencies in re- sponse. He noted that the U.S. banking system is sound and resilient. He also noted that he will be leading a re- view of the supervision and regulation of Silicon Valley Bank, and that the Federal Reserve System will apply what is learned from the review to strengthen its super- visory and regulatory practices as appropriate. Developments in Financial Markets and Open Market Operations The manager turned first to a review of U.S. financial market developments over the intermeeting period. Early in the period, firmer-than-expected data and policy communications pushed interest rates higher and equity prices lower. Developments in the banking sector later in the period were met with sharp reductions in Treasury yields, particularly at shorter tenors. Treasury market li- quidity was poor and implied volatility was high, but the market remained functional amid substantial trading ac- tivity. Higher Treasury market volatility contributed to wider spreads for household and business borrowing. Financial conditions tightened considerably over the in- termeeting period as a whole. Market contacts observed that the recent developments in the banking system will likely result in a pullback in bank lending, which would not be reflected in most common financial conditions indexes. Following the banking-sector developments, equity prices for large U.S. banks underperformed the broad market; equity prices for U.S. regional banks gen- erally underperformed by relatively more. Regarding the outlook for inflation in the United States, market-based measures of inflation compensation over shorter horizons rose over the period, although com- pensation retraced a good portion of its increase later in the period as markets reacted to the developments in the inflation compensation banking sector. measures continued to indicate that longer-term infla- tion expectations remained well anchored. Measures of inflation expectations from the Open Market Desk s Survey of Primary Dealers and Survey of Market Partic- ipants moved higher at shorter horizons and were little changed at longer horizons. Forward Regarding the outlook for monetary policy, market- based measures of policy expectations suggested that the federal funds rate would reach a peak in May 2023 and that the target range would then move lower. However, the medians of respondents  modal expectations of the federal funds rate from the Desk surveys did not show any declines in the target range through the end of 2023. Risk and liquidity premiums embedded in market prices may have driven a good part of the difference between survey and market measures. The median respondent expected the Summary of Economic Projections (SEP) projections for the federal funds rate at the end of 2023 and 2024 to shift 25 basis points higher. However, in- formation gathered after the Desk surveys closed sug- gests that those expectations had declined some, to a level comparable