(Special Feature) May FOMC Meeting Summary Published in Japanese Translation Pow ‼️
⭐️ Pow is so obsessed with deciphering the minutes that are entertainment for economy enthusiasts every time... when Pow's older brother always reads it during his commute, he almost gets past the train stop. This time, by daring to touch on the full text of the actual minutes of the proceedings, I wanted all investors to be able to use what each of the investors felt for future investments, so I gave a great thank you to Moomoo, who has no limit on the number of characters to post, and I will post a Japanese translation with the full text uncut ‼️
Well then, you can read it carefully in a stylish manner while drinking champagne from now on, or you can look at it at a cafe on the weekend, so please enjoy it, Pow. I'm definitely waiting for your feedback Pow ‼️
⬇️ Full summary of the May FOMC meeting
Federal Open Market Committee Meeting Minutes May 2-3, 2023
The joint meeting between the Federal Open Market Committee and the Federal Reserve Board was held at the General Affairs Office from 10:00 a.m. on 2023/5/2 (Tuesday), and continued from 9:00 a.m. on 2023/5/3 (Wednesday) 1.
attendees
Jerome H. Powell Speaker John C. Williams Vice Chairman Michael S. Barr (Michael S. Barr)
Michelle W. Bowman
Lisa D. Cook
Austan D. Goolsby
Patrick Harker
Philip N. Jefferson
Neil Kashkari
Rory K. Logan
Christopher J. Waller
Thomas I. Barkin, Raphael W. Bostic, Mary C. Daly, Loretta J. Mester, Sushmita Shukla, alternate committee members of the committee
James Bullard and Susan M. Collins, Federal Reserve Governors of St. Louis and Boston, respectively
Kelly J. Dubart, Provisional Governor of the Federal Reserve Bank of Kansas City
Joshua Garin, Secretary
Matthew M. Luecke, Deputy Director
Brian J. Bonis, Assistant Secretary
Assistant Secretary Michelle A. Smith (Michelle A. Smith)
Mark E. Van Der Weide, General Counsel Richard Ostrander, Acting General Counsel Trevor A. Reeve, Economist
Stacey Tevlin, economist
Beth Ann Wilson (economist)
Shaghil Ahmed, James A. Clouse, Anna Paulson, Andrea Raffo, Chiara Scotti, and William Wascher, Associate Economists
Roberto Perli, Systems Open Market Account Manager
1. In these minutes, the Federal Open Market Committee is expressed as “FOMC” and “committee,” indicating the board of directors.
Julie Anne Rimache, Deputy System Open Market Account Manager
Stephanie R. Aaronson 2 Senior Associate Director, Research and Statistics Division, Board of Directors
Jose Acosta, Senior Communications Analyst, Board Information Technology Division
Andre Anderson, First Deputy Governor of the Federal Reserve Bank of Atlanta
Kartik B. Asleya, Executive Vice President, Federal Reserve Bank of Richmond
Penelope A. Beattie 2 Board Secretary's Office Manager
Daniel O. Beltran, Executive Associate Director, Division of International Finance, Board (Board)
Carol C. Berteau, Senior Advisor, International Finance Division, Board of Directors
Mark A. Carlson (Mark A. Carlson) 2 Board Financial Services Department Advisor
Michele Cavallo, Board Finance Chief Economist
Juan C. Climent, Board Member Division Special Advisor, Board
Stephanie E. Curcuru, Deputy Director of International Finance, Board of Governors
Ahmet Degerli, Board Financial Services Economist
John C. Driscoll, 2 Principal Economist, Office of Research and Statistics, Board of Directors
Wendy E. Dunn,2 Advisor to the Board of Directors, Office of Research and Statistics
Burcu Duygan-Bump Associate Director, Bureau of Research and Statistics, Board of Directors
Rochelle M. Edge, Deputy Director for Financial Affairs, Board of Directors
In these minutes, the Federal Reserve Board of Directors is expressed as a “board meeting.”
2 I only attended Tuesday's session.
page 1
Page 2 Federal Open Market Committee
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Matthew J. Eichner, 3 Director, Banking and Settlement Systems Division, Board of Directors Reserve
Eric C. Engstrom, Associate Director of Board Finance
Jon Faust, Board Member Division Chair Senior Special Advisor, Board
Giovanni Favara, Assistant Director for Finance, Board of Directors
Glenn Follette, Associate Director, Research and Statistics Division, Board of Directors
Jennifer Gallagher, Board Member Division, Board Assistant
Peter M. Garavuso, Senior Information Manager, Board Finance Division
Carlos Garriga, Senior Deputy Governor of the Federal Reserve Bank of St. Louis
Michael S. Gibson Board Director of Supervision and Regulation
Christine Graham, 2 Board Special Advisors, Board Member Division, Board
Kansas City Federal Reserve Bank Executive Vice Governor Joseph W. Gruber
Valerie S. Hinohosa, Board Finance Section Manager
Jane E. Eilig, Board Special Advisor, Board Member Division
Ghada M. Ijam, Chief Information Officer, Federal Reserve Bank System, Richmond
Michael T. Kiley, Deputy Director, Financial Stability Division, Board of Directors
Kim Kyung-min, Senior Economist, Financial Affairs Division, Board of Directors
David E. Lebow, Senior Associate Director, Research and Statistics Division, Board of Directors
Sylvain Leduc, Director of Research, Federal Reserve Bank of San Francisco
3. Attended through discussions on financial market trends and open market operations.
Andreas Lehnert, Board Financial Stability Director
Kurt F. Lewis, Board Special Advisor, Board Member Division, Board of Directors
Laura Lipscomb, Board Special Advisor, Board Member Division, Board of Directors
David López-Salido, Senior Associate Director, Finance Division, Board of Directors
Kurt Lansford, Senior Research Economist, Federal Reserve Bank of Cleveland
Patrick E. McCabe, Deputy Director of Research and Statistics, Board of Directors
David Mercangi, Research Economist, Federal Reserve Bank of New York
Anne E. Misbach, Executive Secretary of the Board
David Na, Chief Financial Institutions and Policy Analyst, Financial Services Bureau, Board of Directors
Nakajima Makoto, Deputy Governor of the Federal Reserve Bank of Philadelphia
Michelle M. Neal, Director of Markets, Federal Reserve Bank of New York
Giovanni Olivey, Senior Deputy Governor of the Federal Reserve Bank of Boston
Michael G. Palumbo, Senior Associate Director, Board Research and Statistics
Marcel A. Priebusch, Board Finance Chief Economist
Nitish Ranjan Sinha, Special Advisor to the Board of Directors, Board Member Division
John J. Stephens, Senior Associate Director, Board Research and Statistics
Paula Tkac, Senior Vice Governor, Federal Reserve Bank of Atlanta
Clara Vega, Board Special Advisor, Board Member Division, Board of Directors
2023/5/2-3 Meeting Minutes Page 3
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Annette Vissing-Jørgensen, Senior Adviser, Division of Monetary Affairs, Board
Jeffrey D. Walker, 3 Associate Director, Banking and Settlement Systems Division, Board Preparation
Min Wei,2 Senior Associate Director, Finance Department, Board of Directors
Paul R. Wood, Board Special Advisor, Board Member Division
Rebecca Zarutskie, Board Special Advisor, Board Member Division, Board of Directors
Financial Market Trends and Open Market Manipulation
The manager first examined financial market trends. While investor sentiment surrounding the banking system stabilized, there was little fluctuation in asset prices during the meeting period, and financial market conditions eased somewhat. Nominal government bond yields fell, stocks rose, credit spreads narrowed, and the dollar's trade-weighted value rose. The implied volatility index declined across the market. However, policy interest rates fluctuated quite a bit during this period, particularly due not only to reactions to economic data, but also to market risk perceptions and liquidity conditions. The liquidity of the government bond market improved somewhat during the current period, but the situation remains difficult. The Treasury's spot and futures markets continued to function in an orderly manner despite being less liquid than normal.
Regarding trends at the end of the meeting period, although investors continued to be interested in the stress in the banking sector, the closure and acquisition of First Republic Bank were viewed as maintaining order. Also, the US Treasury Department announced that if the debt limit is not raised or postponed, there is a possibility that the federal government's debt will not be fully fulfilled as early as 6/1, but there is a possibility that this situation will actually occur a few weeks later. The yield on Ministry of Finance securities and coupon bonds that mature in the first half of the month rose markedly amid major fluctuations.
Deposit outflows from small to medium banks almost stopped from late March to April. Asset prices of regional banks declined further during the period, but for most banks, this reflected expectations for declining profitability rather than concerns about solvency. Market participants remain wary of the possibility that banking stress will once again increase.
Responses to the Open Market Desk's primary dealer survey and market participant survey suggest that investors' macroeconomic outlook has changed little since March, despite continuing attention to the effects of the expected credit crunch. Investors anticipated the risk of rising inflation, albeit lower than in March.
Market participants generally anticipate an interest rate hike of 25 basis points at the May meeting, and they see that this rate hike is likely to peak in the current tightening cycle. Survey respondents indicated that the probability that federal fund interest rates would peak between 5 and 5.25% was significantly higher than in March. However, the possibility that the peak interest rate will exceed 5.25% is still quite likely negative. Respondents anticipated that peak interest rates would be maintained until the FOMC in January 2024.
As for balance sheets and financial markets, balance sheet outflows continue to progress smoothly, and overnight secured and unsecured interest rates are traded within the target range of federal fund interest rates. Survey respondents at this desk have generally indicated that overnight reverse repo transaction (ON RRP) balances will remain high for the time being and will decline later this year. The ON RRP facility continues to support effective policy implementation and control of federal fund interest rates, and provides strong lower prices for financial market interest rates. The balance of the ON RRP facility remains within the recent range, indicating that use of the facility is not an important factor encouraging deposit outflow from the banking system. During the meeting period, usage of ON RRP facilities also sometimes declined in response to rising interest rates on financial market products and federal mortgage bank short-term bonds the next day.
The Commission has unanimously decided to renew the currency exchange agreements with the Bank of Canada and the Bank of Mexico. These agreements relate to the Federal Reserve's participation in the 1994 North American Framework Agreement. Furthermore, the Commission has unanimously decided to renew dollar and foreign currency liquidity swap agreements with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank. The vote to renew the Federal Reserve's participation in these standing agreements takes place each year at the FOMC in April or May.
The Commission unanimously approved Desk's domestic transactions during the inter-meeting period.
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There were no intervention operations on foreign currency due to accounts in this system during the meeting period.
Staff reviews of financial conditions
Information available at the time of the March 2-3 meeting showed that the real gross domestic product (GDP) for the first quarter expanded at a moderate pace. Labor market conditions continued to be tight during the month as employment growth was strong and unemployment was low. The rate of increase in consumer prices, shown by the 12-month rate of change in the personal consumption expenditure (PCE) price index, continued to rise in March. There is limited data on economic activity following the banking sector's stress in mid-month, but several recent surveys, such as the April Senior Loan Officer Opinion Survey (SLOOS) on bank lending practices, the March survey of the National Federation of Independent Businesses, and the March Consumer Expectations Survey of the Federal Reserve Bank of New York indicate that bank credit conditions have tightened further.
The pace of increase in the number of non-farm payrolls in the month slowed but remained strong, with an unemployment rate of 3. The unemployment rate for African Americans fell to 5.0% and the unemployment rate for Hispanics to 4.6%. The labor force participation rate and employment ratio both increased. The recruitment ratio for private companies declined markedly from February to March, but remained at a high level.
Nominal wage growth peaked last year and continues to slow, but it is still at a high level. In the 12 months up to the month, the average hourly wage for all employees rose 4.2%, well below the peak of 5.9% in the same period last year. In the year up to May, the private sector employment cost index (ECI) rose 4.8%, down from its peak of 5.5% until June last year.
The consumer price inflation rate remained high in March, but it continues to decelerate. The total PCE price inflation rate was 4.2% in the 12 months up to March, and the core PCE price inflation rate excluding fluctuations in consumer energy prices and many consumer food prices was 4.6%. The total inflation rate dropped significantly from the January level, and the core rate declined slightly. Trim average
The trimmed average of the 12-month PCE price inflation rate prepared by the Dallas Federal Reserve Bank was 4.7% in March. The latest research-based measures of long-term inflation expectations from the University of Michigan Consumer Survey in April and the New York Federal Reserve Consumer Expectations Survey in March remained within the range of values reported in recent months. The short-term inflation expectations measured by these surveys rose, but they were still below last year's peak.
Real GDP growth in the first quarter was moderate, driven by an increase in PCE. Consumer spending increased throughout the quarter as a result of a sharp increase in January and then a slight net decline in February and March. However, light vehicle sales increased markedly in April. Growth in corporate fixed investment slowed further in the first quarter, and new orders for non-defense capital goods excluding aircraft continued to decline in March, suggesting weakness in capital goods shipments for the time being. Potential investments declined further in the first quarter, but at a slower pace than last year. Net exports in the first quarter recovered at a faster pace than imitations from the decline in the fourth quarter, contributing slightly positively to GDP growth. U.S. manufacturing output declined in March, and short-term indicators such as national and regional new order indices suggest a softening of factory output over the next few months.
This reflects that the Chinese economy has recovered from the shutdown of operations due to COVID-19, that the economies of Canada and Mexico have recovered, that the European economy has recovered from the energy price shock caused by Russia's war in Ukraine, and that European energy demand has declined due to the warm winter. Meanwhile, in emerging Asian economies, economic growth has slowed as the technology cycle has been markedly decelerating.
Crude oil prices fell moderately amid concerns about the future of the global economy. In many advanced foreign economies (AFEs), slowing retail energy inflation continues to contribute to easing headline consumer price increases. Although there were signs of easing in some foreign economies, the core inflation rate remained high amid tight labor markets. As a result, many foreign central banks continued monetary tightening. However, while the future of the global economy is uncertain, some central banks have suspended policy interest rate hikes and changed forward guidance.
2023/5/2-3 Meeting Minutes, page 5
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Amid uncertainty about recent stress in the banking sector, policy interest rates were raised and forward guidance was changed. Also, there were those that suggested a shift to a more data-dependent approach in future decisions.
Staff reviews on financial conditions
Market sentiment improved during the meeting, and as stress on the banking sector decreased, concerns about a sharp short-term slowdown in economic activity appeared to recede. The path of federal funds interest rates for 2023 predicted by the market rose moderately over the period. The broad stock price index rose, and stock market volatility declined, although stock prices of some regional banks declined. The funding environment continued to be restrictive, and lending costs remained rising.
During the meeting, the market forecast path for federal funds interest rates in 2023 rose moderately, partially resolving the sharp decline in early March caused by stress in the banking sector. For 2024 and 2025, while economic indicators were announced mixed, the policy path based on overnight index swaps fluctuated, and there was a slight decline in net value. Yearly nominal government bond yields have declined, and medium- to long-term inflation has declined slightly. The uncertainty index relating to interest rate trends has declined slightly, but remains substantially higher by historical standards.
A wide range of stock price indices rose moderately, and VIX, which is the implied volatility of the S&P 500's one-month option, declined markedly during the meeting period. However, market participants continued to pay attention to regional banking trends. In addition to rising funding costs, regional bank stock prices fell widely during the meeting due to concerns about profitability and deterioration in CRE (commercial real estate) loan performance.
As investors' concerns about the banking sector once again heightened, risk sentiment in overseas financial markets also improved on a net basis during the meeting period, broad stock indices rose moderately, and indices of stock volatility due to options declined. Nonetheless, stock prices of banks in the Eurozone fell slightly in net terms, and remained well below the level before bank stress occurred in early March. Market forecasts for policy interest rates and sovereign bond yields remained almost unchanged in most developed countries, but in the UK, wage and inflation rate data also surpassed expectations, so there was a marked increase. The difference in sovereign bond yields between the US and Asian countries narrowed, and the depreciation of the dollar progressed.
The depreciation of the dollar progressed as the difference in sovereign yields between the US and emerging countries narrowed and the global sense of risk improved. The outflow of funds from emerging market funds slowed to almost zero during the session, and the spread on emerging market bonds remained almost unchanged in net terms.
The US commercial paper (CP) and negotiable certificate of deposit (NCD) market stabilized during the meeting. The spread of low-rated non-financial CP, which soared after the bankruptcy of Silicon Valley banks, has shrunk drastically. The balance levels of CP and NCDs increased moderately during the meeting period, and the ratio of short-term unsecured balances between CP and NCDs dropped to normal levels. This reflects the net and easing of stress associated with regional banks.
Bank night funding and current trading market conditions were stable during the meeting period, and the fact that the Federal Reserve's management interest rate was raised by 25 bp after the March FOMC was fully reflected in nighttime financial market interest rates. During the period, the effective interest rate for federal funds remained at 4.83% on a daily basis, and the average interest rate for secured overnight finance was 4.81%, which was slightly higher than the ON RRP fundraising interest rate. The ON RRP facility is maintained at a high level every day, reflecting the fact that the use of money market mutual funds continues to be high, the course of policies is uncertain, and the supply of alternative investments such as Ministry of Finance securities is limited.
In the domestic credit market, corporate and household borrowing costs have been slightly relaxed in some markets, but they are still at a high level. During the meeting period, yields on corporate bonds declined moderately, and yields on mortgage-backed securities for institutional investors and 30-year conform mortgage interest rates declined slightly. However, interest rates on short-term small business loans continued to rise until March, reaching the highest level since the global financial crisis.
Credit flows to businesses and households have slowly slowed as market fluctuations due to soaring borrowing costs and stress in the banking sector have weighed on the amount of capital raised in some markets. Issuance of non-financial corporate bonds and leveraged loans slowed markedly in mid-March against the backdrop of tension in the banking sector, but since tension eased in the second half of the month and market sentiment recovered, issuance was normalized during the meeting period. The issuance of speculative grade non-financial bonds in April was steady, but issuance of vested interest grade non-financial bonds was small.
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declined due in part to seasonal factors. The growth in commercial and industrial (C&I) loans on bank books was weak in the first quarter of 2023 compared to the pace in 2022.
In April's SLOS, banks reported that they had tightened standards further in most loan categories over the past three months, following extensive tightening in the previous quarter. Banks of all sizes anticipate that lending standards will become even stricter for the rest of 2023. The most commonly cited reason for tightening C&I standards and conditions was an unfavorable or uncertain economic outlook. Mid-tier banks (banks with total assets in the range of $50 billion to 250 billion dollars) tightened C&I standards more than other banks, and furthermore, reported that worsening current or future liquidity positions are an important reason for tightening. Such banks account for just over a quarter of C&I loans. Banks of all sizes anticipate that C&I standards will be further tightened by the end of the year, and small to medium banks are more likely to do so.
CRE loan growth on bank balance sheets was strong in the first quarter, but SLOOS in April showed that loan standards became even more stringent in all CRE loan categories in the first quarter. The re-tightening of standards in the first quarter was particularly widespread among mid-tier banks. Banks have also responded that CRE standards will be even more stringent throughout this year, and mid-tier banks are communicating this forecast very widely. Meanwhile, the issuance of commercial real estate-backed securities (CMBS) was extremely sluggish in February and March, against the backdrop of rising spreads and volatility, and stricter loan standards.
In the mortgage market, credit from highly creditworthy borrowers that met standard conforming loan standards continued to be widely available, but credit usage by households with low creditworthiness remained severe. In April's SLOS, the percentage of banks that responded that they had tightened standards across all consumer loan categories in the first quarter was higher compared to past ranges, and respondents anticipated that standards would be tightened for the rest of 2023. Nevertheless, consumer loans increased at a steady pace in the first quarter, and revolving credit balances continued to expand strongly.
Overall, the credit quality of most businesses and households remained strong, but it deteriorated slightly among businesses with low credit scores and households with low credit scores. The quality of credit has declined.
The creditworthiness of C&I and CRE loans on bank balance sheets remained healthy as of the end of the fourth quarter of last year. However, in April's SLOS, banks frequently cited concerns about the decline in the quality of loan portfolios as a reason to anticipate tightening standards by the end of the year.
Staff provided an update on the assessment of financial system stability. Staff determined that the banking system was sound and resilient despite concerns about the profitability of some banks. Staff determined that asset valuation pressure remained moderate. In particular, we note that equity risk premiums and corporate bond spreads have declined over the past few months, but have remained close to their historical median values. The valuation of the residential and commercial real estate markets remained high. In the housing market, rising borrowing costs contributed to mitigating price increases, and the rate of increase in house prices from the same month last year slowed. Staff pointed out that the CRE sector remains susceptible to significant price declines. Since the shift to telework is progressing in many industries, this possibility seems to be particularly evident in office buildings and downtown commercial facilities. Also, although losses of CRE debt holders are gradual as a whole, an analysis showing that if the prices of these real estate properties fall drastically, there is a possibility that some banks and the CMBS market will be stressed.
Staff assessed that the vulnerability associated with household leverage remained at a moderate level. As for non-financial companies, although debt as a ratio of nominal GDP has decreased slightly, it continues to be close to a historically high level. The debt repayment capacity of non-financial firms kept pace with rising debt burdens and interest rates.
Regarding leverage in the financial sector, during the recent period of bank stress, banks of all sizes had substantial loss absorption capacity measured by regulated capital ratios well above the level before the Great Recession, and seemed strong. However, the tangible capital adequacy ratio of banks, excluding banks that are important in the global system, declined sharply in recent quarters, partly due to a sharp decline in the value of marketable securities included in their portfolios. The majority of banking systems have been able to effectively manage this interest rate risk exposure. However, due to inadequate management of interest rate risk and liquidity risk, three banks went bankrupt, and several more banks were stressed. In the non-bank sector, the leverage of large hedge funds remained slightly higher in the third quarter.
2023/5/2-3 Meeting Minutes page 7
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In 2022, more recent data from a senior creditficer opinion survey on dealer loan terms suggested that this fact had not changed.
Regarding vulnerabilities associated with funding risks, staff assessed that although funding distortions were prominent in some banks, the banking system as a whole remained low, particularly in light of public intervention by the Federal Reserve, the Federal Deposit Insurance Corporation, and the US Treasury Department to support bank depositors. The outflow of funds from bank deposits in the middle of the month was concentrated in a limited number of banks, but it was slowing down.
Staff Economic Prospects
The economic forecasts prepared by staff for the monthly FOMC continue to assume that while the financial environment is already tight, a moderate recession will begin in the second half of this year due to the effects of further tightening of bank credit conditions, and that it will recover at a moderate pace thereafter. We forecast that real GDP will slow over the next two quarters and decline slightly in both the fourth quarter of this year and the first quarter of next year. Real GDP growth rates for 2024 and 2025 were predicted to be lower than staff estimates of potential high production growth rates. The unemployment rate is predicted to increase this year, peak next year, and begin to decline moderately in 2025. Resource utilization slackened in both the product market and the labor market, and it was predicted that the level of real output would fall below the estimated potential output of staff in early 2024, and the unemployment rate would exceed the estimated natural rate of staff at that point.
Staff's core inflation forecast has been revised slightly upward compared to the previous forecast. Recent data on core PCE goods prices and ECI wage growth rates (the latter has an important impact on staff's core non-residential services inflation forecasts) surpassed expectations, and staff determined that supply-demand imbalances in both the goods market and the labor market have eased slightly more slowly than expected. This year's PCE price inflation rate was predicted to be 3.1%, and core inflation was predicted to be 3.8%. Housing services inflation is expected to almost peak in the first quarter and begin to decline thereafter, and core non-residential services inflation is expected to gradually slow as nominal wage growth becomes even more moderate. It reflects the impact of a decrease in the degree of tightness in resource use,
Core inflation is expected to moderately rise above 2%, although it decelerates over next year. Total inflation was predicted to fall below the core inflation rate this year and next, as consumer energy prices are expected to drop and food price inflation to ease drastically. In 2025, total PCE price inflation and core inflation were both expected to be around 2%.
Staff have determined that the uncertainty surrounding the baseline forecast is considerable, and they continue to see that risk will be determined by the impact of developments in the banking sector on macroeconomic conditions. If the stress on the banking sector eases faster than anticipated at the baseline or if the impact on macroeconomic conditions becomes smaller, economic activity and inflation risks will lean upward, but staff view this scenario as slightly less likely than the baseline. If the impact on banking/financial conditions and macroeconomic conditions deteriorates beyond what is anticipated at the baseline, risks around the baseline will be biased downward with respect to environmental economic activity and inflation rates. An economic scenario where the inflation rate rises seems to be more likely than a falling scenario where the inflation rate falls, and since there is a possibility that the inflation rate will continue longer than expected and inflation expectations will not be fixed after a long-term rise, the staff sees in a well-balanced manner that the risk surrounding the baseline inflation forecast is inclined to rise.
Participants' Views on Current Status and Economic Prospects
Regarding the current economic situation, participants mentioned that economic activity in the first quarter expanded at a moderate pace. However, employment growth has been solid in recent months, and the unemployment rate has remained low. Inflation continued to be high. Participants agreed that the U.S. banking system is sound and resilient. Participants commented that there is a high possibility that the deterioration in household finances and corporate credit conditions will weigh heavily on economic activity, employment, and inflation. However, participants agreed that the extent of these effects remains uncertain. Against this backdrop, participants agreed that there continues to be a high level of interest in inflation risks.
In evaluating the economic outlook, participants pointed out that the growth rate of real GDP in the first quarter of this year was moderate because inventory investment (categories that are prone to fluctuation) declined drastically despite a pick-up in private consumption. Participants generally indicated that real GDP would grow at a pace below the long-term growth rate.
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Participants indicated that real GDP would grow at a pace below the long-term trend rate in 2023, reflecting the impact of the restrictive financial environment. Participants assessed that the cumulative tightening of monetary policy over the past year contributed greatly to the more restrictive financial situation. Participants also determined that banks' security stress was likely to put further pressure on economic activity, but the extent was extremely uncertain. Since the inflation rate is well above the Committee's long-term target of 2%, and the core inflation rate shows only signs of moderation, participants anticipated that growth below the real GDP trend and a softening of the labor market environment would be necessary to maintain a better balance between aggregate supply and demand and reduce inflationary pressure over time.
Participants generally pointed out that measures taken by the Federal Reserve and other government agencies in response to developments in the banking sector were effective in reducing stress almost. Participants pointed out that the situation in the banking sector has improved widely since early March, with initial deposit outflows experienced by some regional banks and small to medium banks being drastically mitigated in the weeks that followed. Many participants commented that recent developments in the banking sector have contributed to tightening lending standards somewhat more than those implemented in previous quarters, particularly among small to medium banks. Some participants pointed out that small businesses may be disproportionately affected by tighter loan terms, as they tend to rely on small to medium banks as their primary source of credit. Some participants mentioned that access to credit does not yet appear to have declined significantly since the banking sector's recent stress began. Participants determined that stress in the banking sector is likely to induce banks to make lending standards more stringent over the next few quarters rather than simply responding to rising interest rates. However, participants generally pointed out that it is too early to confidently assess the magnitude and sustainability of the impact on economic activity.
In discussions on the household sector, participants pointed out that private consumption in the first quarter was strong, supported by an increase in personal disposable income. Also, he stated that the steady quarterly performance was mainly brought about by very strong consumer spending growth in January, and real consumer spending declined slightly in February and March. In line with this slowdown, participants anticipated that consumer spending was likely to have a modest growth rate for the rest of 2023.
It reflects. Participants pointed out that rising interest rates will continue to suppress household spending that is sensitive to interest rates, such as housing and durable consumer goods. Participants also pointed out that increased uncertainty associated with recent developments in the banking sector could weigh heavily on consumer sentiment and spending. However, multiple participants confirmed that high-frequency measures of consumer sentiment have not yet shown significant changes in response to trends in the banking sector. Several participants pointed out that in the face of rising inflation and rising interest rates, consumer discretionary spending is declining, particularly among low- and middle-income earners.
As for the corporate sector, participants reported that corporate fixed investment growth in the first quarter was modest, reflecting relatively high borrowing costs, sluggish growth in corporate sector output, and heightened corporate concerns about the general economic outlook. Participants anticipated that the tightening of bank loan standards would weigh even more heavily on corporate capital investment. Several participants pointed out that, according to reports from district officials, concerns related to banking sector stress could add further uncertainty to an already weak economic outlook and increase corporate anxiety, particularly in small and medium enterprises that are heavily dependent on bank loans. However, some other participants stated that developments in the banking sector appear to have had only a small impact on the credit availability of companies so far.
Participants pointed out that the labor market continues to be extremely tight, as the number of employed people increased steadily in March and the unemployment rate is at a historically low level. However, it was pointed out that there are signs that the imbalance between supply and demand in the labor market will ease, such as the labor force population in early old age returning to the level before the pandemic and the ratio of job offers and retirements falling further. Furthermore, some participants pointed out that district personnel reported a reduction in recruitment difficulties, a decrease in turnover rates, and layoffs. Participants anticipated that employment growth would slow further, reflecting a slowdown in aggregate demand stemming from worsening credit conditions. Participants mentioned that nominal wage growth appears to be gradually slowing, but considering current trend estimates of rising productivity, it is far above the pace that the Committee considers consistent over the long term.
Nominal wage growth appears to be slowly slowing, but when estimates of current productivity trends are taken into account, it is well above a pace consistent with the Commission's 2% inflation target over the long term. Participants generally anticipated that, under appropriate monetary policies, labor market imbalances would gradually be resolved and pressure on wages and prices would ease.
Participants agreed that the inflation rate was unacceptably high. Participants commented that the data up to March suggests that the decline in the inflation rate, particularly the core inflation rate index, was more moderate than expected. Participants confirmed that the inflation rate for core goods had moderated since the middle of last year, but despite reports from multiple corporate officials that supply chain restrictions continued to be relaxed, it had decelerated more moderately than expected in recent months. Additionally, participants emphasized that core non-residential services inflation showed little sign of slowing over the past few months. Some participants stated that labor market conditions would need to be further eased in order to reduce the inflation rate of this component. Regarding housing service inflation, participants confirmed that soft measurements of rent contracted by new tenants have begun to be reflected in measurements of the inflation rate. Participants anticipated that this process would continue and result in lower housing service inflation rates during this year. When discussing the impact of recent developments in the banking sector on inflation, the seven participants pointed out that worsening credit conditions may suppress not only aggregate demand but also overall supply, so there is a possibility that they will not exert significant downward pressure on inflation. Several participants pointed out that long-term inflation expectations indicators obtained from surveys targeting households and businesses are still well fixed. Participants emphasized that if monetary policy is strengthened appropriately, long-term inflation expectations will be sufficiently fixed, and they will support the return of the inflation rate to the Committee's long-term target of 2%.
Participants pointed out that the assessment of uncertainty relating to the economic outlook is already high due to risks associated with recent banking stress. Participants determined that the risk to the outlook for economic activity was biased downward, but a small number of participants pointed out that the risk was on both sides. Regarding downside risks in economic activity, participants mentioned the possibility that the cumulative tightening of monetary policy will have a greater impact on economic activity than expected, and that further tension in the banking sector may become more serious than anticipated. Also, some participants are concerned that the federal debt ceiling may not be raised in a timely manner.
Also, some participants pointed out that the federal debt ceiling was not raised in a timely manner, serious turmoil would occur in the financial system, and the deterioration of the financial environment could weaken the economy. Regarding risks to inflation, participants cited, for example, the possibility that upward pressure on prices will continue longer than expected if consumer spending that is stronger than expected or tight labor markets, especially bank stress, are proven to have little impact on economic activity. However, several participants cited the possibility that further tightening of credit conditions would slow household consumption and reduce corporate investment and employment, all of which would support continued rebalancing of supply and demand in product and labor markets and reduce inflationary pressure.
2023/5/2-3 Meeting Minutes page 9
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In discussions on financial stability, various participants commented on recent developments in the banking sector. These participants pointed out that the banking system is sound and resilient, and that the steps taken by the Federal Reserve in coordination with other government agencies have helped calm the situation in the banking sector, but stress remains. Many participants pointed out that the banking sector is generally well-capitalized, and that the most significant problems in the banking system seem to be limited to a small number of banks with poor risk management or banks that are significantly exposed to specific vulnerabilities. This vulnerability includes drastic unrealized losses of assets associated with rising interest rates, a high degree of dependence on non-insured deposits, and a decline in profitability associated with rising funding costs. Also, since CRE fundamentals are weak, such as a high vacancy rate in the office sector, it was pointed out that high exposure to such assets makes banks vulnerable. Also, there was an opinion that some non-bank financial institutions were likely to go bankrupt or fall into an unstable state. This includes money market funds that have had significant inflows recently, hedge funds that tend to apply significant leverage and may hold low or zero margin assets intensively, non-bank mortgage servicers with low capital, and digital asset businesses. Many participants said it was essential to raise the debt ceiling in a timely manner to avoid disruptions that would have a serious negative impact on the financial system and the economy as a whole. Several participants pointed out the importance of the orderly functioning of the US bond market, or emphasized the importance of appropriate authorities continuing to address issues relating to market resilience. Many participants emphasized that the Federal Reserve (Fed) should maintain preparations for use in addition to liquidity tools, microprudence (MPT), the Financial Instruments and Exchange Act (Financial Instruments and Exchange Act), the Financial Instruments and Exchange Act (Financial Instruments and Exchange Act), and the Financial Instruments and Exchange Act (Financial Instruments and Exchange Act).
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It is about utilizing macroprudential regulatory and supervisory measures.
Participants also discussed several risk management considerations that could influence future policy decisions. A small number of participants assessed that there are upward risks to economic growth. However, almost all participants commented that developments in the banking sector could lead to further tightening of credit conditions and become a burden on economic activity, so downside risks to growth and upward risks to unemployment have increased. Nearly all participants stated that the upward risk of inflation forecasts continues to be an important factor in shaping policy prospects since the inflation rate is still far above the Committee's long-term targets and the labor market is tight. Who are the few participants
Several participants pointed out that they are also looking at downside risks for inflation.
Reduce future financial stabilization risks.
In considering appropriate monetary policy actions at this meeting, participants agreed that the inflation rate remains substantially elevated compared to the Committee's long-term target of 2%. In the first quarter, economic activity expanded at a moderate pace.
Economic activity expanded at a moderate pace in the first quarter. The labor market continued to be tight due to solid employment growth in recent months, and unemployment remained low.
Also, participants recently left the banking sector
Recent developments in the banking sector are likely to weigh heavily on economic activity, employment, and inflation, leading to a deterioration in household and corporate credit conditions. However, it is uncertain to what extent these effects will be. Against this background, all participants agreed that it would be appropriate to raise the target range for federal funds interest rates by 25 bp, from 5% to 51/4 percent. All participants agreed on the opinion that it is also appropriate to continue the process of reducing the amount of securities held by the Federal Reserve System, as described in the “Federal Reserve Balance Sheet Reduction Plan” announced earlier.
As described, we have reached the view that it is also appropriate to continue the process of reducing securities held by the Federal Reserve (Fed).
Based on these various considerations, participants exchanged opinions on the extent to which further policy consolidation is appropriate after this meeting. Participants generally expressed uncertainties about how much tightening would be appropriate. Many participants paid attention to the need to maintain optionality even after this meeting. Some participants commented that there is a possibility that additional policy tightening will be justified at future meetings based on expectations that progress to return the inflation rate to 2% will continue to be unacceptably slow. Several participants pointed out that if the economy progresses in line with the current outlook, there would be no need for further policy tightening after this meeting. In light of the notable risks to the Commission's goals of both maximum employment and price stability, participants generally mentioned the importance of closely monitoring incoming information and its impact on the economic outlook.
I mentioned the importance of carefully monitoring the impact on the economic outlook.
While discussing policy prospects, participants agreed that in view of the delayed effects of the cumulative tightening of monetary policy and the potential impact of further tightening of the credit environment on the economy, it is generally uncertain to what extent additional increases in the Tar Gate would be appropriate after this meeting. Participants agreed that it is important to closely monitor incoming information and evaluate its impact on monetary policy. In determining the extent to which additional policy consolidation is appropriate in order to return the inflation rate to 2% over the long term, various participants mentioned specific factors that should influence decisions on future policy actions. One such factor is the extent and timing that cumulative policy tightening has suppressed economic activity and lowered the inflation rate, and some participants commented that they have seen evidence that tightening over the past few years has begun to have the intended effects. Another factor is the extent to which deterioration in the credit situation of households and companies will weigh heavily on economic activity and reduce the inflation rate as a result of events that occurred in the banking sector, and participants agreed that it was extremely uncertain. Other factors include progress to return the inflation rate to the committee's long-term target of 2%, and the pace at which conditions in the La Boa market are softening and economic growth is slowing.
The pace at which it is slowing down, etc.
Participants discussed the importance and various implications of clearly explaining monetary policy actions and strategies. All participants reaffirmed their strong commitment to bring the inflation rate back to the Committee's target value of 2% over the long term, and remained highly concerned about the risk of inflation. Several participants stated that inflation expectations were sufficiently fixed due to recent monetary policy actions and communications, and they thought this was important for achieving the Committee's goals. Participants emphasized the importance of communicating approaches that rely on policymakers' data to the public, and most participants commented that the advertisement text in the statement after the meeting was useful in that regard. Some participants emphasized that it is extremely important that the language in the statement after the meeting conveys that a reduction in this year's target range is possible, or that it should not be interpreted as suggesting a further increase.
It does not suggest, nor does it deny a further increase in target values.
has been excluded.
Committee policy actions
System open market accounts will be published at 2 p.m., based on the following domestic policy directives:
“Beginning May 4, 2023, the Federal Open Market Committee will direct the desk to:
- Implement open market operations necessary to maintain federal fund interest rates within the target range of 5 to 51⁄4%.
- A permanent overnight repo transaction operation with a minimum bid rate of 5.25% and a total operating limit of 500 billion dollars will be carried out.
- Overnight reverse repair operations will be carried out at an offering rate of 5.05%, and will be capped at 160 billion dollars per day (limit for each partner).
- Principal payments from Treasury securities held by the Federal Reserve, which mature each month, will roll over an amount exceeding the upper limit of 60 billion dollars per month at auction. Redemption of Ministry of Finance coupon securities up to this maximum monthly amount and Ministry of Finance short-term securities within the range where principal payments fall below the monthly upper limit will be carried out.
- Of the institutional bonds held by the Federal Reserve Bank and the principal amount paid from institutional MBS each month, amounts exceeding the upper limit of 35 billion dollars per month will be reinvested into institutional MBS.
- If necessary for operational reasons, moderate deviations from the amounts stated for reinvestment are permitted.
- Engage in dollar roll transactions and coupon swap transactions as necessary to facilitate the settlement of Federal Reserve Agency MBS transactions.
The vote also includes approval of the following statement to be released at 2 p.m.:
“Economic activity expanded at a moderate pace in the first quarter. Employment growth has been steady in recent months, and the unemployment rate has remained low. Inflation remains at a high level.
America's banking system is sound and resilient. Severe credit conditions for households and financial institutions
In conclusion of the discussion, the Commission decided to direct the Federal Reserve Bank of New York to execute the following transactions until further instructions are given.
Minutes of meetings from 2023/5/2 to 3 page 11
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In discussions on monetary policy at this meeting, members agreed that economic activity in the first quarter expanded at a moderate pace. They also agreed that the increase in employment in recent months has been steady and that the unemployment rate has remained low. The inflation rate remained at a high level.
Members agreed that the U.S. banking system was sound and resilient. They also agreed that the deterioration in the credit situation of households and businesses is likely to have an impact on economic activity, employment, and inflation, but the extent of these effects is uncertain. The members also agreed that they continue to have a high level of interest in inflation risks.
Members agreed that the Commission would aim to achieve maximum employment and 2% inflation over the long term. To support these targets, members agreed to raise the target range for federal funds interest rates to 5-51⁄4%. The members agreed to closely monitor incoming information and evaluate its impact on monetary policy. When determining the extent to which additional policy consolidation is appropriate in order to return the inflation rate to 2% over the long term, members agreed to consider the accumulation of monetary policy tightening, the lag in monetary policy affecting economic activity and inflation rates, and economic and financial conditions. Additionally, members agreed to continue reducing Treasury securities, government agency bonds, and government agency mortgage-backed securities held by the Federal Reserve, as described in previously announced plans. All members confirmed their strong commitment to returning inflation to the 2% target.
The members agreed to continue to closely monitor the impact of incoming information on economic prospects when evaluating the appropriate stance on monetary policy. Members are prepared to make appropriate adjustments to the monetary policy stance in the event that risks that may hinder the achievement of the Committee's goals arise. The members also agreed to evaluate by considering a wide range of information, such as labor market conditions, inflationary pressures and inflationary expectations, and financial and international affairs.
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is likely to have an impact on economic activity, employment, and inflation. The extent of these effects remains uncertain. The Committee is highly concerned about the risk of inflation.
The Commission aims to achieve maximum employment and 2% inflation over the long term. To support these targets, the Commission decided to raise the target range for federal funds interest rates to 5 to 51/4 percent. The Committee will closely monitor future information and evaluate its impact on monetary policy. When determining the extent to which additional policy enhancements are appropriate in order to return the inflation rate to 2% over the long term, the committee will consider the cumulative tightening of monetary policy, the lag in which monetary policy affects economic activity and inflation, and the economic and financial situation. Additionally, the Commission plans to continue reducing holdings of Treasury securities, government agency bonds, and government agency mortgage-backed securities, as described in previously announced plans. The committee is strongly committed to returning the inflation rate to the 2% target.
In evaluating the appropriate stance on monetary policy, the Committee will continue to monitor the impact of information on the economic outlook. The Committee will be prepared to make appropriate adjustments to its monetary policy stance if risks arise that could hinder the achievement of the Committee's goals. The committee's assessment takes into account a wide range of information, including labor market trends.
It takes into account a wide range of information, including labor market conditions, inflationary pressures and inflationary expectations, and financial and international affairs.”
Jerome H. Powell, John C. Williams, Michael S Barr, Michelle W Bowman, Lisa D. Cook, Austan D. Goulsby, Patrick Harker, Philip N. Jefferson, Neil Kashkari, Rory K Logan, and Christopher J. Waller, voted for this action.
Vote against this action: no one is applicable.
The Federal Reserve Board has unanimously decided to raise the interest rate paid on reserve balances to 5.15% on 2023/5/4 in order to support the committee's decision to raise the target range of federal funds interest rates. The Federal Reserve Board unanimously approved that the primary credit interest rate would be raised by 1/4 percentage point to 5.25% on 2023/5/4 4.
It was agreed that the next committee meeting will be held on 2023/6/13 (Tue) -14 (Wed). The meeting closed at 10:00 a.m. on 2023/5/3.
About notation cards
By registered vote completed on 2023/4/11, the committee unanimously approved the minutes of the committee meeting held from 2023/3/21 to 22.
Secretary Joshua Garin
4 In response to this action, the Board approved requests to establish the same rate submitted by the Board of Governors of the Federal Reserve Banks of Boston, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco. The vote also includes the General Services Committee's approval of the setting of a primary credit rate of 5.25% by the remaining Federal Reserve banks.
It will apply starting 2023/5/4 or the day the Reserve Bank notified the Director of the Board of Directors of such a request, whichever is later. (Secretariat note: The Federal Reserve Bank of New York was subsequently informed that the Board of Governors approved setting a primary credit rate of 5.25% starting May 4, 2023.)
The joint meeting between the Federal Open Market Committee and the Federal Reserve Board was held at the General Affairs Office from 10:00 a.m. on 2023/5/2 (Tuesday), and continued from 9:00 a.m. on 2023/5/3 (Wednesday) 1.
attendees
Jerome H. Powell Speaker John C. Williams Vice Chairman Michael S. Barr (Michael S. Barr)
Michelle W. Bowman
Lisa D. Cook
Austan D. Goolsby
Patrick Harker
Philip N. Jefferson
Neil Kashkari
Rory K. Logan
Christopher J. Waller
Thomas I. Barkin, Raphael W. Bostic, Mary C. Daly, Loretta J. Mester, Sushmita Shukla, alternate committee members of the committee
James Bullard and Susan M. Collins, Federal Reserve Governors of St. Louis and Boston, respectively
Kelly J. Dubart, Provisional Governor of the Federal Reserve Bank of Kansas City
Joshua Garin, Secretary
Matthew M. Luecke, Deputy Director
Brian J. Bonis, Assistant Secretary
Assistant Secretary Michelle A. Smith (Michelle A. Smith)
Mark E. Van Der Weide, General Counsel Richard Ostrander, Acting General Counsel Trevor A. Reeve, Economist
Stacey Tevlin, economist
Beth Ann Wilson (economist)
Shaghil Ahmed, James A. Clouse, Anna Paulson, Andrea Raffo, Chiara Scotti, and William Wascher, Associate Economists
Roberto Perli, Systems Open Market Account Manager
1. In these minutes, the Federal Open Market Committee is expressed as “FOMC” and “committee,” indicating the board of directors.
Julie Anne Rimache, Deputy System Open Market Account Manager
Stephanie R. Aaronson 2 Senior Associate Director, Research and Statistics Division, Board of Directors
Jose Acosta, Senior Communications Analyst, Board Information Technology Division
Andre Anderson, First Deputy Governor of the Federal Reserve Bank of Atlanta
Kartik B. Asleya, Executive Vice President, Federal Reserve Bank of Richmond
Penelope A. Beattie 2 Board Secretary's Office Manager
Daniel O. Beltran, Executive Associate Director, Division of International Finance, Board (Board)
Carol C. Berteau, Senior Advisor, International Finance Division, Board of Directors
Mark A. Carlson (Mark A. Carlson) 2 Board Financial Services Department Advisor
Michele Cavallo, Board Finance Chief Economist
Juan C. Climent, Board Member Division Special Advisor, Board
Stephanie E. Curcuru, Deputy Director of International Finance, Board of Governors
Ahmet Degerli, Board Financial Services Economist
John C. Driscoll, 2 Principal Economist, Office of Research and Statistics, Board of Directors
Wendy E. Dunn,2 Advisor to the Board of Directors, Office of Research and Statistics
Burcu Duygan-Bump Associate Director, Bureau of Research and Statistics, Board of Directors
Rochelle M. Edge, Deputy Director for Financial Affairs, Board of Directors
In these minutes, the Federal Reserve Board of Directors is expressed as a “board meeting.”
2 I only attended Tuesday's session.
page 1
Page 2 Federal Open Market Committee
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Matthew J. Eichner, 3 Director, Banking and Settlement Systems Division, Board of Directors Reserve
Eric C. Engstrom, Associate Director of Board Finance
Jon Faust, Board Member Division Chair Senior Special Advisor, Board
Giovanni Favara, Assistant Director for Finance, Board of Directors
Glenn Follette, Associate Director, Research and Statistics Division, Board of Directors
Jennifer Gallagher, Board Member Division, Board Assistant
Peter M. Garavuso, Senior Information Manager, Board Finance Division
Carlos Garriga, Senior Deputy Governor of the Federal Reserve Bank of St. Louis
Michael S. Gibson Board Director of Supervision and Regulation
Christine Graham, 2 Board Special Advisors, Board Member Division, Board
Kansas City Federal Reserve Bank Executive Vice Governor Joseph W. Gruber
Valerie S. Hinohosa, Board Finance Section Manager
Jane E. Eilig, Board Special Advisor, Board Member Division
Ghada M. Ijam, Chief Information Officer, Federal Reserve Bank System, Richmond
Michael T. Kiley, Deputy Director, Financial Stability Division, Board of Directors
Kim Kyung-min, Senior Economist, Financial Affairs Division, Board of Directors
David E. Lebow, Senior Associate Director, Research and Statistics Division, Board of Directors
Sylvain Leduc, Director of Research, Federal Reserve Bank of San Francisco
3. Attended through discussions on financial market trends and open market operations.
Andreas Lehnert, Board Financial Stability Director
Kurt F. Lewis, Board Special Advisor, Board Member Division, Board of Directors
Laura Lipscomb, Board Special Advisor, Board Member Division, Board of Directors
David López-Salido, Senior Associate Director, Finance Division, Board of Directors
Kurt Lansford, Senior Research Economist, Federal Reserve Bank of Cleveland
Patrick E. McCabe, Deputy Director of Research and Statistics, Board of Directors
David Mercangi, Research Economist, Federal Reserve Bank of New York
Anne E. Misbach, Executive Secretary of the Board
David Na, Chief Financial Institutions and Policy Analyst, Financial Services Bureau, Board of Directors
Nakajima Makoto, Deputy Governor of the Federal Reserve Bank of Philadelphia
Michelle M. Neal, Director of Markets, Federal Reserve Bank of New York
Giovanni Olivey, Senior Deputy Governor of the Federal Reserve Bank of Boston
Michael G. Palumbo, Senior Associate Director, Board Research and Statistics
Marcel A. Priebusch, Board Finance Chief Economist
Nitish Ranjan Sinha, Special Advisor to the Board of Directors, Board Member Division
John J. Stephens, Senior Associate Director, Board Research and Statistics
Paula Tkac, Senior Vice Governor, Federal Reserve Bank of Atlanta
Clara Vega, Board Special Advisor, Board Member Division, Board of Directors
2023/5/2-3 Meeting Minutes Page 3
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Annette Vissing-Jørgensen, Senior Adviser, Division of Monetary Affairs, Board
Jeffrey D. Walker, 3 Associate Director, Banking and Settlement Systems Division, Board Preparation
Min Wei,2 Senior Associate Director, Finance Department, Board of Directors
Paul R. Wood, Board Special Advisor, Board Member Division
Rebecca Zarutskie, Board Special Advisor, Board Member Division, Board of Directors
Financial Market Trends and Open Market Manipulation
The manager first examined financial market trends. While investor sentiment surrounding the banking system stabilized, there was little fluctuation in asset prices during the meeting period, and financial market conditions eased somewhat. Nominal government bond yields fell, stocks rose, credit spreads narrowed, and the dollar's trade-weighted value rose. The implied volatility index declined across the market. However, policy interest rates fluctuated quite a bit during this period, particularly due not only to reactions to economic data, but also to market risk perceptions and liquidity conditions. The liquidity of the government bond market improved somewhat during the current period, but the situation remains difficult. The Treasury's spot and futures markets continued to function in an orderly manner despite being less liquid than normal.
Regarding trends at the end of the meeting period, although investors continued to be interested in the stress in the banking sector, the closure and acquisition of First Republic Bank were viewed as maintaining order. Also, the US Treasury Department announced that if the debt limit is not raised or postponed, there is a possibility that the federal government's debt will not be fully fulfilled as early as 6/1, but there is a possibility that this situation will actually occur a few weeks later. The yield on Ministry of Finance securities and coupon bonds that mature in the first half of the month rose markedly amid major fluctuations.
Deposit outflows from small to medium banks almost stopped from late March to April. Asset prices of regional banks declined further during the period, but for most banks, this reflected expectations for declining profitability rather than concerns about solvency. Market participants remain wary of the possibility that banking stress will once again increase.
Responses to the Open Market Desk's primary dealer survey and market participant survey suggest that investors' macroeconomic outlook has changed little since March, despite continuing attention to the effects of the expected credit crunch. Investors anticipated the risk of rising inflation, albeit lower than in March.
Market participants generally anticipate an interest rate hike of 25 basis points at the May meeting, and they see that this rate hike is likely to peak in the current tightening cycle. Survey respondents indicated that the probability that federal fund interest rates would peak between 5 and 5.25% was significantly higher than in March. However, the possibility that the peak interest rate will exceed 5.25% is still quite likely negative. Respondents anticipated that peak interest rates would be maintained until the FOMC in January 2024.
As for balance sheets and financial markets, balance sheet outflows continue to progress smoothly, and overnight secured and unsecured interest rates are traded within the target range of federal fund interest rates. Survey respondents at this desk have generally indicated that overnight reverse repo transaction (ON RRP) balances will remain high for the time being and will decline later this year. The ON RRP facility continues to support effective policy implementation and control of federal fund interest rates, and provides strong lower prices for financial market interest rates. The balance of the ON RRP facility remains within the recent range, indicating that use of the facility is not an important factor encouraging deposit outflow from the banking system. During the meeting period, usage of ON RRP facilities also sometimes declined in response to rising interest rates on financial market products and federal mortgage bank short-term bonds the next day.
The Commission has unanimously decided to renew the currency exchange agreements with the Bank of Canada and the Bank of Mexico. These agreements relate to the Federal Reserve's participation in the 1994 North American Framework Agreement. Furthermore, the Commission has unanimously decided to renew dollar and foreign currency liquidity swap agreements with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank. The vote to renew the Federal Reserve's participation in these standing agreements takes place each year at the FOMC in April or May.
The Commission unanimously approved Desk's domestic transactions during the inter-meeting period.
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There were no intervention operations on foreign currency due to accounts in this system during the meeting period.
Staff reviews of financial conditions
Information available at the time of the March 2-3 meeting showed that the real gross domestic product (GDP) for the first quarter expanded at a moderate pace. Labor market conditions continued to be tight during the month as employment growth was strong and unemployment was low. The rate of increase in consumer prices, shown by the 12-month rate of change in the personal consumption expenditure (PCE) price index, continued to rise in March. There is limited data on economic activity following the banking sector's stress in mid-month, but several recent surveys, such as the April Senior Loan Officer Opinion Survey (SLOOS) on bank lending practices, the March survey of the National Federation of Independent Businesses, and the March Consumer Expectations Survey of the Federal Reserve Bank of New York indicate that bank credit conditions have tightened further.
The pace of increase in the number of non-farm payrolls in the month slowed but remained strong, with an unemployment rate of 3. The unemployment rate for African Americans fell to 5.0% and the unemployment rate for Hispanics to 4.6%. The labor force participation rate and employment ratio both increased. The recruitment ratio for private companies declined markedly from February to March, but remained at a high level.
Nominal wage growth peaked last year and continues to slow, but it is still at a high level. In the 12 months up to the month, the average hourly wage for all employees rose 4.2%, well below the peak of 5.9% in the same period last year. In the year up to May, the private sector employment cost index (ECI) rose 4.8%, down from its peak of 5.5% until June last year.
The consumer price inflation rate remained high in March, but it continues to decelerate. The total PCE price inflation rate was 4.2% in the 12 months up to March, and the core PCE price inflation rate excluding fluctuations in consumer energy prices and many consumer food prices was 4.6%. The total inflation rate dropped significantly from the January level, and the core rate declined slightly. Trim average
The trimmed average of the 12-month PCE price inflation rate prepared by the Dallas Federal Reserve Bank was 4.7% in March. The latest research-based measures of long-term inflation expectations from the University of Michigan Consumer Survey in April and the New York Federal Reserve Consumer Expectations Survey in March remained within the range of values reported in recent months. The short-term inflation expectations measured by these surveys rose, but they were still below last year's peak.
Real GDP growth in the first quarter was moderate, driven by an increase in PCE. Consumer spending increased throughout the quarter as a result of a sharp increase in January and then a slight net decline in February and March. However, light vehicle sales increased markedly in April. Growth in corporate fixed investment slowed further in the first quarter, and new orders for non-defense capital goods excluding aircraft continued to decline in March, suggesting weakness in capital goods shipments for the time being. Potential investments declined further in the first quarter, but at a slower pace than last year. Net exports in the first quarter recovered at a faster pace than imitations from the decline in the fourth quarter, contributing slightly positively to GDP growth. U.S. manufacturing output declined in March, and short-term indicators such as national and regional new order indices suggest a softening of factory output over the next few months.
This reflects that the Chinese economy has recovered from the shutdown of operations due to COVID-19, that the economies of Canada and Mexico have recovered, that the European economy has recovered from the energy price shock caused by Russia's war in Ukraine, and that European energy demand has declined due to the warm winter. Meanwhile, in emerging Asian economies, economic growth has slowed as the technology cycle has been markedly decelerating.
Crude oil prices fell moderately amid concerns about the future of the global economy. In many advanced foreign economies (AFEs), slowing retail energy inflation continues to contribute to easing headline consumer price increases. Although there were signs of easing in some foreign economies, the core inflation rate remained high amid tight labor markets. As a result, many foreign central banks continued monetary tightening. However, while the future of the global economy is uncertain, some central banks have suspended policy interest rate hikes and changed forward guidance.
2023/5/2-3 Meeting Minutes, page 5
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Amid uncertainty about recent stress in the banking sector, policy interest rates were raised and forward guidance was changed. Also, there were those that suggested a shift to a more data-dependent approach in future decisions.
Staff reviews on financial conditions
Market sentiment improved during the meeting, and as stress on the banking sector decreased, concerns about a sharp short-term slowdown in economic activity appeared to recede. The path of federal funds interest rates for 2023 predicted by the market rose moderately over the period. The broad stock price index rose, and stock market volatility declined, although stock prices of some regional banks declined. The funding environment continued to be restrictive, and lending costs remained rising.
During the meeting, the market forecast path for federal funds interest rates in 2023 rose moderately, partially resolving the sharp decline in early March caused by stress in the banking sector. For 2024 and 2025, while economic indicators were announced mixed, the policy path based on overnight index swaps fluctuated, and there was a slight decline in net value. Yearly nominal government bond yields have declined, and medium- to long-term inflation has declined slightly. The uncertainty index relating to interest rate trends has declined slightly, but remains substantially higher by historical standards.
A wide range of stock price indices rose moderately, and VIX, which is the implied volatility of the S&P 500's one-month option, declined markedly during the meeting period. However, market participants continued to pay attention to regional banking trends. In addition to rising funding costs, regional bank stock prices fell widely during the meeting due to concerns about profitability and deterioration in CRE (commercial real estate) loan performance.
As investors' concerns about the banking sector once again heightened, risk sentiment in overseas financial markets also improved on a net basis during the meeting period, broad stock indices rose moderately, and indices of stock volatility due to options declined. Nonetheless, stock prices of banks in the Eurozone fell slightly in net terms, and remained well below the level before bank stress occurred in early March. Market forecasts for policy interest rates and sovereign bond yields remained almost unchanged in most developed countries, but in the UK, wage and inflation rate data also surpassed expectations, so there was a marked increase. The difference in sovereign bond yields between the US and Asian countries narrowed, and the depreciation of the dollar progressed.
The depreciation of the dollar progressed as the difference in sovereign yields between the US and emerging countries narrowed and the global sense of risk improved. The outflow of funds from emerging market funds slowed to almost zero during the session, and the spread on emerging market bonds remained almost unchanged in net terms.
The US commercial paper (CP) and negotiable certificate of deposit (NCD) market stabilized during the meeting. The spread of low-rated non-financial CP, which soared after the bankruptcy of Silicon Valley banks, has shrunk drastically. The balance levels of CP and NCDs increased moderately during the meeting period, and the ratio of short-term unsecured balances between CP and NCDs dropped to normal levels. This reflects the net and easing of stress associated with regional banks.
Bank night funding and current trading market conditions were stable during the meeting period, and the fact that the Federal Reserve's management interest rate was raised by 25 bp after the March FOMC was fully reflected in nighttime financial market interest rates. During the period, the effective interest rate for federal funds remained at 4.83% on a daily basis, and the average interest rate for secured overnight finance was 4.81%, which was slightly higher than the ON RRP fundraising interest rate. The ON RRP facility is maintained at a high level every day, reflecting the fact that the use of money market mutual funds continues to be high, the course of policies is uncertain, and the supply of alternative investments such as Ministry of Finance securities is limited.
In the domestic credit market, corporate and household borrowing costs have been slightly relaxed in some markets, but they are still at a high level. During the meeting period, yields on corporate bonds declined moderately, and yields on mortgage-backed securities for institutional investors and 30-year conform mortgage interest rates declined slightly. However, interest rates on short-term small business loans continued to rise until March, reaching the highest level since the global financial crisis.
Credit flows to businesses and households have slowly slowed as market fluctuations due to soaring borrowing costs and stress in the banking sector have weighed on the amount of capital raised in some markets. Issuance of non-financial corporate bonds and leveraged loans slowed markedly in mid-March against the backdrop of tension in the banking sector, but since tension eased in the second half of the month and market sentiment recovered, issuance was normalized during the meeting period. The issuance of speculative grade non-financial bonds in April was steady, but issuance of vested interest grade non-financial bonds was small.
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declined due in part to seasonal factors. The growth in commercial and industrial (C&I) loans on bank books was weak in the first quarter of 2023 compared to the pace in 2022.
In April's SLOS, banks reported that they had tightened standards further in most loan categories over the past three months, following extensive tightening in the previous quarter. Banks of all sizes anticipate that lending standards will become even stricter for the rest of 2023. The most commonly cited reason for tightening C&I standards and conditions was an unfavorable or uncertain economic outlook. Mid-tier banks (banks with total assets in the range of $50 billion to 250 billion dollars) tightened C&I standards more than other banks, and furthermore, reported that worsening current or future liquidity positions are an important reason for tightening. Such banks account for just over a quarter of C&I loans. Banks of all sizes anticipate that C&I standards will be further tightened by the end of the year, and small to medium banks are more likely to do so.
CRE loan growth on bank balance sheets was strong in the first quarter, but SLOOS in April showed that loan standards became even more stringent in all CRE loan categories in the first quarter. The re-tightening of standards in the first quarter was particularly widespread among mid-tier banks. Banks have also responded that CRE standards will be even more stringent throughout this year, and mid-tier banks are communicating this forecast very widely. Meanwhile, the issuance of commercial real estate-backed securities (CMBS) was extremely sluggish in February and March, against the backdrop of rising spreads and volatility, and stricter loan standards.
In the mortgage market, credit from highly creditworthy borrowers that met standard conforming loan standards continued to be widely available, but credit usage by households with low creditworthiness remained severe. In April's SLOS, the percentage of banks that responded that they had tightened standards across all consumer loan categories in the first quarter was higher compared to past ranges, and respondents anticipated that standards would be tightened for the rest of 2023. Nevertheless, consumer loans increased at a steady pace in the first quarter, and revolving credit balances continued to expand strongly.
Overall, the credit quality of most businesses and households remained strong, but it deteriorated slightly among businesses with low credit scores and households with low credit scores. The quality of credit has declined.
The creditworthiness of C&I and CRE loans on bank balance sheets remained healthy as of the end of the fourth quarter of last year. However, in April's SLOS, banks frequently cited concerns about the decline in the quality of loan portfolios as a reason to anticipate tightening standards by the end of the year.
Staff provided an update on the assessment of financial system stability. Staff determined that the banking system was sound and resilient despite concerns about the profitability of some banks. Staff determined that asset valuation pressure remained moderate. In particular, we note that equity risk premiums and corporate bond spreads have declined over the past few months, but have remained close to their historical median values. The valuation of the residential and commercial real estate markets remained high. In the housing market, rising borrowing costs contributed to mitigating price increases, and the rate of increase in house prices from the same month last year slowed. Staff pointed out that the CRE sector remains susceptible to significant price declines. Since the shift to telework is progressing in many industries, this possibility seems to be particularly evident in office buildings and downtown commercial facilities. Also, although losses of CRE debt holders are gradual as a whole, an analysis showing that if the prices of these real estate properties fall drastically, there is a possibility that some banks and the CMBS market will be stressed.
Staff assessed that the vulnerability associated with household leverage remained at a moderate level. As for non-financial companies, although debt as a ratio of nominal GDP has decreased slightly, it continues to be close to a historically high level. The debt repayment capacity of non-financial firms kept pace with rising debt burdens and interest rates.
Regarding leverage in the financial sector, during the recent period of bank stress, banks of all sizes had substantial loss absorption capacity measured by regulated capital ratios well above the level before the Great Recession, and seemed strong. However, the tangible capital adequacy ratio of banks, excluding banks that are important in the global system, declined sharply in recent quarters, partly due to a sharp decline in the value of marketable securities included in their portfolios. The majority of banking systems have been able to effectively manage this interest rate risk exposure. However, due to inadequate management of interest rate risk and liquidity risk, three banks went bankrupt, and several more banks were stressed. In the non-bank sector, the leverage of large hedge funds remained slightly higher in the third quarter.
2023/5/2-3 Meeting Minutes page 7
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In 2022, more recent data from a senior creditficer opinion survey on dealer loan terms suggested that this fact had not changed.
Regarding vulnerabilities associated with funding risks, staff assessed that although funding distortions were prominent in some banks, the banking system as a whole remained low, particularly in light of public intervention by the Federal Reserve, the Federal Deposit Insurance Corporation, and the US Treasury Department to support bank depositors. The outflow of funds from bank deposits in the middle of the month was concentrated in a limited number of banks, but it was slowing down.
Staff Economic Prospects
The economic forecasts prepared by staff for the monthly FOMC continue to assume that while the financial environment is already tight, a moderate recession will begin in the second half of this year due to the effects of further tightening of bank credit conditions, and that it will recover at a moderate pace thereafter. We forecast that real GDP will slow over the next two quarters and decline slightly in both the fourth quarter of this year and the first quarter of next year. Real GDP growth rates for 2024 and 2025 were predicted to be lower than staff estimates of potential high production growth rates. The unemployment rate is predicted to increase this year, peak next year, and begin to decline moderately in 2025. Resource utilization slackened in both the product market and the labor market, and it was predicted that the level of real output would fall below the estimated potential output of staff in early 2024, and the unemployment rate would exceed the estimated natural rate of staff at that point.
Staff's core inflation forecast has been revised slightly upward compared to the previous forecast. Recent data on core PCE goods prices and ECI wage growth rates (the latter has an important impact on staff's core non-residential services inflation forecasts) surpassed expectations, and staff determined that supply-demand imbalances in both the goods market and the labor market have eased slightly more slowly than expected. This year's PCE price inflation rate was predicted to be 3.1%, and core inflation was predicted to be 3.8%. Housing services inflation is expected to almost peak in the first quarter and begin to decline thereafter, and core non-residential services inflation is expected to gradually slow as nominal wage growth becomes even more moderate. It reflects the impact of a decrease in the degree of tightness in resource use,
Core inflation is expected to moderately rise above 2%, although it decelerates over next year. Total inflation was predicted to fall below the core inflation rate this year and next, as consumer energy prices are expected to drop and food price inflation to ease drastically. In 2025, total PCE price inflation and core inflation were both expected to be around 2%.
Staff have determined that the uncertainty surrounding the baseline forecast is considerable, and they continue to see that risk will be determined by the impact of developments in the banking sector on macroeconomic conditions. If the stress on the banking sector eases faster than anticipated at the baseline or if the impact on macroeconomic conditions becomes smaller, economic activity and inflation risks will lean upward, but staff view this scenario as slightly less likely than the baseline. If the impact on banking/financial conditions and macroeconomic conditions deteriorates beyond what is anticipated at the baseline, risks around the baseline will be biased downward with respect to environmental economic activity and inflation rates. An economic scenario where the inflation rate rises seems to be more likely than a falling scenario where the inflation rate falls, and since there is a possibility that the inflation rate will continue longer than expected and inflation expectations will not be fixed after a long-term rise, the staff sees in a well-balanced manner that the risk surrounding the baseline inflation forecast is inclined to rise.
Participants' Views on Current Status and Economic Prospects
Regarding the current economic situation, participants mentioned that economic activity in the first quarter expanded at a moderate pace. However, employment growth has been solid in recent months, and the unemployment rate has remained low. Inflation continued to be high. Participants agreed that the U.S. banking system is sound and resilient. Participants commented that there is a high possibility that the deterioration in household finances and corporate credit conditions will weigh heavily on economic activity, employment, and inflation. However, participants agreed that the extent of these effects remains uncertain. Against this backdrop, participants agreed that there continues to be a high level of interest in inflation risks.
In evaluating the economic outlook, participants pointed out that the growth rate of real GDP in the first quarter of this year was moderate because inventory investment (categories that are prone to fluctuation) declined drastically despite a pick-up in private consumption. Participants generally indicated that real GDP would grow at a pace below the long-term growth rate.
Page 8 Federal Open Market Committee
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Participants indicated that real GDP would grow at a pace below the long-term trend rate in 2023, reflecting the impact of the restrictive financial environment. Participants assessed that the cumulative tightening of monetary policy over the past year contributed greatly to the more restrictive financial situation. Participants also determined that banks' security stress was likely to put further pressure on economic activity, but the extent was extremely uncertain. Since the inflation rate is well above the Committee's long-term target of 2%, and the core inflation rate shows only signs of moderation, participants anticipated that growth below the real GDP trend and a softening of the labor market environment would be necessary to maintain a better balance between aggregate supply and demand and reduce inflationary pressure over time.
Participants generally pointed out that measures taken by the Federal Reserve and other government agencies in response to developments in the banking sector were effective in reducing stress almost. Participants pointed out that the situation in the banking sector has improved widely since early March, with initial deposit outflows experienced by some regional banks and small to medium banks being drastically mitigated in the weeks that followed. Many participants commented that recent developments in the banking sector have contributed to tightening lending standards somewhat more than those implemented in previous quarters, particularly among small to medium banks. Some participants pointed out that small businesses may be disproportionately affected by tighter loan terms, as they tend to rely on small to medium banks as their primary source of credit. Some participants mentioned that access to credit does not yet appear to have declined significantly since the banking sector's recent stress began. Participants determined that stress in the banking sector is likely to induce banks to make lending standards more stringent over the next few quarters rather than simply responding to rising interest rates. However, participants generally pointed out that it is too early to confidently assess the magnitude and sustainability of the impact on economic activity.
In discussions on the household sector, participants pointed out that private consumption in the first quarter was strong, supported by an increase in personal disposable income. Also, he stated that the steady quarterly performance was mainly brought about by very strong consumer spending growth in January, and real consumer spending declined slightly in February and March. In line with this slowdown, participants anticipated that consumer spending was likely to have a modest growth rate for the rest of 2023.
It reflects. Participants pointed out that rising interest rates will continue to suppress household spending that is sensitive to interest rates, such as housing and durable consumer goods. Participants also pointed out that increased uncertainty associated with recent developments in the banking sector could weigh heavily on consumer sentiment and spending. However, multiple participants confirmed that high-frequency measures of consumer sentiment have not yet shown significant changes in response to trends in the banking sector. Several participants pointed out that in the face of rising inflation and rising interest rates, consumer discretionary spending is declining, particularly among low- and middle-income earners.
As for the corporate sector, participants reported that corporate fixed investment growth in the first quarter was modest, reflecting relatively high borrowing costs, sluggish growth in corporate sector output, and heightened corporate concerns about the general economic outlook. Participants anticipated that the tightening of bank loan standards would weigh even more heavily on corporate capital investment. Several participants pointed out that, according to reports from district officials, concerns related to banking sector stress could add further uncertainty to an already weak economic outlook and increase corporate anxiety, particularly in small and medium enterprises that are heavily dependent on bank loans. However, some other participants stated that developments in the banking sector appear to have had only a small impact on the credit availability of companies so far.
Participants pointed out that the labor market continues to be extremely tight, as the number of employed people increased steadily in March and the unemployment rate is at a historically low level. However, it was pointed out that there are signs that the imbalance between supply and demand in the labor market will ease, such as the labor force population in early old age returning to the level before the pandemic and the ratio of job offers and retirements falling further. Furthermore, some participants pointed out that district personnel reported a reduction in recruitment difficulties, a decrease in turnover rates, and layoffs. Participants anticipated that employment growth would slow further, reflecting a slowdown in aggregate demand stemming from worsening credit conditions. Participants mentioned that nominal wage growth appears to be gradually slowing, but considering current trend estimates of rising productivity, it is far above the pace that the Committee considers consistent over the long term.
Nominal wage growth appears to be slowly slowing, but when estimates of current productivity trends are taken into account, it is well above a pace consistent with the Commission's 2% inflation target over the long term. Participants generally anticipated that, under appropriate monetary policies, labor market imbalances would gradually be resolved and pressure on wages and prices would ease.
Participants agreed that the inflation rate was unacceptably high. Participants commented that the data up to March suggests that the decline in the inflation rate, particularly the core inflation rate index, was more moderate than expected. Participants confirmed that the inflation rate for core goods had moderated since the middle of last year, but despite reports from multiple corporate officials that supply chain restrictions continued to be relaxed, it had decelerated more moderately than expected in recent months. Additionally, participants emphasized that core non-residential services inflation showed little sign of slowing over the past few months. Some participants stated that labor market conditions would need to be further eased in order to reduce the inflation rate of this component. Regarding housing service inflation, participants confirmed that soft measurements of rent contracted by new tenants have begun to be reflected in measurements of the inflation rate. Participants anticipated that this process would continue and result in lower housing service inflation rates during this year. When discussing the impact of recent developments in the banking sector on inflation, the seven participants pointed out that worsening credit conditions may suppress not only aggregate demand but also overall supply, so there is a possibility that they will not exert significant downward pressure on inflation. Several participants pointed out that long-term inflation expectations indicators obtained from surveys targeting households and businesses are still well fixed. Participants emphasized that if monetary policy is strengthened appropriately, long-term inflation expectations will be sufficiently fixed, and they will support the return of the inflation rate to the Committee's long-term target of 2%.
Participants pointed out that the assessment of uncertainty relating to the economic outlook is already high due to risks associated with recent banking stress. Participants determined that the risk to the outlook for economic activity was biased downward, but a small number of participants pointed out that the risk was on both sides. Regarding downside risks in economic activity, participants mentioned the possibility that the cumulative tightening of monetary policy will have a greater impact on economic activity than expected, and that further tension in the banking sector may become more serious than anticipated. Also, some participants are concerned that the federal debt ceiling may not be raised in a timely manner.
Also, some participants pointed out that the federal debt ceiling was not raised in a timely manner, serious turmoil would occur in the financial system, and the deterioration of the financial environment could weaken the economy. Regarding risks to inflation, participants cited, for example, the possibility that upward pressure on prices will continue longer than expected if consumer spending that is stronger than expected or tight labor markets, especially bank stress, are proven to have little impact on economic activity. However, several participants cited the possibility that further tightening of credit conditions would slow household consumption and reduce corporate investment and employment, all of which would support continued rebalancing of supply and demand in product and labor markets and reduce inflationary pressure.
2023/5/2-3 Meeting Minutes page 9
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In discussions on financial stability, various participants commented on recent developments in the banking sector. These participants pointed out that the banking system is sound and resilient, and that the steps taken by the Federal Reserve in coordination with other government agencies have helped calm the situation in the banking sector, but stress remains. Many participants pointed out that the banking sector is generally well-capitalized, and that the most significant problems in the banking system seem to be limited to a small number of banks with poor risk management or banks that are significantly exposed to specific vulnerabilities. This vulnerability includes drastic unrealized losses of assets associated with rising interest rates, a high degree of dependence on non-insured deposits, and a decline in profitability associated with rising funding costs. Also, since CRE fundamentals are weak, such as a high vacancy rate in the office sector, it was pointed out that high exposure to such assets makes banks vulnerable. Also, there was an opinion that some non-bank financial institutions were likely to go bankrupt or fall into an unstable state. This includes money market funds that have had significant inflows recently, hedge funds that tend to apply significant leverage and may hold low or zero margin assets intensively, non-bank mortgage servicers with low capital, and digital asset businesses. Many participants said it was essential to raise the debt ceiling in a timely manner to avoid disruptions that would have a serious negative impact on the financial system and the economy as a whole. Several participants pointed out the importance of the orderly functioning of the US bond market, or emphasized the importance of appropriate authorities continuing to address issues relating to market resilience. Many participants emphasized that the Federal Reserve (Fed) should maintain preparations for use in addition to liquidity tools, microprudence (MPT), the Financial Instruments and Exchange Act (Financial Instruments and Exchange Act), the Financial Instruments and Exchange Act (Financial Instruments and Exchange Act), and the Financial Instruments and Exchange Act (Financial Instruments and Exchange Act).
Page 10 Federal Open Market Committee
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It is about utilizing macroprudential regulatory and supervisory measures.
Participants also discussed several risk management considerations that could influence future policy decisions. A small number of participants assessed that there are upward risks to economic growth. However, almost all participants commented that developments in the banking sector could lead to further tightening of credit conditions and become a burden on economic activity, so downside risks to growth and upward risks to unemployment have increased. Nearly all participants stated that the upward risk of inflation forecasts continues to be an important factor in shaping policy prospects since the inflation rate is still far above the Committee's long-term targets and the labor market is tight. Who are the few participants
Several participants pointed out that they are also looking at downside risks for inflation.
Reduce future financial stabilization risks.
In considering appropriate monetary policy actions at this meeting, participants agreed that the inflation rate remains substantially elevated compared to the Committee's long-term target of 2%. In the first quarter, economic activity expanded at a moderate pace.
Economic activity expanded at a moderate pace in the first quarter. The labor market continued to be tight due to solid employment growth in recent months, and unemployment remained low.
Also, participants recently left the banking sector
Recent developments in the banking sector are likely to weigh heavily on economic activity, employment, and inflation, leading to a deterioration in household and corporate credit conditions. However, it is uncertain to what extent these effects will be. Against this background, all participants agreed that it would be appropriate to raise the target range for federal funds interest rates by 25 bp, from 5% to 51/4 percent. All participants agreed on the opinion that it is also appropriate to continue the process of reducing the amount of securities held by the Federal Reserve System, as described in the “Federal Reserve Balance Sheet Reduction Plan” announced earlier.
As described, we have reached the view that it is also appropriate to continue the process of reducing securities held by the Federal Reserve (Fed).
Based on these various considerations, participants exchanged opinions on the extent to which further policy consolidation is appropriate after this meeting. Participants generally expressed uncertainties about how much tightening would be appropriate. Many participants paid attention to the need to maintain optionality even after this meeting. Some participants commented that there is a possibility that additional policy tightening will be justified at future meetings based on expectations that progress to return the inflation rate to 2% will continue to be unacceptably slow. Several participants pointed out that if the economy progresses in line with the current outlook, there would be no need for further policy tightening after this meeting. In light of the notable risks to the Commission's goals of both maximum employment and price stability, participants generally mentioned the importance of closely monitoring incoming information and its impact on the economic outlook.
I mentioned the importance of carefully monitoring the impact on the economic outlook.
While discussing policy prospects, participants agreed that in view of the delayed effects of the cumulative tightening of monetary policy and the potential impact of further tightening of the credit environment on the economy, it is generally uncertain to what extent additional increases in the Tar Gate would be appropriate after this meeting. Participants agreed that it is important to closely monitor incoming information and evaluate its impact on monetary policy. In determining the extent to which additional policy consolidation is appropriate in order to return the inflation rate to 2% over the long term, various participants mentioned specific factors that should influence decisions on future policy actions. One such factor is the extent and timing that cumulative policy tightening has suppressed economic activity and lowered the inflation rate, and some participants commented that they have seen evidence that tightening over the past few years has begun to have the intended effects. Another factor is the extent to which deterioration in the credit situation of households and companies will weigh heavily on economic activity and reduce the inflation rate as a result of events that occurred in the banking sector, and participants agreed that it was extremely uncertain. Other factors include progress to return the inflation rate to the committee's long-term target of 2%, and the pace at which conditions in the La Boa market are softening and economic growth is slowing.
The pace at which it is slowing down, etc.
Participants discussed the importance and various implications of clearly explaining monetary policy actions and strategies. All participants reaffirmed their strong commitment to bring the inflation rate back to the Committee's target value of 2% over the long term, and remained highly concerned about the risk of inflation. Several participants stated that inflation expectations were sufficiently fixed due to recent monetary policy actions and communications, and they thought this was important for achieving the Committee's goals. Participants emphasized the importance of communicating approaches that rely on policymakers' data to the public, and most participants commented that the advertisement text in the statement after the meeting was useful in that regard. Some participants emphasized that it is extremely important that the language in the statement after the meeting conveys that a reduction in this year's target range is possible, or that it should not be interpreted as suggesting a further increase.
It does not suggest, nor does it deny a further increase in target values.
has been excluded.
Committee policy actions
System open market accounts will be published at 2 p.m., based on the following domestic policy directives:
“Beginning May 4, 2023, the Federal Open Market Committee will direct the desk to:
- Implement open market operations necessary to maintain federal fund interest rates within the target range of 5 to 51⁄4%.
- A permanent overnight repo transaction operation with a minimum bid rate of 5.25% and a total operating limit of 500 billion dollars will be carried out.
- Overnight reverse repair operations will be carried out at an offering rate of 5.05%, and will be capped at 160 billion dollars per day (limit for each partner).
- Principal payments from Treasury securities held by the Federal Reserve, which mature each month, will roll over an amount exceeding the upper limit of 60 billion dollars per month at auction. Redemption of Ministry of Finance coupon securities up to this maximum monthly amount and Ministry of Finance short-term securities within the range where principal payments fall below the monthly upper limit will be carried out.
- Of the institutional bonds held by the Federal Reserve Bank and the principal amount paid from institutional MBS each month, amounts exceeding the upper limit of 35 billion dollars per month will be reinvested into institutional MBS.
- If necessary for operational reasons, moderate deviations from the amounts stated for reinvestment are permitted.
- Engage in dollar roll transactions and coupon swap transactions as necessary to facilitate the settlement of Federal Reserve Agency MBS transactions.
The vote also includes approval of the following statement to be released at 2 p.m.:
“Economic activity expanded at a moderate pace in the first quarter. Employment growth has been steady in recent months, and the unemployment rate has remained low. Inflation remains at a high level.
America's banking system is sound and resilient. Severe credit conditions for households and financial institutions
In conclusion of the discussion, the Commission decided to direct the Federal Reserve Bank of New York to execute the following transactions until further instructions are given.
Minutes of meetings from 2023/5/2 to 3 page 11
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In discussions on monetary policy at this meeting, members agreed that economic activity in the first quarter expanded at a moderate pace. They also agreed that the increase in employment in recent months has been steady and that the unemployment rate has remained low. The inflation rate remained at a high level.
Members agreed that the U.S. banking system was sound and resilient. They also agreed that the deterioration in the credit situation of households and businesses is likely to have an impact on economic activity, employment, and inflation, but the extent of these effects is uncertain. The members also agreed that they continue to have a high level of interest in inflation risks.
Members agreed that the Commission would aim to achieve maximum employment and 2% inflation over the long term. To support these targets, members agreed to raise the target range for federal funds interest rates to 5-51⁄4%. The members agreed to closely monitor incoming information and evaluate its impact on monetary policy. When determining the extent to which additional policy consolidation is appropriate in order to return the inflation rate to 2% over the long term, members agreed to consider the accumulation of monetary policy tightening, the lag in monetary policy affecting economic activity and inflation rates, and economic and financial conditions. Additionally, members agreed to continue reducing Treasury securities, government agency bonds, and government agency mortgage-backed securities held by the Federal Reserve, as described in previously announced plans. All members confirmed their strong commitment to returning inflation to the 2% target.
The members agreed to continue to closely monitor the impact of incoming information on economic prospects when evaluating the appropriate stance on monetary policy. Members are prepared to make appropriate adjustments to the monetary policy stance in the event that risks that may hinder the achievement of the Committee's goals arise. The members also agreed to evaluate by considering a wide range of information, such as labor market conditions, inflationary pressures and inflationary expectations, and financial and international affairs.
Page 12 Federal Open Market Committee
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is likely to have an impact on economic activity, employment, and inflation. The extent of these effects remains uncertain. The Committee is highly concerned about the risk of inflation.
The Commission aims to achieve maximum employment and 2% inflation over the long term. To support these targets, the Commission decided to raise the target range for federal funds interest rates to 5 to 51/4 percent. The Committee will closely monitor future information and evaluate its impact on monetary policy. When determining the extent to which additional policy enhancements are appropriate in order to return the inflation rate to 2% over the long term, the committee will consider the cumulative tightening of monetary policy, the lag in which monetary policy affects economic activity and inflation, and the economic and financial situation. Additionally, the Commission plans to continue reducing holdings of Treasury securities, government agency bonds, and government agency mortgage-backed securities, as described in previously announced plans. The committee is strongly committed to returning the inflation rate to the 2% target.
In evaluating the appropriate stance on monetary policy, the Committee will continue to monitor the impact of information on the economic outlook. The Committee will be prepared to make appropriate adjustments to its monetary policy stance if risks arise that could hinder the achievement of the Committee's goals. The committee's assessment takes into account a wide range of information, including labor market trends.
It takes into account a wide range of information, including labor market conditions, inflationary pressures and inflationary expectations, and financial and international affairs.”
Jerome H. Powell, John C. Williams, Michael S Barr, Michelle W Bowman, Lisa D. Cook, Austan D. Goulsby, Patrick Harker, Philip N. Jefferson, Neil Kashkari, Rory K Logan, and Christopher J. Waller, voted for this action.
Vote against this action: no one is applicable.
The Federal Reserve Board has unanimously decided to raise the interest rate paid on reserve balances to 5.15% on 2023/5/4 in order to support the committee's decision to raise the target range of federal funds interest rates. The Federal Reserve Board unanimously approved that the primary credit interest rate would be raised by 1/4 percentage point to 5.25% on 2023/5/4 4.
It was agreed that the next committee meeting will be held on 2023/6/13 (Tue) -14 (Wed). The meeting closed at 10:00 a.m. on 2023/5/3.
About notation cards
By registered vote completed on 2023/4/11, the committee unanimously approved the minutes of the committee meeting held from 2023/3/21 to 22.
Secretary Joshua Garin
4 In response to this action, the Board approved requests to establish the same rate submitted by the Board of Governors of the Federal Reserve Banks of Boston, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco. The vote also includes the General Services Committee's approval of the setting of a primary credit rate of 5.25% by the remaining Federal Reserve banks.
It will apply starting 2023/5/4 or the day the Reserve Bank notified the Director of the Board of Directors of such a request, whichever is later. (Secretariat note: The Federal Reserve Bank of New York was subsequently informed that the Board of Governors approved setting a primary credit rate of 5.25% starting May 4, 2023.)
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