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Investing.com – The Fed’s meeting minutes released moments ago reveal that Fed members cut peak interest rates in the wake of the banking crisis. Fed members also expected that the US economy would face a slight recession later in 2023.
In their last meeting, which resulted in a rate hike of 25 basis points, Fed members agreed that the banking system remains strong and solid.
markets now
It is now rising by 0.48%, recording 2028.40 for futures contracts, while spot contracts rose by 0.48% to 2013.26 dollars an ounce. While rising by 1.45% to $ 25.552 an ounce.
The American is still trading down by 0.70% at 101.170 against a basket of foreign currencies, while the main US market indices are rising, as it rose by 0.52%, the S&P 500 by 0.36%, and the Nasdaq settled at 12038.31 points without a significant movement.
Federal minutes details
The Fed’s discussion focused on the banking crisis and its repercussions on the economy and the banking sector. Although Deputy Chief Supervisor Michael Barr said the banking sector was “healthy and resilient”, economists said the economy would be hit, expecting the US economy to experience a mild recession later in 2023, with the economy rebounding in the next two years.
Fed members expect growth GDP by just 0.4% for 2023. With the Atlanta Fed tracking first-quarter gains of around 2.2%, that points to a pullback later in the year.
This crisis has caused some speculation that the Fed may remain conservative on interest rates, but officials stressed that more needed to be done to tame inflation.
FOMC officials finally voted to increase the benchmark borrowing rate by 0.25 percentage point, the ninth increase over the past year. This lifted the fed funds rate into the target range of 4.75%-5%, the highest level since late 2007.
The rate hike came less than two weeks after the collapse of Silicon Valley Bank, which at the time was the 17th largest bank in the US. The failure of the Silicon Valley bank and two others prompted the Federal Reserve to create an emergency lending facility to ensure that banks could continue operations.
Since the meeting, inflation data has been mostly in line with the Fed’s targets. Officials at the meeting said they see further price declines.
“Reflecting the current weak effects of monetary policy on product and labor markets, members expect core inflation to slow sharply next year,” the minutes said.
But concern about broader economic conditions remained high, particularly in light of banking problems. After the collapse of SVB and two other institutions, Fed officials opened up new borrowing facilities for banks and eased the terms of emergency loans in the discount window.
The minutes noted that the programs helped the industry through its troubles, but officials said they expected to tighten lending and deteriorate credit conditions.
“Even with the procedures, the participants recognized that there was a great deal of uncertainty about how these conditions would develop,” the record said.
Many policymakers wondered whether to keep interest rates steady while they watched to see how the crisis unfolded. However, they relented and agreed to vote for another rate hike “due to high inflation, the strength of recent economic data, and their commitment to a cut to the committee’s long-term target of 2%.”
Indeed, the minutes indicated that some members were inclined to raise the interest rate before the banking problems. Officials said inflation was “extremely high” though they stressed that the data received and the impact of increases should be factored into future policy formulation.
The minutes stated that “many of the participants stressed the need to maintain flexibility and discretion in determining the appropriate position for monetary policy, given the highly uncertain economic outlook.”
Inflation data was generally cooperative with the Fed’s targets. The personal consumption expenditures price index, the most closely watched gauge of inflation by policymakers, rose just 0.3% in February and rose 4.6% year-on-year. The monthly profit was lower than expected.
Earlier in the day, the Consumer Price Index on a monthly basis showed an increase of just 0.1% in March and slowed on a yearly basis to a 5% rise from 6% previously read.
However, the headline CPI reading was weighed mostly by food and energy prices, and higher shelter costs pushed core inflation up 0.4% for the month and 5.6% from a year ago, slightly higher than in February. The Fed expects housing inflation to slow during the year.
There was some bad news on the inflation front: A monthly survey from the Federal Reserve Bank of New York showed inflation expectations over the next year increased half a percentage point to 4.75% in March.
interest forecast
The Fed’s follow-up tool from Investing reveals that more than 72% believe that the Fed will raise interest rates by 25 basis points at the next May meeting, with assurances by the Fed’s members in media statements that the increases are coming and are needed in order to control inflation.
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(being updated)