By Howard Schneider
WASHINGTON, April 12 (Reuters) - Detailed minutes of the
U.S. Federal Reserve's meeting last month due out Wednesday may
show just how close the central bank came to postponing further
interest rate increases following the failure of two U.S. banks
in the days leading up to the session.
The Fed ultimately raised the benchmark federal funds rate a
quarter of a point at its March 21-22 meeting, a policy
gathering held less than two weeks after a tense weekend that
top U.S. officials spent designing emergency measures to halt a
possible deposit run against regional lenders following the
failures of Silicon Valley Bank and Signature Bank.
At a press conference following the meeting, Fed Chair
Jerome Powell said a pause was considered, but policymakers
ultimately judged they could respond to different problems with
different tools: higher interest rates to continue fighting
inflation while relying on oversight and liquidity programs to
keep the financial system stable.
Citi analysts Andrew Hollenhorst and Veronica Clark said
they expect the minutes, released at 2 p.m. EDT (1800 GMT), to
reflect a balancing act that is likely to continue as officials
prepare for the next meeting of the Federal Open Market
Committee on May 2-3. Another quarter-point increase is
expected, but policymakers have also said they are watching
banking data closely for signs of stress or a
larger-than-anticipated drop in lending.
Before SVB's March 10 failure, Powell had said high
inflation might even warrant a half-point increase, so the
quarter-point increase that was approved showed "that the Fed
was taking the situation seriously...but also that the situation
was not so dire as to prevent the Fed from following through on
previously signaled tightening," the Citi analysts wrote. The
minutes "will likely express confidence in the separability of
price stability and financial stability."
The Silicon Valley Bank failure was the largest bank
collapse since the 2007 to 2009 financial crisis, and raised at
least the possibility of fast-spreading financial contagion if
other regional lenders started losing deposits faster than they
could be covered.
A new Fed emergency lending program for banks and a U.S.
government decision to prevent depositor losses at those banks,
even beyond the standard Federal Deposit Insurance Corporation
limits, seemed to stabilize the situation.
Still, the events on that March 10 weekend added new
complexity to a Fed policy debate that had been singlemindedly
focused on lowering inflation from levels that last year were
more than triple the Fed's 2% target.
New consumer price index data released Wednesday is expected
to show headline inflation falling, but with a still-high level
of underlying or "core" inflation likely to concern Fed
policymakers.
In a nod to how far the central bank had progressed in
tightening monetary policy since its initial rate increase in
March 2022, the Fed did drop from its statement last month
language saying that "ongoing increases" in rates were likely,
instead saying that "some further" tightening was likely.
Details around that decision would also provide insight into
how close the Fed may be to an endpoint in its current hiking
cycle, which has raised the policy rate from near zero a year
ago to a range between 4.75% and 5%, the highest since October
2007 when the Fed was cutting rates in response to a developing
financial crisis.
(Reporting by Howard Schneider; Editing by Andrea Ricci)
