By Michael S. Derby
WASHINGTON (Reuters) – At their last monetary policy meeting, Federal Reserve officials took stock of how the financial system was faring in the face of very aggressive rate rises.
Officials flagged what they saw as potential vulnerabilities in things like commercial real estate and non-bank financial companies, as well as the orderly functioning of the Treasury bond market, which is the backbone of the global credit system.
Some Fed officials were also worried about overseas shocks hitting the U.S. financial system, while others “noted the importance of orderly functioning of the market for U.S. Treasury securities and stressed the importance of the appropriate authorities continuing to address issues related to the resilience of the market.”
The commentary came as part of the release of meeting minutes for the Federal Open Market Committee meeting held on Jan. 31-Feb. 1, released Wednesday. Then, officials lifted their overnight target rate range by a quarter percentage point to between 4.5% and 4.75%, as they downshifted the pace of their rate rises aimed at bringing high inflation under control.
The meeting minutes showed that officials believed more rate rises were needed to cool inflation, in a gathering where officials saw considerable uncertainty surrounding the outlook.
The Fed has raised rates very aggressively since last March, and many have worried the pace of that effort could cause real damage and dislocation in the financial system, in an economy that’s still navigating the aftershocks of the coronavirus pandemic.
The minutes showed Fed policymakers were also worried about the unsettled efforts by elected officials to raise the nation’s debt ceiling. “A number of participants stressed that a drawn-out period of negotiations to raise the federal debt limit could pose significant risks to the financial system and the broader economy,” the minutes said.
(Reporting by Michael S. Derby; Editing by Andrea Ricci)
