Several Federal Reserve officials considered forgoing an interest rate hike last month amid the worst banking turmoil since the 2008 crisis, but ultimately decided to go ahead due to inflation still high, according to a report of their last meeting.

Minutes from the March meeting, in which the US central bank raised its benchmark benchmark rate by a quarter point, showed the Fed was mostly focused on lingering price pressures – even after the recent banking turmoil has upended expectations about the trajectory of the economy.

The rate hike, which took the federal funds rate to a new target range of 4.75 to 5%, followed three bank failures in the United States as well as the forced takeover of Credit Suisse by UBS.

Government authorities, including the Fed, intervened aggressively to head off further contagion, casting doubt on whether the central bank would follow through with a rate hike in March.

Fed officials who considered a pause noted that it would give them more time to assess the effect of banking stress on the economy and the financial system, according to the minutes. Their deliberations came as Fed staffers for the first time predicted a “mild recession” beginning later this year before the economy recovers over the next two years.

However, the officials in question decided that the Fed and other agencies had done enough to “easing conditions in the banking sector and mitigating near-term risks to economic activity and inflation.” They cited high inflation and strong economic data as reasons for continuing to raise rates.

At the press conference following the March decision, Chairman Jay Powell acknowledged that officials had considered pausing the monetary tightening campaign.

But he said policymakers had decided it was more important for the Fed to maintain public confidence in its commitment to eradicating high inflation “with our actions as well as our words.”

Before the turmoil gripped the banking sector, Powell had even floated the idea of ​​returning to a half-point rate hike following a number of surprisingly strong economic data that suggested more work had to be done to curb demand.

According to the minutes, some officials said they would have considered a half-point rate hike “in the absence of recent developments in the banking sector.”

“However, due to the possibility that developments in the banking sector will tighten financial conditions . . . they deemed it prudent to increase the target range by a smaller increment at this meeting,” the filing said.

Going forward, several participants said the Fed should “retain flexibility and option” given the “highly uncertain economic outlook.”

Most officials expect the banking strains to lead to tighter credit conditions, which could weigh on business activity, hiring and consumer spending. This has changed expectations about how much more the Fed needs to cool economic activity. Powell last month compared an impending credit crunch to Fed rate hikes in its ability to squeeze the economy, but said the extent of any tightening effect was highly uncertain.

To reflect this, the Federal Open Market Committee amended its policy statement, removing the oft-repeated warning that “continued increases” would be needed to bring soaring inflation under control.

Instead, the committee said “further policy tightening may be appropriate” to bring inflation back to the bank’s 2% target. Powell then urged reporters to focus on the “some” and “may” in that sentence.

Prior to the banking turmoil, many officials believed the path for policy rates was “a little higher” than previous estimates in light of stronger-than-expected data, the minutes said.

Still, most officials have forecast a final quarter-point rate hike this year, according to projections released last month, which would take the federal funds rate above 5% and keep it there at least. until 2024. Officials insisted there would be no rate. cuts in 2023.

In recent appearances, most Fed officials have signaled support for another rate hike, but divisions have emerged.

Speaking on Wednesday, Mary Daly, president of the San Francisco Fed, said she would be watching the effect of banking stress closely, but that “the strength of the economy and high inflation numbers suggest that ‘there is still work to be done’.

This followed comments from New York Fed Chairman John Williams, who said on Tuesday that another rate hike was a “reasonable starting point” given that there had been no tightening yet. significant credit terms.

However, Austan Goolsbee, the new Chicago Fed Chairman, has recently taken a much more cautious tone, warning of a “significant impact on the real economy” which could suggest that monetary policy “needs to do less” than originally planned.