FOMC Minutes
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Minutes of the Federal Open Market Committee
April 29-30, 2008
A meeting of the Federal Open Market Committee was
held in the offices of the Board of Governors of the
Federal Reserve System in Washington, D.C., on Tuesday, April 29, 2008 at 2:00 p.m. and continued on
Wednesday, April 30, 2008 at 9:00 a.m.
PRESENT:
Mr. Bernanke, Chairman
Mr. Geithner, Vice Chairman
Mr. Fisher
Mr. Kohn
Mr. Kroszner
Mr. Mishkin
Ms. Pianalto
Mr. Plosser
Mr. Stern
Mr. Warsh
Ms. Cumming, Messrs. Evans, Lacker, and Lockhart, and Ms. Yellen, Alternate Members of the
Federal Open Market Committee
Messrs. Bullard, Hoenig, and Rosengren, Presidents of the Federal Reserve Banks of St.
Louis, Kansas City, and Boston, respectively
Mr. Lyon, First Vice President, Federal Reserve
Bank of Minneapolis
Mr. Madigan, Secretary and Economist
Ms. Danker, Deputy Secretary
Mr. Skidmore, Assistant Secretary
Ms. Smith, Assistant Secretary
Mr. Alvarez, General Counsel
Mr. Baxter, Deputy General Counsel
Mr. Sheets, Economist
Mr. Stockton, Economist
Messrs. Connors, English, and Kamin, Ms. Mester,
Messrs. Rosenblum, Slifman, Sniderman, and
Wilcox, Associate Economists
Mr. Dudley, Manager, System Open Market Account
Ms. J. Johnson,1 Secretary, Office of the Secretary,
Board of Governors
Ms. Roseman,1 Director, Division of Reserve Bank
Operations and Payment Systems, Board of
Governors
Mr. Struckmeyer, Deputy Staff Director, Office of
Staff Director for Management, Board of
Governors
Mr. Blanchard, Assistant to the Board, Office of
Board Members, Board of Governors
Mr. Frierson,1 Deputy Secretary, Office of the Secretary, Board of Governors
Ms. Bailey, Deputy Director, Division of Banking
Supervision and Regulation, Board of Governors
Mr. Clouse, Deputy Director, Division of Monetary Affairs, Board of Governors
Messrs. Hammond1 and Marquardt,1 Deputy Directors, Division of Reserve Bank Operations
and Payment Systems, Board of Governors
Ms. Edwards,1 Associate Director, Division of
Monetary Affairs, Board of Governors
Ms. Shanks,1 Associate Secretary, Office of the
Secretary, Board of Governors
Messrs. Reifschneider and Wascher, Associate Directors, Division of Research and Statistics,
Board of Governors
Mr. Gagnon, Visiting Associate Director, Division
of Monetary Affairs, Board of Governors
Ms. Martin,1 Associate General Counsel, Legal Division, Board of Governors
Mr. Carpenter,1 Assistant Director, Division of
Monetary Affairs, Board of Governors
_________________
Attended portion of the meeting relating to the
implications of interest on reserves for monetary
policy implementation.
1
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Federal Open Market Committee
Mr. Dale, Senior Adviser, Division of Monetary
Affairs, Board of Governors
Mr. Oliner, Senior Adviser, Division of Research
and Statistics, Board of Governors
Ms. Allison,1 Senior Counsel, Legal Division,
Board of Governors
Mr. Gross,1 Special Assistant to the Board, Office
of Board Members, Board of Governors
Ms. Weinbach, Adviser, Division of Monetary Affairs, Board of Governors
Mr. Small, Project Manager, Division of Monetary
Affairs, Board of Governors
Mr. Luecke, Section Chief, Division of Monetary
Affairs, Board of Governors
Ms. Beattie,1 Assistant to the Secretary, Office of
the Secretary, Board of Governors
Ms. Low, Open Market Secretariat Specialist, Division of Monetary Affairs, Board of Governors
Ms. Hughes,1 Staff Assistant, Office of the Secretary, Board of Governors
Mr. Fuhrer, Executive Vice President, Federal Reserve Bank of Boston
Messrs. Hilton, McAndrews,1 Rasche, Rudebusch,
Steindel, Sullivan, and Weinberg, Senior Vice
Presidents, Federal Reserve Banks of New
York, New York, St. Louis, San Francisco,
New York, Chicago, and Richmond, respectively
Messrs. Clark and Meyer,1 Vice Presidents, Federal
Reserve Banks of Kansas City and Philadelphia, respectively
Mr. Weber, Senior Research Officer, Federal Reserve Bank of Minneapolis
Mr. Roberds, Policy Adviser, Federal Reserve Bank
of Atlanta
_____________________
1 Attended portion of the meeting relating to the implications of interest on reserves for monetary policy implementation.
_
The Manager of the System Open Market Account
reported on recent developments in foreign exchange
markets. There were no open market operations in
foreign currencies for the System’s account in the period since the previous meeting. The Manager also
reported on developments in domestic financial markets and on System open market operations in government securities and federal agency obligations during the period since the previous meeting. By unanimous vote, the Committee ratified these transactions.
By unanimous vote, the Committee extended for one
year beginning in mid-December 2008 the reciprocal
currency (“swap”) arrangements with the Bank of Canada and the Banco de Mexico. The arrangement with
the Bank of Canada is in the amount of $2 billion
equivalent and that with the Banco de Mexico is in the
amount of $3 billion equivalent. Both arrangements
are associated with the Federal Reserve’s participation
in the North American Framework Agreement of 1994.
The vote to renew the System’s participation in the
swap arrangements maturing in December was taken at
this meeting because of the provision that each party
must provide six months’ prior notice of an intention
to terminate its participation.
In view of continuing strains in interbank and other
financial markets, the Committee took up proposals to
expand several of the liquidity arrangements that had
been put in place in recent months. Chairman Bernanke indicated his intention to increase the overall size
of the Term Auction Facility under delegated authority
from the Board of Governors, and he proposed increases in the swap lines with the European Central
Bank and Swiss National Bank to help address pressures in short-term dollar funding markets. Meeting
participants discussed the possible costs and benefits of
a proposed broadening of eligible collateral for the
Term Securities Lending Facility (TSLF). On balance,
the Committee agreed that expanding the range of eligible collateral for the TSLF might help to increase the
effectiveness of the facility and so further promote the
orderly functioning of financial markets.
By unanimous votes, the Committee approved the following three resolutions:
The Federal Open Market Committee directs
the Federal Reserve Bank of New York to increase the amount available from the System
Open Market Account under the existing reciprocal currency arrangement (“swap” arrangement) with the European Central Bank to an
amount not to exceed $50 billion. Within that
Minutes of the Meeting of April 29-30, 2008
aggregate limit, draws of up to $25 billion are
hereby authorized. The current swap arrangement shall be extended until January 30, 2009,
unless further extended by the Federal Open
Market Committee.
The Federal Open Market Committee directs
the Federal Reserve Bank of New York to increase the amount available from the System
Open Market Account under the existing reciprocal currency arrangement (“swap” arrangement) with the Swiss National Bank to an
amount not to exceed $12 billion. Within that
aggregate limit, draws of up to $6 billion are
hereby authorized. The current swap arrangement shall be extended until January 30, 2009,
unless further extended by the Federal Open
Market Committee.
In connection with the Term Securities Lending
Facility, the Federal Reserve Bank of New York
may accept pledges of AAA-rated asset-backed
securities (in addition to the other assets previously authorized by the FOMC) as collateral
against loans of U.S. Government securities.
The information reviewed at the April meeting, which
included the advance data on the national income and
product accounts for the first quarter, indicated that
economic growth had remained weak so far this year.
Labor market conditions had deteriorated further, and
manufacturing activity was soft. Housing activity had
continued its sharp descent, and business spending on
both structures and equipment had turned down. Consumer spending had grown very slowly, and household
sentiment had tumbled further. Core consumer price
inflation had slowed in recent months, but overall inflation remained elevated.
Labor demand continued to weaken in March. Private
payroll employment fell in March at a rate similar to
that in January and February. The reduction in jobs
was again widespread, with losses registered at firms in
the construction, manufacturing, and professional and
business services sectors. Employment at firms in the
nonbusiness services sector, which includes health care,
continued to rise. Aggregate hours of private production or nonsupervisory workers moved up in March
but posted a decline for the first quarter as a whole after having contracted slightly in the first two months of
the year. The unemployment rate rose to 5.1 percent in
March, significantly above its level a year ago, and the
labor force participation rate was little changed.
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Although industrial production rose in March, production over the first quarter as a whole was soft, having
declined, on average, in January and February. Gains in
manufacturing output of consumer and high-tech
goods in March were partially offset by a sharp drop in
production of motor vehicles and parts and by ongoing
weakness in the output of construction-related industries. The output of utilities rebounded in March following a weather-related drop in February, and mining
output moved up after exhibiting weakness earlier in
the year. The factory utilization rate edged up in March
but stayed well below its recent high in the third quarter of 2007.
Real consumer spending expanded slowly in the first
quarter. Real outlays on durable goods, including
automobiles, were estimated to have declined in March,
but expenditures on nondurable goods were thought to
have edged up, boosted by a sizable increase in real
outlays for gasoline. For the quarter as a whole, however, real expenditures on both durable and nondurable
goods declined. Real disposable personal income also
grew slowly in the first quarter, restrained by rapidly
rising prices for energy and food. The ratio of household wealth to disposable income appeared to have
moved down again in the first quarter, damped by the
appreciable net decline in broad equity prices over that
period and by further reductions in house prices.
Measures of consumer sentiment fell sharply in March
and April; the April reading of consumer sentiment
published in the Reuters/University of Michigan Survey of Consumers was near the low levels posted in the
early 1990s.
Residential construction continued its rapid contraction
in the first quarter. Single-family housing starts maintained their steep downward trajectory in March, and
starts of multifamily homes declined to the lower portion of their recent range. Sales of new single-family
homes declined in February to a very low rate and
dropped further in March. Even though production
cuts by homebuilders helped to reduce the level of inventories at the end of February, the slow pace of sales
caused the ratio of unsold new homes to sales to increase further. Sales of existing homes remained weak,
on average, in February and March, and the index of
pending sales agreements in February suggested continued sluggish activity in coming months. The recent
softening in residential housing demand was consistent
with reports of tighter credit conditions for both prime
and nonprime borrowers.
In the business sector, real spending on equipment and
software contracted slightly in the first quarter after
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Federal Open Market Committee
having posted a small increase in the fourth quarter.
Following declines in both shipments and orders of
nondefense capital goods excluding aircraft in January
and February, shipments increased in March, but orders were flat. The deteriorating outlook for sales, reduced credit availability, and downbeat readings on
business sentiment all pointed to further weakness in
capital spending in the near term. Real outlays for nonresidential structures also were estimated to have declined in the first quarter. Indicators suggested that the
demand for commercial properties had fallen off substantially from record levels last year, and commercial
property prices appeared to be decelerating. Reduced
credit availability and less-favorable lending terms had
apparently weighed on activity in this sector.
Real investment in nonfarm inventories excluding motor vehicles was estimated to have bounced back to a
moderate annual rate in the first quarter, but motor
vehicle inventories continued to fall. Some of the drop
in motor vehicle stocks was a result of the disruption to
production from a labor dispute. The ratio of bookvalue inventories to sales in the manufacturing and
trade sector (excluding motor vehicles) moved up a
little, on average, in January and February. Still, outside
of categories tied to housing and construction, firms
did not appear to be burdened with excess stocks.
The U.S. international trade deficit widened in February. Imports rose sharply, more than offsetting continued robust growth of exports. Most major categories
of non-oil imports increased in February, and imports
of natural gas, automobiles, and consumer goods
surged. Imports of services continued to rise at a robust pace. By contrast, oil imports moved down. Increases in exports in February were concentrated in
agricultural goods, automobiles, and industrial supplies,
particularly fuels. Exports of capital goods declined for
the second consecutive month, with weakness evident
across a wide range of products.
Real economic growth in the major advanced foreign
economies was estimated to have slowed further in the
first quarter and consumer and business sentiment was
generally down. In Japan, business sentiment fell significantly and indicators of investment remained weak.
In the euro area, growth was estimated to have remained subdued in the first quarter, with Germany and
France faring better than Italy and Spain. Growth in
the United Kingdom slowed in the first quarter, as
credit conditions tightened. Available data for Canada
indicated a continued substantial drag from exports in
the first quarter, although domestic demand appeared
relatively robust. In emerging market economies, eco-
_
nomic growth slowed some in the fourth quarter and
was estimated to have held about steady in the first
quarter. In emerging Asia, real economic growth was
estimated to have picked up in the first quarter from a
robust pace in the fourth quarter, led by brisk expansions in China and Singapore. Growth in other emerging Asian economies generally remained subdued. The
pace of expansion in Latin America likely declined
some in the first quarter, largely because the Mexican
economy slowed in the wake of softer growth in the
United States.
Headline inflation in the United States was elevated in
March. Although the increase in food prices slowed in
March relative to earlier in the year, energy prices rose
sharply. Excluding these categories, core inflation rose
at a relatively subdued rate again in March. The core
personal consumption expenditures (PCE) price index
increased at a somewhat more moderate rate in the first
quarter than in the fourth quarter of 2007. Survey
measures of households’ expectations for year-ahead
inflation rose further in early April, but survey measures of longer-term inflation expectations moved relatively little. Average hourly earnings increased in
March at a somewhat slower pace than in January and
February. This wage measure rose significantly less
over the 12 months that ended in March than in the
previous 12 months. The employment cost index for
hourly compensation continued to rise at a moderate
rate in the first quarter.
At its March 18 meeting, the Federal Open Market
Committee (FOMC) lowered its target for the federal
funds rate 75 basis points, to 2¼ percent. In addition,
the Board of Governors approved a decrease of 75
basis points in the discount rate, to 2½ percent. The
Committee’s statement noted that recent information
indicated that the outlook for economic activity had
weakened further; growth in consumer spending had
slowed, and labor markets had softened. It also indicated that financial markets remained under considerable stress, and that the tightening of credit conditions
and the deepening of the housing contraction were
likely to weigh on economic growth over the next few
quarters. Inflation had been elevated, and some indicators of inflation expectations had risen, but the Committee expected inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and
other commodity prices and an easing of pressures on
resource utilization. Still, the Committee noted that
uncertainty about the inflation outlook had increased,
and that it would be necessary to continue to monitor
inflation developments carefully. The Committee said
that its action, combined with those taken earlier, in-
Minutes of the Meeting of April 29-30, 2008
cluding measures to foster market liquidity, should help
to promote moderate growth over time and to mitigate
the risks to economic activity. The Committee noted,
however, that downside risks to growth remained, and
indicated that it would act in a timely manner as needed
to promote sustainable economic growth and price
stability.
Conditions in U.S. financial markets improved somewhat, on balance, over the intermeeting period, but
strains in some short-term funding markets increased.
Pressures on bank balance sheets and capital positions
appeared to mount further, reflecting additional losses
on asset-backed securities and on business and household loans. Against this backdrop, term spreads in interbank funding markets and spreads on commercial
paper issued by financial institutions widened significantly. Financial institutions continued to tap the Federal Reserve’s credit programs. Primary credit borrowing picked up noticeably after March 16, when the Federal Reserve reduced the spread between the primary
credit rate and the target federal funds rate to 25 basis
points. Demand for funds from the Term Auction
Facility stayed high over the period. In addition, the
Primary Dealer Credit Facility drew substantial demand
through late March, although the amount outstanding
subsequently declined somewhat. Early in the period,
historically low interest rates on Treasury bills and on
general-collateral Treasury repurchase agreements indicated a considerable demand for safe-haven assets.
However, Federal Reserve actions that increased the
availability of Treasury securities to the public apparently helped to improve conditions in those markets.
In five weekly auctions beginning on March 27, the
Term Securities Lending Facility provided a substantial
volume of Treasury securities in exchange for lessliquid assets. Yields on short-term Treasury securities
and Treasury repurchase agreements moved higher, on
balance, following these auctions; nonetheless, “haircuts” applied by lenders on non-Treasury collateral
remained elevated, and in some cases increased somewhat, toward the end of the period.
In longer-term credit markets, yields on investmentgrade corporate bonds rose, but their spreads relative
to Treasury securities decreased a bit from recent multiyear highs. In contrast, yields on speculative-grade
issues dropped, and their spreads relative to Treasury
yields narrowed significantly. Gross bond issuance by
nonfinancial firms was robust in March and the first
half of April and included a small amount of issuance
by speculative-grade firms. Supported by increases in
business and residential real estate loans, commercial
bank credit expanded briskly in March despite the re-
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port of tighter lending conditions in the Senior Loan
Officer Opinion Survey on Bank Lending Practices
conducted in April. Part of the strength in commercial
and industrial loans was apparently due to increased
utilization of existing credit lines, the pricing of which
reflects changes in lending policies only with a lag.
Some banks surveyed in April reported that they had
started to take actions to limit their exposure to home
equity lines of credit, draws on which had grown rapidly in recent months. After having tightened considerably in March, conditions in the conforming segment
of the residential mortgage market recovered somewhat. Spreads of rates on conforming residential
mortgages over those on comparable-maturity Treasury
securities decreased, and credit default swap premiums
for the government-sponsored enterprises declined
substantially. Broad stock price indexes increased
markedly over the intermeeting period, mainly in response to earnings reports and announcements of recapitalizations from major financial institutions that
evidently lessened investors’ concerns about the possibility of severe difficulties materializing at those firms.
Conditions in the money markets of major foreign
economies remained strained, particularly in the United
Kingdom and the euro area. Term interbank funding
spreads rose in these areas, despite steps taken by their
central banks to help ease liquidity pressures. Yields on
sovereign debt in the advanced foreign economies
moved up in a range that was about in line with the
increases in comparable Treasury yields in the United
States. The trade-weighted foreign exchange value of
the dollar against major currencies rose.
M2 expanded briskly again in March, as households
continued to seek the relative liquidity and safety of
liquid deposits and retail money market mutual funds.
The increases in these components were also supported
by declines in opportunity costs stemming from monetary policy easing.
Over the intermeeting period, the expected path of
monetary policy over the next year as measured by
money market futures rates moved up significantly on
net, apparently because economic data releases and
announcements by large financial firms imparted
greater confidence among investors about the prospects for the economy’s performance in coming quarters. Futures rates also moved up in response to both
the Committee’s decision to lower the target for the
federal funds rate by 75 basis points at the March 18
meeting, which was a somewhat smaller reduction than
market participants had expected, and the Committee’s
accompanying statement, which reportedly conveyed
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Federal Open Market Committee
more concern about inflation than had been anticipated. The subsequent release of the minutes of the
March FOMC meeting elicited limited reaction. Consistent with the higher expected path for policy and
easing of safe-haven demands, yields on nominal
Treasury coupon securities rose substantially over the
period, and the Treasury yield curve flattened. Measures of inflation compensation for the next five years
derived from yields on inflation-indexed Treasury securities were quite volatile around the time of the March
FOMC meeting and on balance increased somewhat
over the intermeeting period, although they remained
in the lower portion of their range over the past several
months. Measures of longer-term inflation compensation declined, returning to around the middle of their
recent elevated range.
In the forecast prepared for this meeting, the staff
made little change to its projection for the growth of
real gross domestic product (GDP) in 2008 and 2009.
The available indicators of recent economic activity had
come in close to the staff’s expectations and had continued to suggest that a substantial softening in economic activity was under way. The staff projection
pointed to a contraction of real GDP in the first half of
2008 followed by a modest rise in the second half of
this year, aided in part by the fiscal stimulus package.
The forecast showed real GDP expanding at a rate
somewhat above its potential in 2009, reflecting the
impetus from cumulative monetary policy easing, continued strength in net exports, a gradual lessening in
financial market strains, and the waning drag from past
increases in energy prices. Despite this pickup in the
pace of activity, the trajectory of resource utilization
anticipated through 2009 implied noticeable slack. The
projection for core PCE price inflation in 2008 as a
whole was unchanged; it was reduced a bit over the
first half of the year to reflect the somewhat lowerthan-expected readings of recent core PCE inflation
and raised a bit over the second half of the year to incorporate the spillover from larger-than-anticipated
increases in prices of crude oil and non-oil imports
since the previous FOMC meeting. The forecast of
headline PCE inflation in 2008 was revised up in light
of the further run-up in energy prices and somewhat
higher food price inflation; headline PCE inflation was
expected to exceed core PCE price inflation by a considerable margin this year. In view of the projected
slack in resource utilization in 2009 and flattening out
of oil and other commodity prices, both core and headline PCE price inflation were projected to drop back
from their 2008 levels, in line with the staff’s previous
forecasts.
_
In conjunction with the FOMC meeting in April, all
meeting participants (Federal Reserve Board members
and Reserve Bank presidents) provided annual projections for economic growth, the unemployment rate,
and inflation for the period 2008 through 2010. The
projections are described in the Summary of Economic
Projections, which is attached as an addendum to these
minutes.
In their discussion of the economic situation and outlook, FOMC participants noted that the data received
since the March FOMC meeting, while pointing to
continued weakness in economic activity, had been
broadly consistent with their expectations. Conditions
across a number of financial markets were judged to
have improved over the intermeeting period, but financial markets remained fragile and strains in some markets had intensified. Although participants anticipated
that further improvement in market conditions would
occur only slowly and that some backsliding was possible, the generally better state of financial markets had
caused participants to mark down the odds that economic activity could be severely disrupted by a further
substantial deterioration in the financial environment.
Economic activity was anticipated to be weakest over
the next few months, with many participants judging
that real GDP was likely to contract slightly in the first
half of 2008. GDP growth was expected to begin to
recover in the second half of this year, supported by
accommodative monetary policy and fiscal stimulus,
and to increase further in 2009 and 2010. Views varied
about the likely pace and vigor of the recovery through
2009, although all participants projected GDP growth
to be at or above trend in 2010. Incoming information
on the inflation outlook since the March FOMC meeting had been mixed. Readings on core inflation had
improved somewhat, but some of this improvement
was thought likely to reflect transitory factors, and energy and other commodity prices had increased further
since March. Total PCE inflation was projected to
moderate from its current elevated level to between 1½
percent and 2 percent in 2010, although participants
stressed that this expected moderation was dependent
on food and energy prices flattening out and critically
on inflation expectations remaining reasonably well
anchored.
Conditions across a number of financial markets had
improved since the previous FOMC meeting. Equity
prices and yields on Treasury securities had increased,
volatility in both equity and debt markets had ebbed
somewhat, and a range of credit risk premiums had
moved down. Participants noted that the better tone
of financial markets had been helped by the apparent
Minutes of the Meeting of April 29-30, 2008
willingness and ability of financial institutions to raise
new capital. Investors’ confidence had probably also
been buoyed by corporate earnings reports for the first
quarter, which suggested that profit growth outside of
the financial sector remained solid, and also by the
resolution of the difficulties of a major broker-dealer in
mid-March. Moreover, the various liquidity facilities
introduced by the Federal Reserve in recent months
were thought to have bolstered market liquidity and
aided a return to more orderly market functioning. But
participants emphasized that financial markets remained under considerable stress, noted that the functioning of many markets remained impaired, and expressed concern that some of the recent recovery in
markets could prove fragile. Strains in short-term
funding markets had intensified over the intermeeting
period, in part reflecting continuing pressures on the
liquidity positions of financial institutions. Despite a
narrowing of spreads on corporate bonds, credit conditions were seen as remaining tight. The Senior Loan
Officer Opinion Survey on Bank Lending Practices
conducted in April indicated that banks had tightened
lending standards and pricing terms on loans to both
businesses and households. Participants stressed that it
could take some time for the financial system to return
to a more normal footing, and a number of participants
were of the view that financial headwinds would probably continue to restrain economic activity through
much of next year. Even so, the likelihood that the
functioning of the financial system would deteriorate
substantially further with significant adverse implications for the economic outlook was judged by participants to have receded somewhat since the March
FOMC meeting.
The housing market had continued to weaken since the
previous meeting, and participants saw little indication
of a bottoming out in either housing activity or prices.
Housing starts and the demand for new homes had
declined further, house prices in many parts of the
country were falling faster than they had towards the
end of 2007, and inventories of unsold homes remained quite elevated. A small number of participants
reported tentative signs that housing activity in a few
areas of the country might be beginning to pick up, and
a narrowing of credit risk spreads on AAA indexes of
sub-prime mortgages in recent weeks was also noted.
Nonetheless, the outlook for the housing market remained bleak, with housing demand likely to be affected by restrictive conditions in mortgage markets,
fears that house prices would fall further, and weakening labor markets. The possibility that house prices
could decline by more than anticipated, and that the
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effects of such a decline could be amplified through
their impact on financial institutions and financial markets, remained a key source of downside risk to participants’ projections for economic growth.
Growth in consumer spending appeared to have
slowed to a crawl in recent months and consumer sentiment had fallen sharply. The pressure on households’
real incomes from higher energy prices and the erosion
of wealth resulting from continuing declines in house
prices likely contributed to the deceleration in consumer outlays. Reports from contacts in the banking
and financial services sectors indicated that the availability of both consumer credit and home equity lines
had tightened considerably further in recent months
and that delinquency rates on household credit had
continued to drift upwards. Consumer sentiment and
spending had also been held down by the softening in
labor markets—nonfarm payroll employment had
fallen for the third consecutive month in March and
the unemployment rate had moved up. The restraint
on spending emanating from weakness in labor markets
was expected to increase over coming quarters, with
participants projecting the unemployment rate to pick
up further this year and to remain elevated in 2009.
Consumption spending was likely to be supported in
the near term by the fiscal stimulus package, which was
expected to boost spending temporarily in the middle
of this year. Some participants suggested that the weak
economic environment could increase the propensity
of households to use their tax rebates to pay down existing debt and so might diminish the impact of the
package. However, it was also noted that the tightening in credit availability might mean a significant number of households may be credit constrained and this
might increase the proportion of the rebates that is
spent. The timing and magnitude of the impact of the
stimulus package on GDP was also seen as depending
on the extent to which the boost to consumption
spending is absorbed by a temporary run-down in
firms’ inventories or by an increase in imports rather
than by an expansion in domestic output.
The outlook for business spending remained decidedly
downbeat. Indicators of business sentiment were low,
and reports from business contacts suggested that firms
were scaling back their capital spending plans. Several
participants reported that uncertainty about the economic outlook was leading firms to defer spending projects until prospects for economic activity became
clearer. The tightening in the supply of business credit
was also seen as holding back investment, with some
firms apparently reluctant to reduce their liquidity posi-
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Federal Open Market Committee
tions in the current environment. Spending on nonresidential construction projects continued to slow,
although the extent of that slowing varied across the
country. A few participants reported that the commercial real estate market in some areas remained relatively
firm, supported by low vacancy rates.
The strength of U.S. exports remained a notable bright
spot. Growth in exports, which had been supported by
solid advances in foreign economies and by declines in
the foreign exchange value of the dollar, had partially
insulated the output and profits of U.S. companies,
especially those in the manufacturing sector, from the
effects of weakening domestic demand. Several participants voiced concern, however, that the pace of
activity in the rest of the world could slow in coming
quarters, suggesting that the impetus provided from net
exports might well diminish.
The information received on the inflation outlook since
the March FOMC meeting had been mixed. Recent
readings on core inflation had improved somewhat,
although participants noted that some of that improvement probably reflected transitory factors.
Moreover, the increase in crude oil prices to record
levels, together with rapid increases in food and import
prices in recent months, was likely to put upward pressure on inflation over the next few quarters. Prices
embedded in futures contracts continued to point to a
leveling-off of energy and commodity prices. Although
these futures contracts probably remained the best basis for projecting movements in commodity prices, participants emphasized the considerable uncertainty attending the likely path of commodity prices and cautioned that commodity prices in recent years had often
advanced more quickly than had been implied by futures contracts. Several participants reported that business contacts had expressed growing concerns about
the increase in their input costs and that there were
signs that an increasing number of firms were seeking
to pass on these higher costs to their customers in the
form of higher prices. Other participants noted, however, that the extent of the pass-through of higher energy and food prices to core retail prices appeared relatively limited to date, and that profit margins in the
nonfinancial sector remained reasonably high, suggesting that there was some scope for firms to absorb cost
increases without raising prices. Available data and
anecdotal reports indicated that gains in labor compensation remained moderate, and some participants suggested that wage growth was unlikely to pick up sharply
in coming quarters if, as anticipated, labor markets remained relatively soft. However, several participants
were of the view that wage inflation tended to lag in-
_
creases in prices and so may not provide a useful guide
to emerging price pressures.
On balance, participants expected the recent increases
in oil and food prices to continue to boost overall consumer price inflation in the near term; thereafter, total
inflation was projected to moderate, with all participants expecting total PCE inflation of between 1½ percent and 2 percent by 2010. Participants stressed that
the expected moderation in inflation was dependent on
the continued stability of inflation expectations. A
number of participants voiced concern that long-term
inflation expectations could drift upwards if headline
inflation remained elevated for a protracted period or if
the recent substantial policy easing was misinterpreted
by the public as suggesting that Committee members
had a greater tolerance for inflation than previously
thought. The possibility that inflation expectations
could increase was viewed as a key upside risk to the
inflation outlook. However, participants emphasized
that appropriate monetary policy, combined with effective communication of the Committee’s commitment
to price stability, would mitigate this risk.
Participants stressed the difficulty of gauging the appropriate stance of policy in current circumstances.
Some participants noted that the level of the federal
funds target, especially when compared with the current rate of inflation, was relatively low by historical
standards. Even taking account of current financial
headwinds, such a low rate could suggest that policy
was reasonably accommodative. However, other participants observed that the pronounced strains in banking and financial markets imparted much greater uncertainty to such assessments and meant that measures of
the stance of policy based on the real federal funds rate
were not likely to provide a reliable guide in the current
environment. Several participants expressed the view
that the easing in monetary policy since last fall had not
as yet led to a loosening in overall financial conditions,
but rather had prevented financial conditions from
tightening as much as they otherwise would have in
response to escalating strains in financial markets. This
view suggested that the stimulus from past monetary
policy easing would be felt mainly as conditions in financial markets improved.
In the Committee’s discussion of monetary policy for
the intermeeeting period, most members judged that
policy should be eased by 25 basis points at this meeting. Although prospects for economic activity had not
deteriorated significantly since the March meeting, the
outlook for growth and employment remained weak
and slack in resource utilization was likely to increase.
Minutes of the Meeting of April 29-30, 2008
An additional easing in policy would help to foster
moderate growth over time without impeding a moderation in inflation. Moreover, although the likelihood
that economic activity would be severely disrupted by a
sharp deterioration in financial markets had apparently
receded, most members thought that the risks to economic growth were still skewed to the downside. A
reduction in interest rates would help to mitigate those
risks. However, most members viewed the decision to
reduce interest rates at this meeting as a close call. The
substantial easing of monetary policy since last September, the ongoing steps taken by the Federal Reserve
to provide liquidity and support market functioning,
and the imminent fiscal stimulus would help to support
economic activity. Moreover, although downside risks
to growth remained, members were also concerned
about the upside risks to the inflation outlook, given
the continued increases in oil and commodity prices
and the fact that some indicators suggested that inflation expectations had risen in recent months. Nonetheless, most members agreed that a further, modest
easing in the stance of policy was appropriate to balance better the risks to achieving the Committee’s dual
objectives of maximum employment and price stability
over the medium run.
The Committee agreed that that the statement to be
released after the meeting should take note of the substantial policy easing to date and the ongoing measures
to foster market liquidity. In light of these significant
policy actions, the risks to growth were now thought to
be more closely balanced by the risks to inflation. Accordingly, the Committee felt that it was no longer appropriate for the statement to emphasize the downside
risks to growth. Given these circumstances, future policy adjustments would depend on the extent to which
economic and financial developments affected the medium-term outlook for growth and inflation. In that
regard, several members noted that it was unlikely to be
appropriate to ease policy in response to information
suggesting that the economy was slowing further or
even contracting slightly in the near term, unless economic and financial developments indicated a significant weakening of the economic outlook.
At the conclusion of the discussion, the Committee
voted to authorize and direct the Federal Reserve Bank
of New York, until it was instructed otherwise, to execute transactions in the System Account in accordance
with the following domestic policy directive:
“The Federal Open Market Committee seeks
monetary and financial conditions that will foster price stability and promote sustainable
Page 9
growth in output. To further its long-run objectives, the Committee in the immediate future
seeks conditions in reserve markets consistent
with reducing the federal funds rate to an average of around 2 percent.”
The vote encompassed approval of the statement below to be released at 2:15 p.m.:
“The Federal Open Market Committee decided
today to lower its target for the federal funds
rate 25 basis points to 2 percent.
Recent information indicates that economic activity remains weak. Household and business
spending has been subdued and labor markets
have softened further. Financial markets remain
under considerable stress, and tight credit conditions and the deepening housing contraction are
likely to weigh on economic growth over the
next few quarters.
Although readings on core inflation have improved somewhat, energy and other commodity
prices have increased, and some indicators of inflation expectations have risen in recent months.
The Committee expects inflation to moderate in
coming quarters, reflecting a projected levelingout of energy and other commodity prices and
an easing of pressures on resource utilization.
Still, uncertainty about the inflation outlook remains high. It will be necessary to continue to
monitor inflation developments carefully.
The substantial easing of monetary policy to
date, combined with ongoing measures to foster
market liquidity, should help to promote moderate growth over time and to mitigate risks to
economic activity. The Committee will continue
to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.
Votes for this action: Messrs. Bernanke, Geithner,
Kohn, Kroszner, and Mishkin, Ms. Pianalto, Messrs.
Stern and Warsh.
Votes against this action: Messrs. Fisher and
Plosser.
Messrs. Fisher and Plosser dissented because they preferred no change in the target federal funds rate at this
meeting. Although the economy had been weak, it had
evolved roughly as expected since the previous meeting. Stresses in financial markets also had continued,
Page 10
Federal Open Market Committee
but the Federal Reserve’s liquidity facilities were helpful
in that regard and the more worrisome development in
their view was the outlook for inflation. Rising prices
for food, energy, and other commodities; signs of
higher inflation expectations; and a negative real federal
funds rate raised substantial concerns about the prospects for inflation. Mr. Plosser cited the recent rapid
growth of monetary aggregates as additional evidence
that the economy had ample liquidity after the aggressive easing of policy to date. Mr. Fisher was concerned
that an adverse feedback loop was developing by which
lowering the funds rate had been pushing down the
exchange value of the dollar, contributing to higher
commodity and import prices, cutting real spending by
businesses and households, and therefore ultimately
impairing economic activity. To help prevent inflation
expectations from becoming unhinged, both Messrs.
Fisher and Plosser felt the Committee should put additional emphasis on its price stability goal at this point,
and they believed that another reduction in the funds
rate at this meeting could prove costly over the longer
run.
In a joint session of the Federal Open Market Committee and the Board of Governors, meeting participants
turned to a discussion of the implications of the payment of interest on reserves for monetary policy implementation. Following passage of the Financial Services Regulatory Relief Act of 2006, which will permit
the Federal Reserve to reduce reserve requirements and
to pay interest on reserves beginning in 2011, the staff
had undertaken work to explore and evaluate alternative approaches to monetary policy implementation
using these new authorities. After a staff presentation
summarizing the work to date, policymakers discussed
the potential advantages and disadvantages of several
of the alternative approaches. Considerations included
_
reducing the burden and complexity associated with the
current system of reserve requirements and ensuring
that the Committee’s interest rate targets could be reliably achieved. Participants noted that frameworks for
monetary policy implementation employed in other
countries span a wide range and that the experiences of
these countries provided useful information for the
Federal Reserve’s consideration of alternative approaches. They agreed that further study was required
to narrow the range of options under consideration and
that it would be important to consult closely with depository institutions and others in the design of a new
system.
It was agreed that the next meeting of the Committee
would be held on Tuesday-Wednesday, June 24-25,
2008.
The meeting adjourned at 1:00 p.m.
Notation Votes
By notation vote completed on March 20, 2008, the
Committee unanimously approved a resolution that
added non-agency AAA-rated commercial-mortgagebacked securities to the list of collateral acceptable in
connection with the Term Securities Lending Facility.
By notation vote completed on April 7, 2008, the
Committee unanimously approved the minutes of the
FOMC meeting held on March 18, 2008.
_____________________________
Brian F. Madigan
Secretary
Page 1
Summary of Economic Projections
In conjunction with the April 2008 FOMC meeting, the
members of the Board of Governors and the presidents of the Federal Reserve Banks, all of whom participate in the deliberations of the FOMC, provided
projections for the rates of economic growth, unemployment, and inflation in 2008, 2009, and 2010. Projections were based on information available through
the conclusion of the April meeting, on each participant’s assumptions regarding a range of factors likely to
affect economic outcomes, and on his or her assessment of appropriate monetary policy. “Appropriate
monetary policy” is defined as the future policy that,
based on current information, is deemed most likely to
foster outcomes for economic activity and inflation
that best satisfy the participant’s interpretation of the
Federal Reserve’s dual objectives of maximum employment and price stability.
The projections, which are summarized in table 1 and
chart 1, suggest that FOMC participants expected economic growth to be much weaker in 2008 than last
year, owing primarily to a continued contraction of
housing activity, a reduction in the availability of
household and business credit, and rising energy prices.
The unemployment rate was expected to increase significantly. However, output growth further ahead was
projected to pick up by enough to begin to reverse
some of the increase in the unemployment rate by
2010. In light of the recent surge in the prices of oil
and other commodities, inflation was expected to remain elevated in 2008. Inflation was projected to moderate in 2009 and 2010 as the prices of crude oil and
other commodities level out and economic slack damps
cost and price pressures. Most participants judged that
the uncertainty around their projections for both output growth and inflation was greater than normal.
Most viewed the risks to output as weighted to the
downside. Participants were roughly evenly divided as
to whether the risks to the inflation outlook are broadly
balanced or skewed to the upside.
The Outlook
The central tendency of participants’ projections for
real GDP growth in 2008, at 0.3 to 1.2 percent, was
considerably lower than the central tendency of the
projections provided in conjunction with the January
FOMC meeting, which was 1.3 to 2.0 percent. Participants viewed activity as likely to be particularly weak in
the first half of 2008; some rebound was anticipated in
the second half of the year. Incoming data on spending and employment already indicated a softening
economy this year. Real incomes were being held
down by higher oil prices; falling house prices had reduced household wealth; and households and businesses were facing tighter credit conditions. Exports
were seen as a notable source of strength this year owing to continued economic growth overseas and the
depreciation of the dollar over the past year or so.
Many participants also said that the substantial easing
of monetary policy since last year and the fiscal stimulus package should help to support spending in the
second half of the year. Beyond 2008, factors projected to buoy economic growth included the continued effects of an accommodative stance of monetary
policy in conjunction with a gradual easing of financial
market strains, a stabilization in housing markets, and a
leveling-off of oil and commodity prices. Participants
were encouraged by steps taken at major financial institutions to bolster their balance sheets and to raise new
capital. Some expressed the view that financial market
sentiment may have swung excessively to the pessimistic side, and that risk spreads would come down and
credit would become more available as risk aversion
diminishes. Also, demand and supply in the housing
market should become better aligned as the decline in
house prices increases the affordability of homeownership and the decline in housing starts reduces the supply of new homes. Most participants expected real
GDP to grow roughly at their estimates of its trend rate
in 2009 and somewhat above trend in 2010.
With output growth well below trend this year, most
participants expected that the unemployment rate
would move up. The central tendency of participants’
projections for the average rate of unemployment in
the fourth quarter of 2008 was 5.5 to 5.7 percent,
above the 5.2 to 5.3 percent unemployment rate forecasted in January and consistent with significant slack
in labor markets and the economy. Most participants
expected the unemployment rate to edge down in 2009
and 2010.
The steep run-up in the prices of oil and other commodities since January was the primary factor leading
participants to revise up sharply their projections for
overall inflation in the near term. In contrast, the central tendencies of the projections for core PCE inflation in 2008 increased only moderately, from 2.0 to 2.2
percent in January to 2.2 to 2.4 percent in April, reflecting the effects of higher food and energy prices on
other goods and services and the rise in import prices
Page 2
Federal Open Market Committee
associated with the decline in the dollar and higher inflation in our trading partners.
_
those rates given current economic conditions. Many
participants judged that, given the recent adverse
shocks to both aggregate demand and inflation, policy
would be able to foster only a gradual return of key
macroeconomic variables to their longer-run sustainable or optimal levels. Consequently, the rate of unemployment was projected by many participants to
remain above its longer-run sustainable level even in
2010, and inflation was viewed likely still to be a bit
above levels that some participants judged would be
consistent with the Federal Reserve’s dual mandate.
Rates of both overall and core inflation were expected
to decline over the next two years, reflecting a flattening out of the prices of oil and other commodities consistent with futures market prices and the effects of
significant economic slack. Participants’ projections for
2010 were importantly influenced by their judgments
about the measured rates of inflation consistent with
the Federal Reserve’s dual mandate to promote maximum employment and price stability and about the
time frame over which policy should aim to attain
Table 1: Economic Projections of Federal Reserve Governors and
Reserve Bank Presidents
(Percent)
2008
2009
2010
0.3 to 1.2
1.3 to 2.0
2.0 to 2.8
2.1 to 2.7
2.6 to 3.1
2.5 to 3.0
Unemployment rate
January projections
5.5 to 5.7
5.2 to 5.3
5.2 to 5.7
5.0 to 5.3
4.9 to 5.5
4.9 to 5.1
PCE inflation
January projections
3.1 to 3.4
2.1 to 2.4
1.9 to 2.3
1.7 to 2.0
1.8 to 2.0
1.7 to 2.0
Core PCE inflation
January projections
2.2 to 2.4
2.0 to 2.2
1.9 to 2.1
1.7 to 2.0
1.7 to 1.9
1.7 to 1.9
Range2
Growth of real GDP
January projections
0.0 to 1.5
1.0 to 2.2
1.8 to 3.0
1.8 to 3.2
2.0 to 3.4
2.2 to 3.2
Unemployment rate
January projections
5.3 to 6.0
5.0 to 5.5
5.2 to 6.3
4.9 to 5.7
4.8 to 5.9
4.7 to 5.4
PCE inflation
January projections
2.8 to 3.8
2.0 to 2.8
1.7 to 3.0
1.7 to 2.3
1.5 to 2.0
1.5 to 2.0
Core PCE inflation
January projections
1.9 to 2.5
1.9 to 2.3
1.7 to 2.2
1.7 to 2.2
1.3 to 2.0
1.4 to 2.0
Central Tendency1
Growth of real GDP
January projections
Note: Projections of the growth of real GDP, of PCE inflation, and of core PCE inflation are percent
changes from the fourth quarter of the previous year to the fourth quarter of the year indicated. PCE inflation and core PCE inflation are the percentage rates of change in, respectively, the price index for personal
consumption expenditures and the price index for personal consumption expenditures excluding food and
energy. Projections for the unemployment rate are for the average civilian unemployment rate in the fourth
quarter of the year indicated. Each participant's projections are based on his or her assessment of appropriate
monetary policy.
1. The central tendency excludes the three highest and three lowest projections for each variable in each
year.
2. The range for a variable in a given year includes all participants' projections, from lowest to highest, for
that variable in that year.
Summary of Economic Projections for the Meeting of April 29-30, 2008
Page 3
Chart 1: Central Tendencies and Ranges of Economic Projections*
Real GDP Growth
Percent
7
6
Central Tendency of Projections
Range of Projections
5
4
•
•
•
•
3
•
2
1
0
2003
2004
2005
2006
2007
2008
2009
Unemployment Rate
2010
Percent
8
7
6
•
•
•
•
5
•
4
3
2003
2004
2005
2006
2007
2008
2009
PCE Inflation
2010
Percent
5
4
•
•
•
•
3
•
2
1
0
2003
2004
2005
2006
2007
2008
2009
Core PCE Inflation
2010
Percent
5
4
3
•
•
•
•
•
2
1
0
2003
2004
2005
* See notes to Table 1 for variable definitions.
2006
2007
2008
2009
2010
Page 4
Federal Open Market Committee
Risks to the Outlook
Most participants viewed the risks to their GDP projections as weighted to the downside and the associated
risks to their projections of the unemployment rate as
tilted to the upside. The possibility that house prices
could decline more steeply than anticipated, putting
further downward pressure on residential investment
and consumption, was perceived as a significant risk to
the outlook for economic growth and employment.
Another risk was the possibility that foreign economies
might slow more than expected, damping U.S. exports.
Financial market conditions continued to pose serious
risks—stock prices had declined on net since the January meeting and credit conditions had tightened further
for both households and firms. Although several participants noted that financial strains had eased somewhat in April, most agreed that overall financial conditions remained tighter than at the beginning of the year.
The potential for adverse interactions, in which weaker
economic activity could lead to a worsening of financial
conditions and a reduced availability of credit, which in
turn could further damp economic growth, continued
to be viewed as a worrisome possibility.
Regarding risks to the inflation outlook, participants
pointed to the possibility that economic slack could put
either more or less downward pressure on costs and
prices than anticipated. Some noted that downside
risks to aggregate demand implied a risk of greater economic slack and corresponding downside risks to price
pressures. However, many participants (noticeably
more than in January) saw the upside risks to inflation
as greater than the downside risks to inflation. In particular, the pass-through of recent increases in energy
and commodity prices as well as of past dollar depreciation to consumer prices could be greater than expected.
In addition, some participants expressed concern that
commodity prices may not flatten out as implied by
futures prices, thus putting further upward pressure on
prices. Finally, inflation expectations could become
less firmly anchored if the current elevated rates of inflation were to persist for longer than anticipated or if
the public were to misinterpret the recent substantial
policy easing as reflecting less resolve among Committee members to maintain low and stable inflation.
Participants continued to view uncertainty about the
outlook for economic activity as higher than normal,
with some noting that economic slowdowns are generally associated with heightened uncertainty as are episodes of unusual credit restraint. In addition, participants expressed notably more uncertainty about their
inflation projections than they had in January, reflecting
_
in part the difficulty of assessing the opposing effects
of increased economic slack and higher energy prices.
(Table 2 provides estimates of average ranges of forecast uncertainty for GDP growth, unemployment, and
inflation since 1987.1)
Table 2: Average Historical Projection Error
Ranges
(Percentage Points)
Real GDP1
Unemployment
rate2
Total consumer
prices3
2008
2009
2010
±1.0
±1.3
±1.4
±0.4
±0.7
±1.0
±0.7
±1.0
±1.0
Note: Error ranges shown are measured as plus or minus
the root mean squared error of projections that were released in
the spring from 1987 through 2007 for the current and following two years by various private and government forecasters.
As described in the box “Forecast Uncertainty,” under certain
assumptions, there is about a 70 percent probability that actual
outcomes for real GDP, unemployment, and consumer prices
will be in ranges implied by the average size of projection errors
made in the past. Further information is in David Reifschneider
and Peter Tulip (2007), “Gauging the Uncertainty of the Economic Outlook from Historical Forecasting Errors,” Finance
and Economics Discussion Series #2007-60 (November).
1. Projection is percent change, fourth quarter of the previous year to fourth quarter of the year indicated.
2. Projection is the fourth-quarter average of the civilian
unemployment rate (percent).
3. Measure is the overall consumer price index, the price
measure that has been most widely used in government and
private economic forecasts. Projection is percent change,
fourth quarter of the previous year to the fourth quarter of the
year indicated.
Diversity of Participants’ Views
Charts 2(a) and 2(b) provide more detail on the diversity of participants’ views. The dispersions of participants’ projections for real GDP growth in 2008 and
2009 were roughly equally wide in January and April,
but for 2010 the dispersion was a bit wider in April.
Relative to the projections made in June 2007, just before the onset of financial market turbulence, the diversity in views about real activity had widened considera-
The box “Forecast Uncertainty” at the end of this summary discusses the sources and interpretation of uncertainty in economic
forecasts and explains the approach used to assess the uncertainty
and risks attending participants’ projections.
1
Summary of Economic Projections for the Meeting of April 29-30, 2008
bly.2 This increased dispersion was also apparent in
projections for the unemployment rate. The dispersion
of projections for output and employment in 2008
seemed largely to reflect differing assessments of the
effect of financial market conditions on real activity,
the speed with which credit conditions might improve,
and the depth and duration of the housing market contraction. For 2009, views differed notably about the
pace at which output and employment would recover,
with some participants concerned that financial strains
could prove more persistent than most participants
expected. The dispersion of participants’ longer-term
projections was also affected to some degree by differences in their judgments about the economy’s trend
growth rate and the unemployment rate that would be
2
The June 2007 projections were included in the Board’s Monetary
Policy Report to the Congress in July 2007.
Page 5
consistent over time with maximum employment. The
dispersion of the projections for PCE inflation in 2008
and 2009 had widened somewhat since January, reflecting different views on the extent to which recent increases in the prices of oil and other commodities
would pass through into higher consumer prices, on
whether the prices of oil and other commodities would
flatten out as implied in futures market prices, and on
the influence that inflation expectations would exert on
inflation over the short and medium run. Participants’
inflation projections further out were influenced by
their views of the rate of inflation consistent with the
Federal Reserve’s dual objectives and the time it would
take to achieve these goals given current economic
conditions and appropriate policy.
Page 6
Federal Open Market Committee
_
Chart 2(a): Distribution of Participants’ Projections (percent)
Real GDP
2008
Unemployment Rate
2008
Number of Participants
April Projections
January Projections
16
14
12
10
8
6
4
2
0
0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 2.2 2.4 2.6 2.8 3.0 3.2 3.4
0.1 0.3 0.5 0.7 0.9 1.1 1.3 1.5 1.7 1.9 2.1 2.3 2.5 2.7 2.9 3.1 3.3 3.5
2009
Number of Participants
April Projections
January Projections
4.7 4.8
4.9 5.0
5.1 5.2
5.3 5.4
5.5 5.6
5.7 5.8
2009
Number of Participants
16
14
12
10
8
6
4
2
0
5.9 6.0
6.1 6.2
6.3 6.4
Number of Participants
16
14
12
10
8
6
4
2
0
0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 2.2 2.4 2.6 2.8 3.0 3.2 3.4
0.1 0.3 0.5 0.7 0.9 1.1 1.3 1.5 1.7 1.9 2.1 2.3 2.5 2.7 2.9 3.1 3.3 3.5
2010
16
14
12
10
8
6
4
2
0
4.7 4.8
4.9 5.0
5.1 5.2
5.3 5.4
5.5 5.6
5.7 5.8
2010
Number of Participants
5.9 6.0
6.1 6.2
6.3 6.4
Number of Participants
16
14
12
10
8
6
4
2
0
0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 2.2 2.4 2.6 2.8 3.0 3.2 3.4
0.1 0.3 0.5 0.7 0.9 1.1 1.3 1.5 1.7 1.9 2.1 2.3 2.5 2.7 2.9 3.1 3.3 3.5
16
14
12
10
8
6
4
2
0
4.7 4.8
4.9 5.0
5.1 5.2
5.3 5.4
5.5 5.6
5.7 5.8
5.9 6.0
6.1 6.2
6.3 6.4
Summary of Economic Projections for the Meeting of April 29-30, 2008
Page 7
Chart 2(b): Distribution of Participants’ Projections (percent)
PCE Inflation
2008
Core PCE Inflation
Number of Participants
16
14
12
10
8
6
4
2
0
April Projections
January Projections
1.5
1.6
2008
1.7
1.8
1.9
2.0
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
3.0
2009
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
Number of Participants
16
14
12
10
8
6
4
2
0
April Projections
January Projections
1.3 1.4
1.5 1.6
1.7 1.8
1.9 2.0
2.1 2.2
2009
Number of Participants
2.3 2.4
2.5 2.6
Number of Participants
16
14
12
10
8
6
4
2
0
1.5
1.6
1.7
1.8
1.9
2.0
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
3.0
2010
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
16
14
12
10
8
6
4
2
0
1.3 1.4
1.5 1.6
1.7 1.8
1.9 2.0
2.1 2.2
2010
Number of Participants
2.3 2.4
2.5 2.6
Number of Participants
16
14
12
10
8
6
4
2
0
1.5
1.6
1.7
1.8
1.9
2.0
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
3.0
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
16
14
12
10
8
6
4
2
0
1.3 1.4
1.5 1.6
1.7 1.8
1.9 2.0
2.1 2.2
2.3 2.4
2.5 2.6
Page 8
Federal Open Market Committee
Forecast Uncertainty
The economic projections provided by the members of the Board of Governors and the
presidents of the Federal Reserve Banks inform discussions of monetary policy among
policymakers and can aid public understanding of the basis for policy actions. Considerable uncertainty attends these projections, however. The economic and statistical models and relationships used to help produce economic forecasts are necessarily imperfect
descriptions of the real world. And the future path of the economy can be affected by
myriad unforeseen developments and events. Thus, in setting the stance of monetary
policy, participants consider not only what appears to be the most likely economic outcome as embodied in their projections, but also the range of alternative possibilities, the
likelihood of their occurring, and the potential costs to the economy should they occur.
Table 2 summarizes the average historical accuracy of a range of forecasts, including
those reported in past Monetary Policy Reports and those prepared by Federal Reserve
Board staff in advance of meetings of the Federal Open Market Committee. The projection error ranges shown in the table illustrate the considerable uncertainty associated
with economic forecasts. For example, suppose a participant projects that real GDP
and total consumer prices will rise steadily at annual rates of, respectively, 3 percent and
2 percent. If the uncertainty attending those projections is similar to that experienced in
the past and the risks around the projections are broadly balanced, the numbers reported
in table 2 would imply a probability of about 70 percent that actual GDP would expand
between 2.0 percent to 4.0 percent in the current year, 1.7 percent to 4.3 percent in the
second year, and 1.6 percent to 4.4 percent in the third year. The corresponding 70 percent confidence intervals for overall inflation would be 1.3 percent to 2.7 percent in the
current year and 1.0 percent to 3.0 percent in the second and third years.
Because current conditions may differ from those that prevailed on average over history,
participants provide judgments as to whether the uncertainty attached to their projections of each variable is greater than, smaller than, or broadly similar to typical levels of
forecast uncertainty in the past as shown in table 2. Participants also provide judgments
as to whether the risks to their projections are weighted to the upside, downside, or are
broadly balanced. That is, participants judge whether each variable is more likely to be
above or below their projections of the most likely outcome. These judgments about
the uncertainty and the risks attending each participant’s projections are distinct from
the diversity of participants’ views about the most likely outcomes. Forecast uncertainty
is concerned with the risks associated with a particular projection, rather than with divergences across a number of different projections.
_
Cite this document
Federal Reserve (2008, April 29). FOMC Minutes. Fomc Minutes, Federal Reserve. https://whenthefedspeaks.com/doc/fomc_minutes_20080430
@misc{wtfs_fomc_minutes_20080430,
author = {Federal Reserve},
title = {FOMC Minutes},
year = {2008},
month = {Apr},
howpublished = {Fomc Minutes, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/fomc_minutes_20080430},
note = {Retrieved via When the Fed Speaks corpus}
}