FOMC Minutes

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Minutes of the Federal Open Market Committee

August 5, 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, August 5, 2008 at 8:30 a.m.

PRESENT:

Mr. Bernanke, Chairman

Mr. Geithner, Vice Chairman

Ms. Duke

Mr. Fisher

Mr. Kohn

Mr. Kroszner

Mr. Mishkin

Ms. Pianalto

Mr. Plosser

Mr. Stern

Mr. Warsh

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. Madigan, Secretary and Economist

Ms. Danker, Deputy Secretary

Mr. Skidmore, Assistant Secretary

Ms. Smith, Assistant Secretary

Mr. Alvarez, General Counsel

Mr. Ashton, Assistant General Counsel

Mr. Sheets, Economist

Messrs. Connors, English, Kamin, Sniderman, and

Wilcox, Associate Economists

Mr. Dudley, Manager, System Open Market Account

Mr. Blanchard, Assistant to the Board, Office of

Board Members, Board of Governors

Ms. Bailey, Deputy Director, Division of Banking

Supervision and Regulation, Board of Governors

Mr. Struckmeyer, Deputy Staff Director, Office of

Staff Director for Management, Board of

Governors

Ms. Liang, Messrs. Reifschneider and Wascher, Associate Directors, Division of Research and

Statistics, Board of Governors

Mr. Levin, Deputy Associate Director, 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. Wei, Economist, Division of Monetary Affairs,

Board of Governors

Ms. Low, Open Market Secretariat Specialist, Division of Monetary Affairs, Board of Governors

Mr. Connolly, First Vice President, Federal Reserve

Bank of Boston

Messrs. Fuhrer and Judd, Executive Vice Presidents, Federal Reserve Banks of Boston and

San Francisco, respectively

Messrs. Altig, Hakkio, Rasche, and Sullivan, Senior

Vice Presidents, Federal Reserve Banks of Atlanta, Kansas City, St. Louis, and Chicago, respectively

Messrs. Danzig and Duca, Vice Presidents, Federal

Reserve Banks of New York and Dallas, respectively

Mr. Weber, Senior Research Officer, Federal Reserve Bank of Minneapolis

Mr. Hetzel, Senior Economist, Federal Reserve

Bank of Richmond

Mr. Sill, Economic Advisor, Federal Reserve Bank

of Philadelphia

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Federal Open Market Committee

Mr. Del Negro, Officer, Federal Reserve Bank of

New York

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.

The information reviewed at the August meeting indicated that the economy expanded at a moderate pace in

the second quarter, but recent financial market developments highlighted some of the stresses that the

economy faced going forward. Both consumer and

business spending recorded gains in the second quarter,

and net exports contributed importantly to the rise in

real gross domestic product (GDP). However, residential construction continued to fall sharply, the labor

market weakened further, and industrial production

declined. Core consumer price inflation remained relatively stable, while headline inflation was elevated as a

result of large increases in food and energy prices.

Labor demand continued to contract in July. Private

nonfarm payroll employment fell in July at a pace only

a bit less than the average monthly rate during the first

six months of the year. By industry, the pattern of job

losses was roughly similar to those earlier in the year,

although July’s report showed a smaller decline in construction than earlier. Nonbusiness services, which include health and education, remained the only notable

source of net additions to employment. Both the average workweek and aggregate hours edged down in July.

The unemployment rate rose in July and was about 1

percentage point above its level of a year earlier, while

the labor force participation rate was about unchanged.

Industrial production declined in the second quarter

after having been flat over the previous two quarters.

Motor vehicle assemblies tumbled in the second quarter because of soft demand and the effects of strikes.

Production of high-tech equipment continued to expand at a moderate pace; however, the available indicators of high-tech manufacturing activity pointed to

slower production in the current quarter. The output

of other manufacturing industries contracted, on balance, in the second quarter, and indicators of near-term

production generally pointed to further declines, including a sizable retrenchment in the scheduled pro-

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duction of motor vehicles. The factory utilization rate

held steady in June at a rate below its long-run average

but was still well above its low rate from 2001 through

2002.

Real personal consumption expenditures (PCE) rose

modestly in the second quarter after posting weak gains

in the previous two quarters. However, real outlays for

goods other than motor vehicles dropped noticeably in

June after three months of robust gains. Sales of motor

vehicles, which had begun to weaken earlier in the year,

fell sharply in June and again in July. Tax rebates provided a notable, albeit temporary boost to income since

the end of April, but real disposable income excluding

rebates was essentially flat in the second quarter. The

ratio of wealth to income likely declined again in the

second quarter, as equity prices declined, on balance,

and house prices continued to fall. Consumer sentiment rose a bit in July but remained at a depressed

level.

Residential construction activity continued to descend

rapidly but at a somewhat slower pace than during the

second half of last year. Single-family housing starts

fell further in June, leaving the pace of construction in

this sector well below its December reading. Starts of

multifamily homes jumped in June to a level well above

the range of readings seen over the past two years.

However, available information suggested that this increase could be traced to more-stringent building codes

that took effect in New York City on July 1, which apparently led developers to move up some planned

apartment projects. Even though cuts in new construction continued to trim the level of new home inventories, the months’ supply of new homes remained quite

high because of the ongoing reductions in the demand

for new houses. Sales of existing single-family homes

fell in June. Tight conditions in the mortgage credit

markets continued to restrain housing demand, particularly for borrowers seeking nonconforming mortgages.

House prices remained on a downward trajectory.

In the business sector, real spending on equipment and

software declined in the second quarter as outlays on

transportation equipment dropped sharply. Spending

on computers and software rose at a moderate rate in

the second quarter, while outlays on other equipment

improved a bit last quarter after having declined in the

preceding two quarters. Data through June continued

to show a robust increase in nonresidential construction activity. However, vacancy rates for commercial

properties ticked up in the first quarter, and the architectural billings index registered a string of weak readings from February to June.

Minutes of the Meeting of August 5, 2008

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Real nonfarm inventories excluding motor vehicles fell

sharply in the second quarter. The ratio of book-value

inventories to sales (excluding motor vehicles) ticked

down again in May.

reflecting only moderate gains in worker compensation

and relatively strong productivity performance, with

little sign of higher overall inflation passing through to

higher worker compensation.

The U.S. international trade deficit narrowed in May, as

a large increase in exports of goods and services more

than offset a moderate increase in imports. Most major

categories of non-oil imports rose in May; imports of

consumer goods increased rapidly. In contrast, the

value of petroleum imports fell back despite higher

prices, and imports of automotive products also fell.

The increase in exports was supported by strong exports of industrial supplies, particularly petroleum

products, and services.

At its June 24-25 meeting, the Federal Open Market

Committee (FOMC) kept its target for the federal

funds rate at 2 percent. The Committee’s statement

noted that recent information indicated that overall

economic activity continued to expand, partly because

of some firming in household spending. However,

labor markets softened further and financial markets

remained under considerable stress. Tight credit conditions, the ongoing housing contraction, and the rise in

energy prices were likely to weigh on economic growth

over the next few quarters. The Committee expected

inflation to moderate later this year and next. However, in light of the continued increases in the prices of

energy and some other commodities and the elevated

state of some indicators of inflation expectations, uncertainty about the inflation outlook remained high.

The Committee stated that the substantial easing of

monetary policy to date, combined with ongoing measures to foster market liquidity, should help promote

moderate growth over time. Although downside risks

to growth remained, they appeared to have diminished

somewhat, and the upside risks to inflation and inflation expectations increased. The Committee indicated

that it would continue to monitor economic and financial developments and would act as needed to promote

sustainable economic growth and price stability.

Across the advanced foreign economies, information

received since the last meeting pointed to subdued

growth in the second quarter and increasing inflation

pressures. Weak second-quarter data on industrial production and sentiment in the euro area as well as on

consumer expenditures and exports in Japan suggested

that the first-quarter strength in output growth was not

sustained. Conditions worsened considerably in the

United Kingdom, with a deepening slump in the housing sector. In all the major advanced foreign economies, rising food and fuel prices continued to drive

overall inflation to recent highs, but core measures of

inflation generally rose only modestly. Recent indicators for emerging market economies pointed to some

slowing of growth in the second quarter. Real GDP

growth in China moderated but remained strong. Incoming data suggested further slowing elsewhere in

emerging Asia, and second-quarter activity appeared to

have remained sluggish in Mexico. Headline inflation

rose further in much of the developing world, largely

owing to higher food and energy prices, and several

countries continued to face upward pressure on core

inflation as well.

Headline consumer price inflation in the United States

stepped up in recent months, largely as a result of sizable increases in food and energy prices. Excluding

these categories, core consumer price inflation was elevated in June but, on balance, was running this year at

about the same rate as last year. Some survey-based

measures of year-ahead inflation expectations moved

up sharply in recent months; longer-term inflation expectations were little changed recently but remained

above their levels at the end of 2007. Excluding food

and energy, sharp increases in the prices of products

and services at earlier stages of processing continued to

put upward pressures on business costs and consumer

prices. Unit labor costs apparently continued to increase at a restrained pace during the second quarter,

The market’s expected path of monetary policy moved

down following the announcement of the Committee’s

decision at its June meeting to leave the target federal

funds rate unchanged. Although the decision was

largely anticipated, the policy statement was reportedly

viewed by investors as placing more emphasis on the

downside risks to growth than they had anticipated.

Subsequently, the semiannual Monetary Policy Report to the

Congress and the accompanying testimony also led investors to mark down the expected path for the federal

funds rate, as did intensifying concerns about the

health of financial institutions and the outlook for the

housing-related government-sponsored enterprises

(GSEs). Consistent with the revision in policy expectations, yields on short- and medium-term nominal

Treasury coupon securities fell over the intermeeting

period. Yields on long-term Treasury securities declined less than those on shorter-term instruments, and

the yield curve steepened. Measures of shorter-horizon

inflation compensation derived from yields on inflation-indexed Treasury securities dropped over the intermeeting period as energy prices reversed some of

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Federal Open Market Committee

their earlier rise, while measures of longer-term inflation compensation rose slightly.

Functioning in the interbank funding markets remained

strained over the intermeeting period. Spreads of the

London interbank offered rate, or Libor, over comparable-maturity overnight index swap rates were unchanged to slightly higher, and spreads on lower-rated

nonfinancial and asset-backed commercial paper remained well above historical norms. Depository institutions’ use of both overnight and term primary credit

borrowing continued to be strong during the intermeeting period, peaking in late June amid quarter-end pressures. However, new extensions of credit through the

Primary Dealer Credit Facility (PDCF) were negligible

during July. On July 30, the Board of Governors and

the FOMC announced enhancements to existing liquidity facilities, including extension of the PDCF and the

Term Securities Lending Facility through January 30,

2009. Conditions in the market for Treasury repurchase agreements were fairly stable, although there was

some deterioration of conditions in the market for

agency collateral.

In longer-term credit markets, yields on both investment- and speculative-grade corporate bonds rose over

the intermeeting period even though comparablematurity Treasury yields declined slightly, which resulted in a widening of already elevated spreads. Corporate bond issuance slowed further, as did lending by

banks to businesses and households, and issuance of

leveraged loans remained very weak. Broad equity

price indexes were volatile and declined modestly, on

net, between the June and August FOMC meetings.

Stock prices of financial firms fell sharply in mid-July

but subsequently recouped most of those losses. Energy sector stocks significantly underperformed the

broad indexes owing to recent declines in oil prices.

Uncertainties about the financial condition of Fannie

Mae and Freddie Mac added to market worries about

the potential consequences of financial strains for the

broader economy over the intermeeting period. On

July 13, the Treasury Department proposed a plan to

support the liquidity and solvency of the two GSEs,

and the Board of Governors of the Federal Reserve

System announced that the Federal Reserve Bank of

New York was authorized to lend to the two institutions if necessary, reducing somewhat market concerns

about the GSEs. Concerns eased further as Congress

passed legislation, which was subsequently signed by

the President, authorizing the Treasury to provide liquidity and capital to the GSEs. Over the intermeeting

period, spreads of rates on conforming residential

mortgages over those on comparable-maturity Treasury

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securities moved higher. Offer rates on 30-year jumbo

mortgages also rose, and credit for nonconforming

mortgages remained difficult to obtain. In the secondary market, issuance of mortgage-backed securities by

GSEs appeared to have slowed in July from its strong

second-quarter pace, while issuance of securities

backed by nonconforming loans and of commercial

mortgage-backed securities remained nil.

Pressures in the money markets of many major foreign

economies eased slightly over the intermeeting period.

Yields on sovereign debt in the advanced foreign

economies fell, mainly because of declines in inflation

compensation. The trade-weighted index of the dollar

against the currencies of major trading partners rose a

bit on net.

M2 expanded at a moderate pace in July, reversing the

deceleration in May and June. The expansion was

broad based, reflecting an acceleration in liquid deposits as well as renewed inflows to retail money market

mutual funds and small time deposits.

In the forecast prepared for the meeting, the staff

marked down its forecast of real GDP growth in the

second half of 2008 and in 2009. Although the increase in real GDP in the second quarter was a bit

faster than anticipated at the time of the June meeting,

the labor market continued to weaken significantly,

financial conditions remained unfavorable, consumer

and business confidence was downbeat, and manufacturing activity was contracting. All told, the staff continued to expect that real GDP would rise at less than

its potential rate through the first half of next year.

Nonetheless, real GDP growth was anticipated to return to its potential rate in the second half of 2009 as

housing activity leveled out and financial conditions

became less restrictive. Core PCE price inflation was

expected to pick up somewhat in the second half of

this year, mostly as a result of the upward pressures

from this year’s run-ups in prices of energy and imports. Core inflation was then expected to edge down

in 2009 as the impetus from prior increases in the

prices of imports, energy, and other commodities

abated and the margin of slack in resource use widened.

In their discussion of the economic situation and outlook, many FOMC participants noted that recent developments suggested that economic activity was likely

to remain damped for several quarters. Although economic growth in the second quarter had apparently

been boosted by fiscal stimulus, resilience in consumption spending even before tax rebates were distributed,

and robust gains in exports, recent indicators pointed

to a near-term deceleration in household spending and

Minutes of the Meeting of August 5, 2008

to softer export demand. Moreover, increasing concerns about financial institutions had contributed to a

widening of some risk spreads and a further tightening

of credit to households and businesses. Growth in

overall economic activity was generally expected to be

weak during the remainder of 2008 before recovering

modestly next year, and nearly all meeting participants

saw continuing downside risks to growth. Recent readings on inflation had been high, but growth in unit labor costs had remained subdued and commodity prices

had declined of late. Accordingly, most participants

anticipated that inflation would moderate in coming

quarters. However, participants also expressed significant concerns about the upside risks to inflation, particularly the risk that longer-term inflation expectations

could become unmoored.

Many participants referred to the adverse financial sector developments that had occurred over the intermeeting period. Heightened investor apprehension about

the viability of Fannie Mae and Freddie Mac had eased

following legislative action, but pressures on these

firms continued. Reflecting these strains, interest rates

on residential mortgages had moved upward, a development that was seen as potentially exacerbating the

contraction in the housing sector. Commercial banks

had reported that terms and standards had been tightened on nearly all categories of loans. Declining mortgage asset values increased capital pressures on lenders

exposed to real estate markets. While some financial

institutions had strengthened their balance sheets with

new capital issues, raising new capital had become increasingly difficult. Moreover, broad equity price indexes had declined and borrowing costs for nonfinancial firms had increased, including a recent rise in corporate bond yields across most risk categories. Many

participants believed that these developments were

likely to restrain aggregate demand and economic

growth. Others, however, thought that the extent of

such adverse effects was likely to be limited, noting that

bank lending had continued to grow at a moderate pace

and that consumption and business capital spending

had increased in the second quarter despite the tightening of credit terms.

While consumer spending had been bolstered temporarily by the effects of the tax rebates, retail sales had

weakened during late spring and auto sales had

dropped sharply in both June and July. The unemployment rate jumped during the intermeeting period,

and participants generally anticipated that payroll employment would decline further in coming months.

For example, automotive parts suppliers in one District

had reported plans for laying off workers, idling pro-

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duction, and closing several plants. Lower equity prices

and the ongoing deterioration in house prices had reduced household wealth significantly, while real incomes had been diminished by earlier increases in the

prices of food and energy. All of these factors—in

conjunction with tightened access to auto loans, home

equity lines of credit, and other consumer loans—were

viewed as pointing towards weak growth in personal

consumption expenditures during the second half of

2008.

The weaker outlook for consumer demand, along with

tighter credit conditions for businesses, was expected

to weigh on business spending going forward. Moreover, some signs of weakness in the commercial real

estate sector were seen as suggesting a slower pace of

investment in nonresidential structures over coming

quarters, although that deceleration might be gradual

due to the lags in the planning and execution of such

projects. However, the elevated level of energy prices

was boosting investment in the oil-producing industry.

Growth in exports had provided substantial impetus to

overall demand in the second quarter. However, many

participants observed that decelerating activity in some

foreign economies would tend to dampen export gains

going forward. Indeed, recent indications of a slowing

global economy may have contributed to the marked

declines in the prices of oil and some other commodities over the intermeeting period.

Participants pointed to potential interactions between

financial stresses and the housing market contraction as

the primary source of continuing downside risks to

growth. Many participants noted that the financial system remained fragile, with some expressing continued

concern about the possibility of an adverse feedback

loop in which tighter conditions in the mortgage market would contribute to further declines in the housing

sector and additional losses for lenders, leading to further tightening of lending terms and standards. In contrast, several other participants suggested that risks to

the financial system had receded, partly as a result of

the implementation by the Federal Reserve of special

liquidity facilities, and that prevailing credit conditions

were broadly consistent with the typical patterns observed during periods of weak growth or recession.

Headline inflation was generally expected to moderate

in coming quarters, reflecting importantly an anticipated leveling-out of prices for energy and other commodities. Although measures of core inflation might

well edge up later this year, given the pass-through to

final goods prices of earlier increases in the prices of

energy and other inputs, most participants anticipated

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Federal Open Market Committee

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that core inflation would edge back down during 2009.

Some participants reported that firms were increasingly

using various pricing strategies—such as escalation

clauses or the imposition of fuel surcharges—to pass

higher costs on to their customers, who were apparently becoming less resistant to such price adjustments.

However, one participant mentioned the difficult pricing decisions of manufacturers who face a combination

of elevated input costs along with weakening demand

for their products. And a number of participants noted

that the outlook for slack in resource utilization should

tend to limit the extent of pass-through, contain the

degree of inflation spillover to goods and services

without high commodity content, and reinforce the

anticipated moderation in inflation.

the federal funds rate unchanged at this meeting was

appropriate and would most effectively promote progress toward the Committee’s dual objectives of maximum employment and price stability. Most members

did not see the current stance of policy as particularly

accommodative, given that many households and businesses were facing elevated borrowing costs and reduced credit availability due to the effects of financial

market strains as well as macroeconomic risks. Although members generally anticipated that the next

policy move would likely be a tightening, the timing

and extent of any change in policy stance would depend on evolving economic and financial developments

and the implications for the outlook for economic

growth and inflation.

Participants expressed significant concerns about the

upside risks to inflation, especially the risk that persistently high headline inflation could result in an unmooring of long-run inflation expectations. Some

viewed the upside risks to inflation as having diminished modestly over the intermeeting period, mainly as

a result of the drop in the prices of oil and some other

commodities as well as the greater likelihood of persistent economic slack. However, others viewed these

risks as having increased, particularly in light of continued elevated readings on headline inflation, the low

level of the real federal funds rate, anecdotal information suggesting that firms were having more success in

passing higher costs on to their customers, and some

signs of an upward drift over recent months in investors’ expectations and uncertainty regarding inflation

over the longer run; moreover, the recent decline in

energy prices might well be reversed in coming months.

A number of participants worried about the possibility

that core inflation might fail to moderate next year

unless the stance of monetary policy was tightened

sooner than currently anticipated by financial markets.

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:

In the Committee’s discussion of monetary policy for

the intermeeting period, members agreed that labor

markets had softened further, that financial markets

remained under considerable stress, and that these factors—in conjunction with still-elevated energy prices

and the ongoing housing contraction—would likely

weigh on economic growth in coming quarters. In addition, members saw continuing downside risks to this

outlook, particularly reflecting possible further deterioration in financial conditions. Members generally anticipated that inflation would moderate; however, they

emphasized the risks to the inflation outlook posed by

persistent high readings on headline inflation and a

possible unmooring of inflation expectations. Against

this backdrop, nearly all members judged that leaving

“The Federal Open Market Committee seeks

monetary and financial conditions that will foster price stability and promote sustainable

growth in output. To further its long-run objectives, the Committee in the immediate future

seeks conditions in reserve markets consistent

with maintaining the federal funds rate at 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 keep its target for the federal funds rate

at 2 percent.

Economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports. However, labor markets have

softened further and financial markets remain

under considerable stress. Tight credit conditions, the ongoing housing contraction, and elevated energy prices are likely to weigh on economic growth over the next few quarters. Over

time, the substantial easing of monetary policy,

combined with ongoing measures to foster market liquidity, should help to promote moderate

economic growth.

Inflation has been high, spurred by the earlier

increases in the prices of energy and some other

commodities, and some indicators of inflation

expectations have been elevated. The Commit-

Minutes of the Meeting of August 5, 2008

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tee expects inflation to moderate later this year

and next year, but the inflation outlook remains

highly uncertain.

PDCF past the year-end, a topic that had been discussed on a preliminary basis at the joint

Board/FOMC meeting on June 25, 2008.

Although downside risks to growth remain, the

upside risks to inflation are also of significant

concern to the Committee. The Committee will

continue to monitor economic and financial developments and will act as needed to promote

sustainable economic growth and price stability.”

In the discussion, meeting participants exchanged views

on issues entailed in administering the TAF and term

primary discount window credit. Issues regarding

credit risk and collateral requirements received particular attention.

Votes for this action: Messrs. Bernanke and Geithner, Ms. Duke, Messrs. Kohn, Kroszner, and Mishkin,

Ms. Pianalto, Messrs. Plosser, Stern, and Warsh.

Votes against this action: Mr. Fisher.

Mr. Fisher dissented because he favored an increase in

the target federal funds rate to help restrain inflation

and inflation expectations, which were at risk of drifting higher. While the financial system remained fragile

and economic growth was sluggish and could weaken

further, he saw a greater risk to the economy from upward pressures on inflation. In his view, businesses

had become more inclined to raise prices to pass on the

higher costs of imported goods and higher energy

costs, the latter of which were well above their levels of

late 2007. Accordingly, he supported a policy tightening at this meeting.

It was agreed that the next meeting of the Committee

would be held on Tuesday, September 16, 2008.

The meeting adjourned at 1:50 p.m.

Conference Call

On July 24, 2008, the Federal Open Market Committee

met in a joint session with the Board of Governors to

consider several proposals to extend or enhance Federal Reserve System liquidity facilities. In light of continued significant stresses in financial markets and the

experience to date with the Term Auction Facility

(TAF), the Term Securities Lending Facility (TSLF),

and the Primary Dealer Lending Facility (PDCF), the

staff proposed modifications to these programs. The

modifications included auctioning options on up to an

additional $50 billion of TSLF loans and lengthening

the term to maturity of all loans made under the TAF

to 84 days. Contingent upon Board approval of the

change to TAF loans, the Committee was asked to

consider an expansion of the existing currency swap

arrangement with the European Central Bank to facilitate a similar change in the term of dollar credits auctioned by the ECB. Finally, policymakers were asked

to vote on extending the availability of the TSLF and

Some participants raised questions about the net benefit of approving and announcing the proposed changes

at this time, asking, for example, whether such an announcement could suggest that the Federal Reserve

saw financial markets as more fragile than expected or

whether adjustments to the liquidity facilities could

cause market analysts to infer that the System intended

to keep the facilities in place permanently. Most participants expressed general support for the proposals as

improving the System’s tools for supporting market

liquidity. However, there was considerable sentiment

for altering the TAF proposal to allow for both 28- and

84-day credits, and the Chairman directed the staff to

confer, to consult further with policymakers, and to

revise the proposal accordingly for notation votes in

the near future by the Board and the FOMC.

At this meeting, the Committee unanimously approved

the following resolution:

TSLF Extension Authorization

The FOMC extends until January 30, 2009, its

authorizations for the Federal Reserve Bank of

New York to engage in transactions with primary dealers through the Term Securities Lending Facility, subject to the same collateral, interest rate and other conditions previously established by the Committee.

With Mr. Plosser dissenting, the Committee voted to

approve the resolution below. Mr. Plosser dissented

because he viewed the net benefit of the TSLF options

as being insufficient to justify adding them to the support already being provided to market liquidity.

TSLF Options Authorization

In addition to the current authorizations granted

to the Federal Reserve Bank of New York to

engage in term securities lending transactions,

the Federal Open Market Committee authorizes

the Federal Reserve Bank of New York to offer

options on up to $50 billion in additional draws

on the Facility, subject to the other terms and

conditions previously established for the Facility.

Mr. Lockhart voted as alternate member at this meeting.

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Federal Open Market Committee

Notation Votes

By notation vote completed on July 14, 2008, the

Committee unanimously approved the minutes of the

FOMC meeting held on June 24-25, 2008.

By notation vote completed on July 29, 2008, the

Committee unanimously approved the following resolution:

Swap Authorization

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 $55 billion. Within that aggregate

limit, draws of up to $25 billion are hereby authorized. The swap arrangement continues to be

authorized through January 30, 2009, unless extended by the Federal Open Market Committee.

_____________________________

Brian F. Madigan

Secretary

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