fomc minutes · April 28, 2009

FOMC Minutes

Page 1

Minutes of the Federal Open Market Committee

April 28-29, 2009

A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve

System was held in the offices of the Board of Governors in Washington, D.C., on Tuesday, April 28, 2009,

at 2:00 p.m. and continued on Wednesday, April 29,

2009, at 9:00 a.m.

PRESENT:

Mr. Bernanke, Chairman

Mr. Dudley, Vice Chairman

Ms. Duke

Mr. Evans

Mr. Kohn

Mr. Lacker

Mr. Lockhart

Mr. Tarullo

Mr. Warsh

Ms. Yellen

Mr. Bullard, Ms. Cumming, Mr. Hoenig, Ms. Pianalto, and Mr. Rosengren, Alternate Members

of the Federal Open Market Committee

Messrs. Fisher, Plosser, and Stern, Presidents of

the Federal Reserve Banks of Dallas, Philadelphia, and Minneapolis, respectively

Mr. Madigan, Secretary and Economist

Ms. Danker, Deputy Secretary

Mr. Luecke, Assistant Secretary

Mr. Skidmore, Assistant Secretary

Ms. Smith, Assistant Secretary

Mr. Alvarez, General Counsel

Mr. Sheets, Economist

Mr. Stockton, Economist

Mr. Struckmeyer, Deputy Staff Director, Office of

the Staff Director for Management, Board of

Governors

Ms. Barger and Mr. English, Deputy Directors, Divisions of Banking Supervision and Regulation

and Monetary Affairs, respectively, Board of

Governors

Mr. Blanchard, Assistant to the Board, Office of

Board Members, Board of Governors

Messrs. Levin, Nelson, Reifschneider, and Wascher, Associate Directors, Divisions of Monetary

Affairs, Monetary Affairs, Research and Statistics, and Research and Statistics, respectively,

Board of Governors

Mr. Meyer, Senior Adviser, Division of Monetary

Affairs, Board of Governors

Mr. Carpenter, Deputy Associate Director, Division of Monetary Affairs, Board of Governors

Mr. Palumbo, Assistant Director, Division of Research and Statistics, Board of Governors

Mr. Small, Project Manager, Division of Monetary

Affairs, Board of Governors

Ms. Judson and Mr. Nichols,² Economists, Divisions of Monetary Affairs and Research and

Statistics, respectively, Board of Governors

Ms. Beattie, Assistant to the Secretary, Office of

the Secretary, Board of Governors

Messrs. Altig, Clouse, Connors, Kamin, Slifman,

Sullivan, Wilcox, and Williams, Associate

Economists

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

Ms. Mosser, Temporary Manager, System Open

Market Account

Mr. Barron, First Vice President, Federal Reserve

Bank of Atlanta

Ms. Johnson, Secretary of the Board, Office of the

Secretary, Board of Governors

Mr. Frierson,¹ Deputy Secretary, Office of the Secretary, Board of Governors

¹ Attended Wednesday’s session only.

² Attended Tuesday’s session only.

Page 2

Federal Open Market Committee

Messrs. Rosenblum and Sniderman, Executive Vice

Presidents, Federal Reserve Banks of Dallas

and Cleveland, respectively

Mr. Hakkio, Ms. Mester, and Messrs. Rasche and

Rolnick, Senior Vice Presidents, Federal Reserve Banks of Kansas City, Philadelphia, St.

Louis, and Minneapolis, respectively

Messrs. Burke, Hornstein, and Olivei, Vice Presidents, Federal Reserve Banks of New York,

Richmond, and Boston, respectively

Mr. Rich, Assistant Vice President, Federal Reserve

Bank of New York

Developments in Financial Markets and the Federal Reserve’s Balance Sheet

The Manager of the System Open Market Account

reported on recent developments in domestic and foreign financial markets. The Manager also reported on

System open market operations in Treasury securities

and in agency debt and agency mortgage-backed securities (MBS) during the period since the Committee’s

March 17-18 meeting. By unanimous vote, the Committee ratified those transactions. There were no open

market operations in foreign currencies for the System’s account over the intermeeting period.

The staff reported on recent developments in System

liquidity programs and on changes in the System’s balance sheet. As of April 22, the System’s total assets

and liabilities were close to $2.2 trillion, about $130

billion higher than just before the March meeting. System holdings of agency debt and agency MBS expanded by $215 billion over the same period. Credit

extended through the Federal Reserve’s liquidity facilities decreased, owing, at least in part, to the recent improvement in short-term funding markets.

The staff also provided the Committee with projections

that were intended to illustrate the potential evolution

of the Federal Reserve’s balance sheet over coming

years under a variety of assumptions about the economic and financial outlook and the associated path of

monetary policy. The general contours of the projections—a rapid near-term increase in Federal Reserve

assets and the monetary base, followed by a decline for

a time—were the same in each case, but the timing and

magnitude varied significantly depending upon the underlying assumptions. Moreover, many aspects of the

economic and financial outlook were subject to sub-

stantial risks, implying considerable uncertainty regarding those assumptions and the resulting projections of

the balance sheet and the monetary base.

The staff briefed the Committee on recent developments related to the Term Asset-Backed Securities

Loan Facility (TALF), which was authorized by the

Board of Governors last November under section

13(3) of the Federal Reserve Act. Under the TALF,

the Federal Reserve Bank of New York extended threeyear loans secured by AAA-rated asset-backed securities (ABS); these securities were backed by new and

recently originated loans made by financial institutions.

The first two monthly subscriptions of the TALF settled during the intermeeting period. At this meeting,

the Committee discussed the potential benefits of accepting newly issued, AAA-rated commercial mortgage-backed securities and insurance premium finance

ABS as eligible collateral for TALF loans. Meeting participants also discussed the possibility that some new

TALF loans would have a longer maturity of five years.

Secretary’s note: The Board of Governors

subsequently approved the broadening of

the list of TALF-eligible collateral and the

addition of five-year loans to the facility, as

announced on May 1, 2009.

By unanimous vote, the Committee decided to extend

the reciprocal currency (“swap”) arrangements with the

Bank of Canada and the Banco de Mexico for an additional year, beginning in mid-December 2009; these

arrangements are associated with the Federal Reserve’s

participation in the North American Framework

Agreement of 1994. 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. The vote to renew the System’s participation in these swap arrangements was taken at this

meeting because of the provision in the arrangements

that requires each party to provide six months’ prior

notice of an intention to terminate its participation.

Staff Review of the Economic Situation

The information reviewed at the April 28-29 meeting

indicated that the pace of decline in some components

of final demand appeared to have slowed recently.

Consumer spending firmed in the first quarter after

dropping markedly during the second half of 2008.

Housing activity remained depressed but seemed to

have leveled off in February and March. In contrast,

businesses cut production and employment substantially in recent months—likely reflecting, in part, inventory

overhangs that persisted into the early part of the

Minutes of the Meeting of April 28-29, 2009

year—and fixed investment continued to contract.

Headline and core consumer prices rose at a moderate

pace over the first three months of the year.

Labor market conditions deteriorated further in March.

Private nonfarm payroll employment registered its fifth

consecutive large monthly decrease, with losses widespread across industries. Moreover, the average workweek of production and nonsupervisory workers on

private payrolls ticked down in March from the low

level recorded in January and February, and total hours

worked for this group stayed below the fourth-quarter

average. The civilian unemployment rate climbed to

8.5 percent, and the labor force participation rate edged

down from its February level. The four-week moving

average of initial claims for unemployment insurance

remained elevated in April, and the number of individuals receiving unemployment benefits relative to the

size of the labor force reached its highest level since

1982.

Industrial production fell substantially in March and for

the first quarter as a whole, with cutbacks widespread

across sectors, and manufacturing capacity utilization

decreased to a very low level. First-quarter domestic

production of light motor vehicles reached the lowest

level in more than three decades as inventories of such

vehicles, while low, remained high relative to sales.

The output of high-technology products decreased in

March and in the first quarter overall, with production

of computers and semiconductors extending the

downward trend that had begun in the second half of

2008. In contrast, the production of communications

equipment edged up in the first quarter. The output of

other consumer durables and business equipment

stayed low, and broad indicators of near-term manufacturing activity suggested that factory output would contract over the next few months.

The available data suggested that real consumer spending rose moderately in the first quarter after having fallen in the second half of last year. Real spending on

goods and services excluding motor vehicles fell in

March but was up, on balance, for the first quarter as a

whole. Real outlays on new and used motor vehicles

expanded in the first quarter following six consecutive

quarterly declines. Despite the upturn in consumer

spending, the fundamentals for this sector remained

weak: Wages and salaries dropped, house prices were

markedly lower than a year ago, and, despite recent

increases, equity prices were down substantially from

their levels of 12 months earlier. As measured by the

Reuters/University of Michigan survey, consumer sen-

Page 3

timent strengthened a bit in early April, as households

expressed somewhat more optimism about long-term

economic conditions; however, even with this improvement, the measure was only slightly above the

historical low for the series recorded last November.

The latest readings from the housing market suggested

that the contraction in housing activity might have

moderated over the first quarter. Single-family housing

starts flattened out in February and March, and, after

adjusting for activity outside of permit-issuing areas,

the level of permits in March remained above the level

of starts. The contraction in the multifamily sector also

showed signs of slowing, as the drop in starts in the

first quarter was well below the pace experienced during the fourth quarter of 2008. Recent data also indicated that housing demand might have stabilized. Sales

of new single-family homes held steady in March after

edging up in February, but the level of such sales remained low, leaving the supply of new homes relative

to the pace of sales very high by historical standards.

Existing home sales in March were slightly below the

average pace for January and February. Most national

indexes of house prices stayed on a downward trajectory. Lower mortgage rates and house prices contributed

to an increase in housing affordability. Rates for conforming 30-year fixed-rate mortgages extended the significant decline that began late last year. Rates on jumbo loans came down as well, although the spread between the rates on jumbo and conforming loans was

still wide and the market for private-label nonprime

MBS remained impaired.

Real spending on equipment and software dropped

markedly in the first quarter, with declines about as

steep and widespread as in the fourth quarter of 2008.

Orders and shipments of nondefense capital goods

excluding aircraft fell in March, turning negative again

after having been flat in February. The fundamental

determinants of equipment and software investment

stayed weak in the first quarter: Business output continued to drop sharply, and credit availability was still

tight. In the April Senior Loan Officer Opinion Survey

on Bank Lending Practices, the net percentages of respondents that reported they tightened their business

lending policies over the previous three months, although continuing to be very elevated, edged down for

the second consecutive survey. Real spending on nonresidential structures contracted in the first quarter.

Despite the significant cuts in production in recent

quarters, inventories remained sizable early in the year,

although the overhang appeared to be less severe than

Page 4

Federal Open Market Committee

in late 2008. Given the elevated level of inventories,

firms continued their efforts to reduce their stocks.

The U.S. international trade deficit diminished in February to its lowest level since November 1999, as imports fell and exports rose a bit. Most major categories

of exports increased, especially sales of consumer

goods, and within that category, pharmaceuticals. Exports of capital goods rose despite a modest decrease in

exports of aircraft, and exports of automotive products

increased following a marked drop in January; in contrast, exports of services declined in February. All major categories of imports decreased. The fall in oil imports was driven by lower volumes as prices moved up

slightly; prices of non-oil imports moved down, but

falling volumes accounted for most of the decline in

this category.

Economic conditions again worsened in the advanced

foreign economies in the first quarter. Industrial production continued to drop through February, employment declined substantially, and retail sales were weak.

However, indicators of developments late in the first

quarter, particularly the purchasing managers indexes

for all of the major advanced economies, increased,

suggesting some moderation in the pace of contraction

of economic activity going forward. The first-quarter

data also offered a few tentative signs that the deceleration of economic activity in emerging markets might

have started to abate. In particular, the growth of real

gross domestic product (GDP) in China appeared to

pick up on a quarterly basis following fiscal stimulus

measures and steps to foster credit expansion.

In the United States, overall consumer prices increased

over the first three months of 2009 after falling in the

fourth quarter of 2008: Energy prices rebounded

somewhat after their substantial late-year drop, and

core prices picked up. In contrast, the producer price

index for core intermediate materials fell, though at a

noticeably slower pace than in late 2008. Indexes of

commodity prices rose in March but stayed far below

their year-earlier values. Near-term inflation expectations increased in early April but did not appear to influence longer-term expectations, whose levels in April

were still at the low end of the range seen over the past

few years. Hourly earnings of production and nonsupervisory workers edged up in March.

Staff Review of the Financial Situation

The decision by the Federal Open Market Committee

(FOMC) at the March meeting to leave the target range

for the federal funds rate unchanged was widely anticipated and had little effect on short-term money mar-

kets. However, investors were apparently surprised by

the Committee’s announcement that it would increase

significantly further the size of the Federal Reserve’s

balance sheet by purchasing up to $300 billion in Treasury securities and expanding purchases of agency MBS

and agency debt. In addition, market participants reportedly interpreted the statement that the federal

funds rate was likely to remain exceptionally low “for

an extended period” as stronger than the phrase “for

some time” in the previous statement. Rates on Eurodollar futures contracts and yields on Treasury and

agency securities fell considerably in response to the

statement. The initial drop in the expected path for the

federal funds rate was reversed over subsequent weeks,

however, likely in response to the somewhat better

economic outlook. Similarly, a portion of the substantial declines in yields on nominal Treasury coupon securities that followed the FOMC announcement was

subsequently unwound amid the improved economic

outlook, an easing of concern about financial institutions, and perhaps some reversal of flight-to-quality

flows. Yields on inflation-indexed Treasury securities

fell a bit more than those on their nominal counterparts, which decreased modestly, on net, over the period. As a result, inflation compensation rose at shorter horizons but changed little at longer horizons. Poor

liquidity in the market for Treasury inflation-protected

securities continued to make these readings difficult to

interpret.

Conditions in short-term funding markets improved

somewhat over the intermeeting period. In unsecured

bank funding markets, spreads of dollar London interbank offered rates (Libor) over comparable-maturity

overnight index swap (OIS) rates edged down, although Libor fixings beyond the one-month maturity

stayed elevated. Spreads on A2/P2-rated commercial

paper and AA-rated asset-backed commercial paper

narrowed a bit, on net, staying at the low end of their

respective ranges over the past year. Functioning in the

repurchase agreement (repo) market showed additional

improvement, as bid-asked spreads and “haircuts” on

most collateral either narrowed or held steady, although

repo volumes were still low. Consistent with modestly

better conditions in the term repo market, all seven

auctions under the Term Securities Lending Facility

were undersubscribed over the intermeeting period,

including two auctions that garnered no bids.

Trading conditions in the secondary market for nominal Treasury securities also showed some signs of improvement. Premiums paid for on-the-run Treasury

securities fell, and average bid-asked spreads for Trea-

Minutes of the Meeting of April 28-29, 2009

Page 5

sury notes were relatively stable near their pre-crisis

levels. Still, daily trading volumes for Treasury securities remained low.

was tepid, as robust bond issuance was partly offset by

declines in commercial paper and bank loans. Federal

debt rose briskly in the first quarter.

Broad stock price indexes rose significantly, reportedly

buoyed by announcements of policy measures to enhance credit markets and clean up banks’ balance

sheets and perhaps by some reduction in concerns

about the economic outlook. Financial stocks outperformed broader markets, boosted by relatively favorable first-quarter earnings reports from a few major

firms. The spread between the forward trend earningsprice ratio for S&P 500 firms and an estimate of the

real long-run Treasury yield—a rough gauge of the equity risk premium—narrowed during the intermeeting

period but was still very high by historical standards.

Option-implied volatility on the S&P 500 index decreased but stayed well above historical norms.

M2 expanded rapidly in March. A strong increase in

liquid deposits, the largest component of M2, likely

reflected further reallocations by households toward

safer assets. Retail money market mutual funds and

small time deposits contracted modestly. Currency

growth was apparently bolstered by elevated foreign

demand.

On net, yields on lower-rated investment-grade and

speculative-grade corporate bonds dropped, resulting in

a narrowing of spreads in yields on such bonds over

those on comparable-maturity Treasury securities.

Even so, corporate bond spreads remained extremely

high by historical standards.

Indicators of functioning in the corporate bond market—such as bid-asked spreads estimated by the

staff—suggested that conditions in the speculativegrade segment of the market had become less strained

since last autumn. Corresponding measures for investment-grade bonds hovered at moderately elevated

levels. The leveraged loan market showed some improvement over the past few months, with the average

bid-asked spread narrowing and the average bid price

moving up from a very depressed level. The basis between an index of credit default swap spreads and

measures of investment-grade corporate spreads—a

rough proxy for unexploited arbitrage opportunities in

the corporate credit market—stayed at high levels, reportedly reflecting an ongoing lack of financing capacity at major financial institutions. No issuance of commercial MBS occurred over the intermeeting period.

The debt of the domestic private nonfinancial sector

appeared to have contracted in the first quarter at

about the same pace as in the fourth quarter of 2008.

Activity in the mortgage market reflected mainly refinancing, and staff estimates indicated that residential

mortgage debt contracted again in the first quarter, depressed by the very low pace of home sales, falling

house prices, and write-downs of nonperforming loans.

Consumer credit was essentially flat in January and

February. Expansion of nonfinancial business debt

Commercial bank credit contracted in March and was

estimated to have dropped again in April. The decline

in bank credit in March was due importantly to a decrease in loans to businesses that reflected, in part, paydowns with the proceeds of bond issuance. Commercial real estate loans also fell. Bank lending to households was weak, although credit extended under revolving home equity lines of credit again expanded robustly.

Residential mortgage loans on banks’ books fell, on

balance, in March and the first part of April; banks reportedly sold a considerable amount of single-family

mortgages to the government-sponsored enterprises.

Consumer loans held by banks also shrank, amid heavy

securitization. The Senior Loan Officer Opinion Survey conducted in April indicated that banks continued

to tighten their credit standards and terms on all major

loan categories over the previous three months.

Stock markets around the world rose substantially over

the intermeeting period amid somewhat better sentiment regarding economic prospects, reports of betterthan-expected performance from some financial firms

in the United States and Europe, and continued support from monetary policies. Pressures in bank funding markets seemed to ease over the period: Spreads

between both euro and sterling Libor and their respective OIS rates narrowed significantly, and financial

conditions in most emerging market economies improved. The dollar depreciated against the other major

currencies in an environment of seemingly increased

investor appetite for risk.

During the intermeeting period, foreign authorities

took additional steps to address the weaknesses in their

economies and financial systems. The European Central Bank and the Bank of Canada, along with several

other central banks in both the advanced and emerging

market economies, cut policy rates, while the Bank of

England and the Bank of Japan continued their asset

purchases to provide further monetary stimulus. Several governments, including Japan and Taiwan, announced new fiscal stimulus packages, and a number of

Page 6

Federal Open Market Committee

European countries took additional measures to support their banking sectors.

Staff Economic Outlook

In the forecast for the meeting, which was prepared

prior to the release of the advance estimates of the

first-quarter national income and product accounts, the

staff revised up its outlook for economic activity in

response to recent favorable financial developments as

well as better-than-expected readings on final sales.

Consumer purchases appeared to have stabilized after

falling in the second half of 2008, and the steep decline

in the housing sector seemed to be abating. However,

the contraction in the labor market persisted into

March, industrial production again fell rapidly, and the

broad-based decline in equipment and software investment continued. Conditions in financial markets

improved more than had been expected: Private borrowing rates moved lower, stock prices rose substantially, and some measures of financial stress eased. The

staff’s projections for economic activity in the second

half of 2009 and in 2010 were revised up, with real

GDP expected to edge higher in the second half and

then increase moderately next year. The key factors

expected to drive the acceleration in activity were the

boost to spending from fiscal stimulus, the bottoming

out of the housing market, a turn in the inventory cycle

from liquidation to modest accumulation, and ongoing

gradual recovery of financial markets. The staff again

expected that the unemployment rate would rise

through the beginning of 2010 before edging down

over the rest of that year. The staff forecast for overall

and core personal consumption expenditures (PCE)

inflation over the next two years was revised up

slightly. The staff raised its near-term estimate of core

PCE inflation because recent data on core and overall

PCE price inflation came in a bit higher than anticipated. Beyond the near term, however, the staff anticipated that the low level of resource utilization and a

gradual decline in inflation expectations would lead to a

deceleration in core PCE prices. Looking out to 2011,

the staff anticipated that financial markets and institutions would continue to recuperate, monetary policy

would remain stimulative, fiscal stimulus would be fading, and inflation expectations would be relatively well

anchored. Under such conditions, the staff projected

that real GDP would expand at a rate well above that

of its potential, that the unemployment rate would decline significantly, and that overall and core PCE inflation would stay in a low range.

Participants’ Views and Committee Policy Action

In conjunction with this FOMC meeting, all meeting

participants—the five members of the Board of Governors and the presidents of the 12 Federal Reserve

Banks—provided projections for economic growth, the

unemployment rate, and consumer price inflation for

each year from 2009 through 2011 and over a longer

horizon. Longer-run projections represent each participant’s assessment of the rate to which each variable

would be expected to converge over time under appropriate monetary policy and in the absence of further

shocks. Participants’ forecasts through 2011 and over

the longer run 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, participants agreed that the information received

since the March meeting provided some tentative evidence that the pace of contraction in real economic

activity was starting to diminish. Participants noted

that financial market conditions had generally strengthened, and surveys and anecdotal reports pointed to a

pickup in household and business confidence, which

nonetheless remained at very low levels. Some signs

pointing toward economic stabilization were seen in

data on consumer spending, housing, and factory orders. Although economic activity was being damped

by the efforts of businesses to pare excess inventories,

the substantial drawdown in inventories over recent

months was viewed as raising the prospects for a gradual expansion in industrial production later this year.

Participants anticipated that the acceleration in final

demand and economic activity over the next few quarters would be modest. Growth of consumption expenditures was likely to be restrained by the weakness

in labor markets and the lagged effects of past reductions in household wealth. Business investment spending would probably shrink further. Adverse global

economic and financial conditions would continue to

weigh on the demand for U.S. exports.

Financial market developments over the intermeeting

period were mainly seen as positive. Equity prices increased, money markets were functioning better, and

corporate issuance of bonds and convertible securities

was relatively brisk. Measures of volatility and financial

stress moved down and risk spreads narrowed in many

markets, perhaps partly because of investors’ perceptions of diminished downside tail risks. Even so, risk

spreads remained unusually wide and markets continued to be fragile. Despite the improvement in financial

markets, credit conditions stayed quite restrictive for

Minutes of the Meeting of April 28-29, 2009

many households and businesses. The April Senior

Loan Officer Opinion Survey showed that a large net

fraction of banks had tightened their terms and standards for credit during the previous three months, albeit a modestly smaller fraction than indicated by the

January survey. Moreover, meeting participants noted

that the volume of credit extended to households and

businesses was still contracting as a result of shrinking

demand, declining credit quality, capital constraints on

financial institutions, and the limited availability of financing through securitization markets.

Consumer spending firmed somewhat during the first

quarter despite the rising unemployment rate and significant financial strains. Participants generally expected that household demand would gradually strengthen over coming quarters in response to the rise in

household wealth from the substantial increase in equity prices that had occurred over the intermeeting period as well as the support for income provided by fiscal policy. Nevertheless, participants judged that the

recovery in consumer demand over the next few quarters would be slow, reflecting adverse labor market

conditions and continuing adjustments to earlier reductions in household wealth.

Some participants referred to the possibility that activity in the housing market might finally be approaching a

trough. Indicators of new home sales appeared to be

stabilizing, and inventories of unsold homes diminished

somewhat. Participants also reported some signs that

the decline in home prices might be slowing.

Labor market conditions were still deteriorating. Unemployment claims were exceptionally elevated, and

the ratio of permanent job cuts to temporary layoffs

was substantially higher than in previous economic

downturns. Staff reductions were under way even at

traditionally stable employers such as hospitals and

nonprofit institutions. An unusually large proportion

of employed persons indicated that they were engaged

in part-time work because they could not obtain fulltime jobs.

Participants cited the magnitude of the retrenchment in

production and capital spending, but they also noted

that manufacturing surveys and informal contacts suggested a noticeable upturn in business sentiment: A

number of participants highlighted regional surveys

reporting that greater numbers of industrial firms anticipated that their orders and shipments would start expanding over the next six months. Some participants

expected that a gradual strengthening of retail sales

would lead to an abatement of the decline in capital

Page 7

investment and would tend to induce manufacturers to

begin rebuilding depleted stocks of inventories later

this year, thereby reinforcing the pickup in industrial

production. The outlook in some other sectors seemed

less propitious; for example, one participant described

survey data indicating that firms in the service sector

were expecting sales to decrease further in coming

months, and others referred to cutbacks in drilling and

mining.

The economies of many key trading partners were seen

as experiencing quite severe contractions. Participants

noted that banking institutions in a number of countries remained exposed to substantial further losses,

and the process of repairing the balance sheets of such

institutions would likely continue to restrain growth in

those economies over coming quarters and hence

damp the outlook for U.S. export demand. A few

countries did show some signs that weakness was abating, perhaps reflecting, in part, rapid implementation of

fiscal stimulus; furthermore, the recent firming of

commodity prices gave an indication that global weakness might be starting to subside.

Although the near-term economic outlook had improved modestly since March, participants emphasized

the tentative nature of the incoming data, which are

volatile and subject to revision. The experience of previous recessions underscored the challenges of identifying the onset of economic recovery using real-time indicators. Also, empirical analysis of past episodes in

the United States and abroad in which economic downturns had been triggered by financial crises generally

concluded that such contractions tended to be more

severe and protracted than other recessions. Moreover,

participants continued to see significant downside risks

to the economic outlook. In particular, while financial

strains and risk spreads had lessened somewhat over

the intermeeting period, participants agreed that the

global financial system remained vulnerable to further

shocks. In discussing the Supervisory Capital Assessment Program, which was being conducted jointly by

the Federal Reserve and other bank supervisory authorities, a number of participants noted that investors were

concerned that the upcoming publication of stress test

results might trigger volatility in financial markets.

Some participants also referred to mounting losses in

commercial real estate, which could have substantial

adverse consequences for regional banks and other

financial institutions with significant concentrations of

such assets.

Page 8

Federal Open Market Committee

Looking further ahead, participants considered a number of factors that would be likely to restrain the pace

of economic recovery over the medium term. Strains

in credit markets were expected to recede only gradually as financial institutions continued to rebuild their

capital and remained cautious in their approach to asset-liability management, especially given that the outlook for credit performance was likely to improve slowly. Some sectors—such as financial services and residential construction—might well account for a smaller

share of the economy in coming years, and the resulting reallocation of labor across sectors could weigh on

labor markets for some time. Households would likely

remain cautious, and their desired saving rates would

be relatively high over the extended period that would

be required to bring their stock of wealth back up to

more normal levels relative to income. The stimulus

from fiscal policy was expected to diminish over time

as the government budget moved to a sustainable path.

Demand for U.S. exports would also take time to revive, reflecting the gradual recovery of major trading

partners.

Most participants expected inflation to remain subdued

over the next few years, and they saw some risk that

elevated unemployment and low capacity utilization

could cause inflation to remain persistently below the

rates that they judged as most consistent with sustainable economic growth and price stability. Nonetheless,

recent monthly readings on consumer price inflation

had been above the low rates observed late last year,

and survey measures of longer-run inflation expectations had remained reasonably stable, leading many

participants to judge that the risk of a protracted period

of deflation had diminished. Some participants highlighted the potential pitfalls of making inflation projections based on contemporaneously available measures of resource slack, especially during periods when

the economy was facing large supply shocks and significant sectoral reallocation. Several participants referred

to contacts who had expressed concerns that the expansion of the Federal Reserve’s balance sheet might

not be reversed in a sufficiently timely manner and

hence that inflation could rise above rates consistent

with price stability.

In their discussion of monetary policy for the intermeeting period, Committee members agreed that the

Federal Reserve’s large-scale securities purchases were

providing financial stimulus that would contribute to

the gradual resumption of sustainable economic growth

in a context of price stability. Members also agreed

that it would be appropriate to continue making pur-

chases in accordance with the amounts that had previously been announced—that is, up to $1.25 trillion of

agency MBS and up to $200 billion of agency debt by

the end of this year, and up to $300 billion of Treasury

securities by autumn. Some members noted that a further increase in the total amount of purchases might

well be warranted at some point to spur a more rapid

pace of recovery; all members concurred with waiting

to see how the economy and financial conditions respond to the policy actions already in train before deciding whether to adjust the size or timing of asset purchases. The Committee reaffirmed the need to monitor carefully the size and composition of the Federal

Reserve’s balance sheet in light of economic and financial developments. The Committee also discussed its

strategy for communicating the anticipated path of its

asset purchases and the circumstances under which

adjustments to that path would be appropriate. All

members agreed that the statement should note that

the timing and overall amounts of the Committee’s

asset purchases would continue to be evaluated in light

of the evolving economic outlook and conditions in

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:

“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 seeks

conditions in reserve markets consistent

with federal funds trading in a range from 0

to ¼ percent. The Committee directs the

Desk to purchase agency debt, agency MBS,

and longer-term Treasury securities during

the intermeeting period with the aim of

providing support to private credit markets

and economic activity. The timing and pace

of these purchases should depend on conditions in the markets for such securities and

on a broader assessment of private credit

market conditions. The Committee anticipates that the combination of outright purchases and various liquidity facilities outstanding will cause the size of the Federal

Reserve’s balance sheet to expand significantly in coming months. The Desk is expected to purchase up to $200 billion in

Minutes of the Meeting of April 28-29, 2009

housing-related agency debt by the end of

this year. The Desk is expected to purchase

at least $500 billion in agency MBS by the

end of the second quarter of this year and is

expected to purchase up to $1.25 trillion of

these securities by the end of this year. The

Desk is expected to purchase up to $300

billion of longer-term Treasury securities by

the end of the third quarter. The System

Open Market Account Manager and the

Secretary will keep the Committee informed

of ongoing developments regarding the System’s balance sheet that could affect the attainment over time of the Committee’s objectives of maximum employment and price

stability.”

The vote encompassed approval of the statement below to be released at 2:15 p.m.:

“Information received since the Federal

Open Market Committee met in March indicates that the economy has continued to

contract, though the pace of contraction

appears to be somewhat slower. Household

spending has shown signs of stabilizing but

remains constrained by ongoing job losses,

lower housing wealth, and tight credit.

Weak sales prospects and difficulties in obtaining credit have led businesses to cut

back on inventories, fixed investment, and

staffing. Although the economic outlook

has improved modestly since the March

meeting, partly reflecting some easing of financial market conditions, economic activity is likely to remain weak for a time.

Nonetheless, the Committee continues to

anticipate that policy actions to stabilize financial markets and institutions, fiscal and

monetary stimulus, and market forces will

contribute to a gradual resumption of sustainable economic growth in a context of

price stability.

In light of increasing economic slack here

and abroad, the Committee expects that inflation will remain subdued. Moreover, the

Committee sees some risk that inflation

could persist for a time below rates that

best foster economic growth and price stability in the longer term.

In these circumstances, the Federal Reserve

will employ all available tools to promote

Page 9

economic recovery and to preserve price

stability. The Committee will maintain the

target range for the federal funds rate at 0

to ¼ percent and anticipates that economic

conditions are likely to warrant exceptionally low levels of the federal funds rate for an

extended period. As previously announced,

to provide support to mortgage lending and

housing markets and to improve overall

conditions in private credit markets, the

Federal Reserve will purchase a total of up

to $1.25 trillion of agency mortgage-backed

securities and up to $200 billion of agency

debt by the end of the year. In addition, the

Federal Reserve will buy up to $300 billion

of Treasury securities by autumn. The

Committee will continue to evaluate the

timing and overall amounts of its purchases

of securities in light of the evolving economic outlook and conditions in financial

markets. The Federal Reserve is facilitating

the extension of credit to households and

businesses and supporting the functioning

of financial markets through a range of liquidity programs. The Committee will continue to carefully monitor the size and

composition of the Federal Reserve’s balance sheet in light of financial and economic developments.”

Voting for this action: Messrs. Bernanke and Dudley,

Ms. Duke, Messrs. Evans, Kohn, Lacker, Lockhart,

Tarullo, and Warsh, and Ms. Yellen.

Voting against this action: None.

Governor Kohn reported to the Committee on the

progress of a Federal Reserve workgroup in its review

of the information provided to the public regarding

Federal Reserve programs and activities. That review

was being conducted to identify opportunities for providing additional information to the public without

compromising the Federal Reserve’s mandated policy

objectives. The workgroup had been devoting particular attention to approaches to enhancing the transparency of the Federal Reserve’s liquidity and credit facilities, including regular reporting on the number, types,

and concentration of borrowers from each program;

the amount and nature of collateral accepted; detailed

background information on special purpose vehicles;

and contracts with private-sector firms that had been

Page 10

Federal Open Market Committee

engaged to help carry out some of these programs. In

the Committee’s discussion of these issues, it was noted

that disclosing the identities of individual borrowers

would very likely discourage use of the Federal Reserve’s liquidity and credit facilities because prospective

borrowers would be concerned that their creditors and

counterparties would see borrowing from the Federal

Reserve as a sign of financial weakness. The resulting

stigma would undermine the effectiveness of those

programs in promoting financial stability and economic

recovery.

It was agreed that the next meeting of the Committee

would be held on Tuesday-Wednesday, June 23-24,

2009. The meeting adjourned at 11:50 a.m. on April

29, 2009.

Notation Vote

By notation vote completed on April 7, 2009, the

Committee unanimously approved the minutes of the

FOMC meeting held on March 17-18, 2009.

_____________________________

Brian F. Madigan

Secretary

Page 1

Summary of Economic Projections

In conjunction with the April 28-29, 2009, FOMC

meeting, the members of the Board of Governors and

the presidents of the Federal Reserve Banks, all of

whom participate in deliberations of the FOMC, submitted projections for output growth, unemployment,

and inflation in 2009, 2010, 2011, and over the longer

run. Projections were based on information available

through the end of the meeting and on each participant’s assumptions about factors likely to affect economic outcomes, including his or her assessment of

appropriate monetary policy. “Appropriate monetary

policy” is defined as the future path of policy that the

participant deems most likely to foster outcomes for

economic activity and inflation that best satisfy his or

her interpretation of the Federal Reserve’s dual objectives of maximum employment and stable prices.

Longer-run projections represent each participant’s

assessment of the rate to which each variable would be

expected to converge over time under appropriate

monetary policy and in the absence of further shocks.

As indicated in table 1 and depicted in figure 1, all

FOMC participants projected that real GDP would

contract this year, that the unemployment rate would

increase in coming quarters, and that inflation would be

slower this year than in recent years. Almost all participants viewed the near-term outlook for economic activity as having weakened relative to the projections they

made at the time of the January FOMC meeting, but

they continued to expect a recovery in sales and production to begin during the second half of 2009. With

the strong adverse forces that have been acting on the

economy likely to abate only slowly, participants generally expected a gradual recovery: All anticipated that

unemployment, though declining in coming years,

would remain well above its longer-run sustainable rate

at the end of 2011; most indicated they expected the

economy to take five or six years to converge to a longer-run path characterized by a sustainable rate of output

growth and by rates of unemployment and inflation

consistent with the Federal Reserve’s dual objectives,

but several said full convergence would take longer.

Participants projected very low inflation this year; most

expected inflation to edge up over the next few years

toward the rate they consider consistent with the dual

objectives. Most participants—though fewer than in

January—viewed the risks to the growth outlook as

skewed to the downside. Most participants saw the

risks to the inflation outlook as balanced; fewer than in

January viewed those risks as tilted to the downside.

With few exceptions, participants judged that their projections for economic activity and inflation remained

subject to a degree of uncertainty exceeding historical

norms.

The Outlook

Participants’ projections for 2009 real GDP growth had

a central tendency of negative 2.0 percent to negative

1.3 percent, somewhat below the central tendency of

negative 1.3 percent to negative 0.5 percent for their

January projections. Participants noted that the data

received between the January and April FOMC meet-

Table 1. Economic projections of Federal Reserve Governors and Reserve Bank presidents, April 2009

Percent

Variable

Central tendency1

2009

Range2

2010

2011

Longer run

2009

2010

2011

Longer run

Change in real GDP. . . . . . -2.0 to -1.3

January projection. . . . . -1.3 to -0.5

2.0 to 3.0

2.5 to 3.3

3.5 to 4.8

3.8 to 5.0

2.5 to 2.7

-2.5 to -0.5

-2.5 to 0.2

1.5 to 4.0

1.5 to 4.5

2.3 to 5.0

2.3 to 5.5

2.4 to 3.0

Unemployment rate. . . . . . 9.2 to 9.6

January projection. . . . . 8.5 to 8.8

9.0 to 9.5

8.0 to 8.3

7.7 to 8.5

6.7 to 7.5

4.8 to 5.0

9.1 to 10.0

8.0 to 9.2

8.0 to 9.6

7.0 to 9.2

6.5 to 9.0

5.5 to 8.0

4.5 to 5.3

4.5 to 5.5

PCE inflation. . . . . . . . . . . 0.6 to 0.9

January projection. . . . . 0.3 to 1.0

1.0 to 1.6

1.0 to 1.5

1.0 to 1.9

0.9 to 1.7

1.7 to 2.0

-0.5 to 1.2

-0.5 to 1.5

0.7 to 2.0

0.7 to 1.8

0.5 to 2.5

0.2 to 2.1

1.5 to 2.0

Core PCE inflation3. . . . . . 1.0 to 1.5

January projection. . . . . 0.9 to 1.1

0.7 to 1.3

0.8 to 1.5

0.8 to 1.6

0.7 to 1.5

0.7 to 1.6

0.6 to 1.5

0.5 to 2.0

0.4 to 1.7

0.2 to 2.5

0.0 to 1.8

NOTE: Projections of change in real gross domestic product (GDP) and of inflation are 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 (PCE) and the price index for PCE 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. Longer-run projections represent each participant’s assessment of the rate to which each variable would be expected to converge under appropriate monetary policy and in the

absence of further shocks to the economy. The January projections were made in conjunction with the FOMC meeting on January 27-28, 2009.

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.

3. Longer-run projections for core PCE inflation are not collected.

Page 2

Federal Open Market Committee

Figure 1. Central tendencies and ranges of economic projections, 2009–11 and over the longer run

Percent

Change in real GDP

Central tendency of projections

Range of projections

Actual

2004

2005

2006

2007

2008

2009

2010

2011

Longer

run

Percent

Unemployment rate

2004

2005

2006

2007

2008

2009

2010

2011

Longer

run

Percent

PCE inflation

2004

2005

2006

2007

2008

2009

2010

2011

Longer

run

Percent

Core PCE inflation

2004

2005

2006

2007

2008

2009

2010

2011

NOTE: Definitions of variables are in the notes to table 1. The data for the actual values of the variables are annual.

Summary of Economic Projections of the Meeting of April 28-29, 2009

ings pointed to a larger decline in output and employment during the first quarter than they had anticipated

at the time of the January meeting. However, participants also saw recent indications that the economic

downturn was slowing in the second quarter, and they

continued to expect that sales and production would

begin to recover—albeit gradually—during the second

half of the year, reflecting the effects of monetary and

fiscal stimulus and of measures to support credit markets and stabilize the financial system along with market

forces. In particular, participants noted some improvement in financial conditions in recent months,

signs that consumer spending was leveling out, and tentative indications that activity in the housing sector

might be nearing its bottom. In addition, they observed that the large reduction in stocks of unsold

goods that resulted from firms’ aggressive inventory

cutting during the first quarter would make firms more

likely to increase production as their sales stabilize and

then begin to turn up later this year. Participants expected, however, that recoveries in consumer spending

and residential investment initially would be damped by

further deterioration in labor markets, still-tight credit

conditions, and a continuing, if less pronounced, decline in house prices. Moreover, they anticipated that

very low capacity utilization, sluggish growth in sales,

and the high cost and limited availability of financing

would contribute to further weakness in business fixed

investment this year.

Looking further ahead, participants’ projections for real

GDP growth in 2010 had a central tendency of 2.0 to

3.0 percent, and those for 2011 had a central tendency

of 3.5 to 4.8 percent. Participants generally expected

that strains in credit markets and in the banking system

would ebb slowly, and hence that the pace of recovery

would continue to be damped in 2010. But they anticipated that the upturn would strengthen in 2011 to a

pace exceeding the growth rate of potential GDP as

financial conditions continue to improve, and that it

would remain above that rate long enough to eliminate

slack in resource utilization over time. Several participants anticipated that rapid growth in the monetary

base in 2009—a result of the Federal Reserve’s sizable

purchases of longer-term assets—would result in a

more pronounced pickup in output and employment

growth in 2010 and a somewhat quicker convergence to

longer-run equilibrium. Most participants expected

that, absent further shocks, real GDP growth eventually

would converge to a rate of 2.5 to 2.7 percent per year,

reflecting longer-term trends in the growth of productivity and the labor force.

Page 3

In light of their expectation that the recovery will begin

gradually, with output initially rising at a belowpotential rate, participants anticipated that labor market

conditions would continue to deteriorate over the remainder of this year. Their projections for the average

unemployment rate during the fourth quarter of 2009

had a central tendency of 9.2 to 9.6 percent, noticeably

higher than the actual unemployment rate of 8.5 percent in March—the latest reading available at the time

of the April FOMC meeting. All participants revised

up their forecasts of the unemployment rate at the end

of this year relative to their January projections, reflecting the sharper-than-expected rise in actual unemployment that occurred during the first quarter as well as

the downward revisions in their forecasts of output

growth in 2009. Most participants anticipated that

growth next year would not substantially exceed its

longer-run sustainable rate and hence that the unemployment rate would decline only modestly in 2010;

some also pointed to the friction of a reallocation of

resources away from shrinking economic sectors as

likely to restrain progress in reducing unemployment.

With output growth and job creation generally projected to pick up appreciably in 2011, participants anticipated that joblessness would decline more noticeably,

as evident from the central tendency of 7.7 to 8.5 percent for their projections of the unemployment rate in

late 2011. Even so, they expected that the unemployment rate at the end of 2011 would still be declining

toward its longer-run sustainable level. Participants

projected that unemployment would decline further

after 2011; most saw the unemployment rate eventually

converging to 4.8 to 5.0 percent.

The central tendency of participants’ projections for

2009 PCE inflation was 0.6 to 0.9 percent, an interval

that is somewhat narrower but neither higher nor lower

than the central tendency of their January projections.

Looking beyond this year, participants’ projections for

total PCE inflation had central tendencies of 1.0 to 1.6

percent for 2010 and 1.0 to 1.9 percent for 2011. The

central tendency of projections for core inflation in

2009 was 1.0 to 1.5 percent; those for 2010 and 2011

were 0.7 to 1.3 percent and 0.8 to 1.6 percent, respectively. Most participants expected that economic slack,

though diminishing, would continue to damp inflation

pressures for the next few years and hence that total

PCE inflation in 2011 would still be below their assessments of its appropriate longer-run level. Some

thought that persistent economic slack would be accompanied by declining inflation over the next few

years. Most, however, projected that, as the economy

recovers, inflation would increase gradually and move

Page 4

Federal Open Market Committee

toward their individual assessments of the measured

rate of inflation consistent with the Federal Reserve’s

dual mandate for maximum employment and price stability. Several participants, noting that the public’s

longer-run inflation expectations have not changed appreciably, anticipated that inflation would return more

promptly to levels consistent with their judgments

about appropriate longer-run inflation.

In April as in January, the central tendency of projections of the longer-run inflation rate was 1.7 to 2.0 percent. Most participants judged that a longer-run PCE

inflation rate of 2 percent would be consistent with the

Federal Reserve’s dual mandate; others indicated that

inflation of 1½ or 1¾ percent would be appropriate.

Modestly positive longer-run inflation would allow the

Committee to stimulate economic activity and support

employment by setting the federal funds rate temporarily below the inflation rate when the economy suffers a

large negative shock to demands for goods and services.

Uncertainty and Risks

A majority of participants continued to view the risks

to their projections for real GDP growth as skewed to

the downside and saw the associated risks to their projections for the unemployment rate as tilted to the upside, but a larger number than in January now saw the

risks as broadly balanced. Participants shared the

judgment that their projections of future economic activity and unemployment continued to be subject to

greater-than-average uncertainty. 1 Some participants

highlighted the still-considerable uncertainty about the

future course of the financial crisis and the risk that a

resurgence of financial turmoil could adversely impact

the real economy. In addition, some noted the difficulty in gauging the macroeconomic effects of the crediteasing policies that are now being employed by the

Federal Reserve and other central banks, given limited

experience with such tools.

Most participants judged the risks to the inflation outlook as roughly balanced; some continued to view these

risks as skewed to the downside, while one saw inflation risks as tilted to the upside. Some participants

noted the risk that inflation expectations might become

Table 2 provides estimates of forecast uncertainty for the

change in real GDP, the unemployment rate, and total consumer price inflation over the period from 1989 to 2008. At

the end of this summary, the box “Forecast Uncertainty”

discusses the sources and interpretation of uncertainty in

economic forecasts and explains the approach used to assess

the uncertainty and risks attending participants’ projections.

Table 2. Average historical projection error ranges

Percentage points

Variable

Change in real GDP1 . . . . . .

Unemployment

rate1

.......

Total consumer

prices2

.....

2009

2010

2011

±1.0

±1.5

±1.6

±0.5

±0.8

±1.0

±0.8

±1.0

NOTE: Error ranges shown are measured as plus or minus the root

mean squared error of projections for 1989 through 2008 that were

released in the spring 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 (Washington: Board of Governors of the Federal Reserve System, November).

1. For definitions, refer to general note in table 1.

2. 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.

unanchored and drift downward in response to persistently low inflation outcomes; several pointed to the

possibility of an upward shift in expected and actual

inflation if investors become concerned that stimulative

monetary policy measures and the attendant expansion

of the Federal Reserve’s balance sheet might not be

unwound in a timely fashion as the economy recovers.

Most participants again saw the uncertainty surrounding their inflation projections as exceeding historical

norms.

Diversity of Views

Figures 2.A and 2.B provide further details on the diversity of participants’ views regarding likely outcomes

for real GDP growth and the unemployment rate in

2009, 2010, and 2011. The dispersion in participants’

April projections reflects, among other factors, the diversity of their assessments regarding the effects of fiscal stimulus and the likely pace of recovery in the financial sector. Though the dispersion in projections for

each variable was roughly the same in April as in January, the downward shift in the distribution of participants’ projections of real GDP growth in 2009, coupled

with essentially unchanged distributions of projections

for growth in 2010 and 2011, resulted in an upward

shift from January to April in the distribution of projections for the unemployment rate in all three years. The

dispersion in participants’ longer-run projections reflected differences in their estimates regarding the sustainable rates of output growth and unemployment to

which the economy would converge under appropriate

policy and in the absence of any further shocks; these

distributions did not change appreciably from January

to April.

Summary of Economic Projections of the Meeting of April 28-29, 2009

Figures 2.C and 2.D provide corresponding information about the diversity of participants’ views regarding

the inflation outlook. The dispersion in participants’

projections for total and core PCE inflation during

2009 and the following two years illustrates their varying assessments of the inflation outcomes that will result from persistent economic slack, from expansion

and subsequent contraction of the Federal Reserve’s

Page 5

balance sheet, and perhaps also from changes in the

public’s expectations of future inflation. In contrast,

the tight distribution of participants’ projections for

longer-run inflation illustrates their substantial agreement about the measured rate of inflation that is most

consistent with the Federal Reserve’s dual objectives of

maximum employment and stable prices.

Page 6

Federal Open Market Committee

Figure 2.A. Distribution of participants’ projections for the change in real GDP, 2009–11 and over the longer run

Number of participants

2009

April projections

January projections

-2.6--2.4--2.2--2.0--1.8--1.6--1.4--1.2--1.0--0.8--0.6--0.4--0.2-0.0- 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- 2.8-3.0-3.2-3.4-3.6-3.8-4.0- 4.2-4.4-4.6-4.8-5.0-5.2-5.4-2.5-2.3-2.1-1.9-1.7-1.5-1.3 -1.1-0.9-0.7-0.5-0.3-0.1 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 3.7 3.9 4.1 4.3 4.5 4.7 4.9 5.1 5.3 5.5

Percent range

Number of participants

2010

Percent range

Number of participants

2011

Percent range

Number of participants

Longer run

Percent range

NOTE: Definitions of variables are in the general note to table 1.

Summary of Economic Projections of the Meeting of April 28-29, 2009

Page 7

Figure 2.B. Distribution of participants’ projections for the unemployment rate, 2009–11 and over the longer run

Number of participants

2009

April projections

January projections

4.4- 4.6- 4.8- 5.0- 5.2- 5.4- 5.6- 5.8- 6.0- 6.2- 6.4- 6.6- 6.8- 7.0- 7.2- 7.4- 7.6- 7.8- 8.0- 8.2- 8.4- 8.6- 8.8- 9.0- 9.2- 9.4- 9.6- 9.8- 10.04.5 4.7 4.9 5.1 5.3 5.5 5.7 5.9 6.1 6.3 6.5 6.7 6.9 7.1 7.3 7.5 7.7 7.9 8.1 8.3 8.5 8.7 8.9 9.1 9.3 9.5 9.7 9.9 10.1

Percent range

Number of participants

2010

Percent range

Number of participants

2011

Percent range

Number of participants

Longer run

Percent range

NOTE: Definitions of variables are in the general note to table 1.

Page 8

Federal Open Market Committee

Figure 2.C. Distribution of participants’ projections for PCE inflation, 2009–11 and over the longer run

Number of participants

2009

April projections

January projections

-0.5-0.4

-0.3-0.2

-0.10.0

0.10.2

0.30.4

0.50.6

0.70.8

0.91.0

1.11.2

1.31.4

1.51.6

1.71.8

1.92.0

2.12.2

2.32.4

2.52.6

Percent range

Number of participants

2010

-0.5-0.4

-0.3-0.2

-0.10.0

0.10.2

0.30.4

0.50.6

0.70.8

0.91.0

1.11.2

1.31.4

1.51.6

1.71.8

1.92.0

2.12.2

2.32.4

2.52.6

Percent range

Number of participants

2011

-0.5-0.4

-0.3-0.2

-0.10.0

0.10.2

0.30.4

0.50.6

0.70.8

0.91.0

1.11.2

1.31.4

1.51.6

1.71.8

1.92.0

2.12.2

2.32.4

2.52.6

Percent range

Number of participants

Longer run

-0.5-0.4

-0.3-0.2

-0.10.0

0.10.2

0.30.4

0.50.6

0.70.8

0.91.0

Percent range

NOTE: Definitions of variables are in the general note to table 1.

1.11.2

1.31.4

1.51.6

1.71.8

1.92.0

2.12.2

2.32.4

2.52.6

Summary of Economic Projections of the Meeting of April 28-29, 2009

Page 9

Figure 2.D. Distribution of participants’ projections for core PCE inflation, 2009–11

Number of participants

2009

April projections

January projections

-0.10.0

0.10.2

0.30.4

0.50.6

0.70.8

0.91.0

1.11.2

1.31.4

1.51.6

1.71.8

1.92.0

2.12.2

2.32.4

2.52.6

Percent range

Number of participants

2010

-0.10.0

0.10.2

0.30.4

0.50.6

0.70.8

0.91.0

1.11.2

1.31.4

1.51.6

1.71.8

1.92.0

2.12.2

2.32.4

2.52.6

Percent range

Number of participants

2011

-0.10.0

0.10.2

0.30.4

0.50.6

0.70.8

0.91.0

1.11.2

Percent range

NOTE: Definitions of variables are in the general note to table 1.

1.31.4

1.51.6

1.71.8

1.92.0

2.12.2

2.32.4

2.52.6

Page 10

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 gross domestic

product (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 percent to 4 percent

in the current year, 1.5 percent to 4.5 percent in

the second year, and 1.4 percent to 4.6 percent

in the third year. The corresponding 70 percent confidence intervals for overall inflation

would be 1.2 percent to 2.8 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

APA

Federal Reserve (2009, April 28). FOMC Minutes. Fomc Minutes, Federal Reserve. https://whenthefedspeaks.com/doc/fomc_minutes_20090429

BibTeX

@misc{wtfs_fomc_minutes_20090429,
  author = {Federal Reserve},
  title = {FOMC Minutes},
  year = {2009},
  month = {Apr},
  howpublished = {Fomc Minutes, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/fomc_minutes_20090429},
  note = {Retrieved via When the Fed Speaks corpus}
}