fomc minutes · April 27, 2010

FOMC Minutes

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Minutes of the Federal Open Market Committee

April 27–28, 2010

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 27, 2010,

at 2:00 p.m. and continued on Wednesday, April 28,

2010, at 9:00 a.m.

PRESENT:

Ben Bernanke, Chairman

William C. Dudley, Vice Chairman

James Bullard

Elizabeth Duke

Thomas M. Hoenig

Donald L. Kohn

Sandra Pianalto

Eric Rosengren

Daniel K. Tarullo

Kevin Warsh

Christine Cumming, Charles L. Evans, Narayana

Kocherlakota, and Charles I. Plosser, Alternate

Members of the Federal Open Market Committee

Brian Sack, Manager, System Open Market Account

Jennifer J. Johnson, Secretary of the Board, Office

of the Secretary, Board of Governors

Patrick M. Parkinson, Director, Division of Bank

Supervision and Regulation, Board of Governors

Robert deV. Frierson,¹ Deputy Secretary, Office of

the Secretary, Board of Governors

Charles S. Struckmeyer, Deputy Staff Director,

Office of the Staff Director for Management,

Board of Governors

James A. Clouse, Deputy Director, Division of

Monetary Affairs, Board of Governors

Linda Robertson, Assistant to the Board, Office of

Board Members, Board of Governors

Jeffrey M. Lacker, Dennis P. Lockhart, and Janet L.

Yellen, Presidents of the Federal Reserve

Banks of Richmond, Atlanta, and San Francisco, respectively

William Nelson, Senior Associate Director, Division of Monetary Affairs, Board of Governors;

Nellie Liang, David Reifschneider, and William

Wascher, Senior Associate Directors, Division

of Research and Statistics, Board of Governors

Helen E. Holcomb, First Vice President, Federal

Reserve Bank of Dallas

Seth B. Carpenter, Associate Director, Division of

Monetary Affairs, Board of Governors

Brian F. Madigan, Secretary and Economist

Matthew M. Luecke, Assistant Secretary

David W. Skidmore, Assistant Secretary

Michelle A. Smith, Assistant Secretary

Scott G. Alvarez, General Counsel

Thomas C. Baxter, Deputy General Counsel

Nathan Sheets, Economist

David J. Stockton, Economist

Christopher J. Erceg, Deputy Associate Director,

Division of International Finance, Board of

Governors; Egon Zakrajšek, Deputy Associate

Director, Division of Monetary Affairs, Board

of Governors

Alan D. Barkema, Thomas A. Connors, William B.

English, Jeff Fuhrer, Steven B. Kamin, Simon

Potter, Lawrence Slifman, Mark S. Sniderman,

Christopher J. Waller, and David W. Wilcox,

Associate Economists

David H. Small, Project Manager, Division of

Monetary Affairs, Board of Governors

Brian J. Gross, Special Assistant to the Board, Office of Board Members, Board of Governors

Jennifer E. Roush, Senior Economist, Division of

Monetary Affairs, Board of Governors

¹ Attended Tuesday’s session only.

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Federal Open Market Committee

Kurt F. Lewis, Economist, Division of Monetary

Affairs, Board of Governors

Penelope A. Beattie, Assistant to the Secretary, Office of the Secretary, Board of Governors

Kimberley E. Braun, Records Project Manager,

Division of Monetary Affairs, Board of Governors

Randall A. Williams, Records Management Analyst,

Division of Monetary Affairs, Board of Governors

Esther L. George, First Vice President, Federal Reserve Bank of Kansas City

Loretta J. Mester, Harvey Rosenblum, and John C.

Williams, Executive Vice Presidents, Federal

Reserve Banks of Philadelphia, Dallas, and San

Francisco, respectively

David Altig, Richard P. Dzina, Daniel G. Sullivan,

and John A. Weinberg, Senior Vice Presidents,

Federal Reserve Banks of Atlanta, New York,

Chicago, and Richmond, respectively

Warren Weber, Senior Research Officer, Federal

Reserve Bank of Minneapolis

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

The Manager of the System Open Market Account

(SOMA) reported on developments in domestic and

foreign financial markets during the period since the

Committee met on March 16, 2010. The Manager also

reported on System open market operations in Treasury securities and in agency debt and agency mortgage-backed securities (MBS) during the intermeeting

period. 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.

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 2010; 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

the arrangement 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 a provision in the arrangements that requires each party to provide six

months’ prior notice of an intention to terminate its

participation.

The staff also briefed the Committee on recent

progress in the development of reserve draining tools.

The Desk was preparing to conduct small-scale reverse

repurchase operations to ensure its ability to use agency

MBS collateral. It also continued to work toward expansion of the set of counterparties for reverse repurchase operations. The staff noted that the Board had

recently approved changes to Regulation D that would

be necessary for the establishment of a term deposit

facility.

The staff next gave a presentation on potential longerrun strategies for managing the SOMA. At previous

meetings, Committee participants had expressed support for steps to reduce the size of the Federal Reserve’s balance sheet over time and return the composition of the SOMA to only Treasury securities. The

staff discussed the potential portfolio paths and macroeconomic consequences of a number of different

strategies for accomplishing these objectives. To date,

the Desk had been reinvesting the proceeds of all maturing Treasury securities in newly issued Treasury securities, but it had not been reinvesting principal and

interest payments on maturing agency debt and agency

MBS, nor had it been selling securities. One strategy

considered in the staff presentation was a continuation

of the current practice, which would normalize the balance sheet very gradually. In addition, the staff presented information on a number of other strategies that

included sales of SOMA holdings of agency debt and

MBS and under which the proceeds of maturing Treasury securities would not be reinvested; these strategies

differed by the date and circumstances under which

sales would be initiated, by the average pace of sales,

and by the degree to which the timing and pace of such

sales would be adjusted in response to financial and

economic developments.

Meeting participants agreed broadly on key objectives

of a longer-run strategy for asset sales and redemptions.

The strategy should be consistent with the achievement

of the Committee’s objectives of maximum employment and price stability. In addition, the strategy

Minutes of the Meeting of April 27-28, 2010

should normalize the size and composition of the balance sheet over time. Reducing the size of the balance

sheet would decrease the associated reserve balances to

amounts consistent with more normal operations of

money markets and monetary policy. Returning the

portfolio to its historical composition of essentially all

Treasury securities would minimize the extent to which

the Federal Reserve portfolio might be affecting the

allocation of credit among private borrowers and sectors of the economy.

Most participants expressed a preference for strategies

that would eventually entail sales of agency debt and

MBS in order to return the size and composition of the

Federal Reserve’s balance sheet to a more normal configuration more quickly than would be accomplished by

simply letting MBS and agency securities run off. They

agreed that sales of agency debt and MBS should be

implemented in accordance with a framework communicated in advance and be conducted at a gradual pace

that potentially could be adjusted in response to

changes in economic and financial conditions.

Participants expressed a range of views on some of the

details of a strategy for asset sales. Most participants

favored deferring asset sales for some time. A majority

preferred beginning asset sales some time after the first

increase in the Federal Open Market Committee’s

(FOMC) target for short-term interest rates. Such an

approach would postpone any asset sales until the economic recovery was well established and would maintain short-term interest rates as the Committee’s key

monetary policy tool. Other participants favored a

strategy in which the Committee would soon announce

a general schedule for future asset sales, with a date for

the initiation of sales that would not necessarily be

linked to the increase in the Committee’s interest rate

target. A few preferred to begin sales relatively soon.

Earlier sales would normalize the size and composition

of the balance sheet sooner and would unwind at least

part of the unconventional policy stimulus put in place

during the crisis before conventional policy firming got

under way. Some participants saw advantages to varying the FOMC’s holdings of longer-term assets systematically in response to economic and financial developments.

However, others thought that a preannounced pace of sales that was unlikely to vary much

would provide a high degree of certainty about sales,

helping to limit disruptions in financial markets.

The views of participants also differed to some extent

regarding the appropriate pace of asset sales. Most

preferred that the agency debt and MBS held in the

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portfolio be sold at a gradual pace that would complete

the sales about five years after they began. One possibility would be for the pace to be relatively slow initially

but to increase over time, allowing markets to adjust

gradually. A couple of participants thought faster sales,

conducted over about three years, would be appropriate and felt that such a pace would not put undue strain

on financial markets. In their view, a relatively brisk

pace of sales would reduce the chance that the elevated

size of the Federal Reserve’s balance sheet and the associated high level of reserve balances could raise inflation expectations and inflation beyond levels consistent

with price stability or could generate excessive growth

of credit when the economy and banking system recover more fully.

Participants saw both advantages and disadvantages to

not rolling over Treasury securities as they mature. On

the one hand, redeeming Treasury securities would

contribute to a more expeditious normalization of the

size of the balance sheet and the quantity of reserves.

On the other hand, such redemptions could put upward pressure on interest rates and would tend to work

against the objective of returning the SOMA to an allTreasuries composition.

No decisions about the Committee’s longer-run strategy for asset sales and redemptions were made at this

meeting. For the time being, participants agreed that

the Desk should continue the interim approach of allowing all maturing agency debt and all prepayments of

agency MBS to be redeemed without replacement while

rolling over all maturing Treasury securities. Participants agreed to give further consideration to their longer-run strategy at a later date.

Staff Review of the Economic Situation

The information reviewed at the April 27–28 meeting

suggested that, on balance, the economic recovery was

proceeding at a moderate pace and that the deterioration in the labor market was likely coming to an end.

Consumer spending continued to post solid gains in

the first three months of the year, and business investment in equipment and software appeared to have increased significantly further in the first quarter. In addition, growth of manufacturing output remained brisk,

and gains became more broadly based across industries.

However, residential construction, while having edged

up, was still depressed, construction of nonresidential

buildings remained on a steep downward trajectory,

and state and local governments continued to retrench.

Consumer price inflation remained low.

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Federal Open Market Committee

The labor market showed signs of a nascent recovery in

recent months. Private nonfarm payroll employment

increased over the first quarter of 2010—the first quarterly increase since the onset of the recession. The average workweek also rose last quarter and data from the

household survey pointed to a firming in labor market

conditions. The unemployment rate held steady at 9.7

percent throughout the first quarter, and the labor

force participation rate increased over the past few

months following sharp declines over the second half

of last year. The number of new job losers as a percentage of household employment continued to drop, and

the fraction of workers on part-time schedules for economic reasons moved down since the end of last year.

Nonetheless, finding a job remained very difficult, and

the average duration of unemployment spells increased

further.

Industrial production continued to expand at a brisk

pace during the first quarter. Recent production gains

remained broadly based across industries, as both foreign demand and a mild restocking of inventories contributed positively to output growth. Capacity utilization stood significantly above the trough recorded last

June but was still well below its long-run average. Light

motor vehicle production stepped up in March, and

assemblies in the first quarter were above their fourthquarter average as automakers cautiously began to rebuild dealers’ inventories. Production in high-tech industries increased solidly, and available indicators

pointed toward further expansion in this sector in the

near term. On balance, indicators of near-term manufacturing activity remained quite positive.

Consumer spending continued to rise at a solid pace

through March, with recent gains pronounced for most

non-auto goods and food services. Despite signs of

improvement recently, the determinants of spending

remained subdued. While wages and salaries picked up

early this year, real disposable income was flat in February after a slight decline in January; housing wealth

was still well below its level prior to the crisis. Furthermore, although banks indicated a somewhat greater

willingness to lend to consumers in recent months,

terms and standards on consumer loans remained restrictive. Additionally, consumer sentiment dropped

back in early April and was little changed, on net, since

the beginning of the year.

Starts of new single-family homes edged up, on net,

over February and March, but much of this increase

likely reflected delayed projects getting under way as

weather conditions returned to normal. Home sales

strengthened noticeably, as sales of new single-family

homes jumped and sales of existing single-family

homes rose as well. However, both new home sales

and existing home sales were likely boosted, at least in

part, by the anticipated expiration of the homebuyer tax

credit. Interest rates for conforming 30-year fixed-rate

mortgages changed little in recent months and remained at levels that were very low by historical standards.

Real spending on equipment and software continued to

rebound in the first quarter. Investment in high-tech

equipment and transportation advanced further, and

real spending for equipment other than high-tech and

transportation appeared to turn up sharply after falling

for more than a year, suggesting that the recovery in

equipment and software investment became more

broadly based. The recovery in equipment and software spending was consistent with the strengthening in

many indicators of business activity. In contrast, the

nonresidential construction sector continued to contract. Real outlays on structures outside drilling and

mining fell steeply last year, and recent data on nominal

expenditures through February suggested a further decline in the first quarter. The weakness was widespread

across categories and likely reflected elevated vacancy

rates, low levels of property prices, and difficulties in

obtaining financing for new projects. Real spending on

drilling and mining structures picked up strongly over

the second half of last year in response to the rebound

in oil and natural gas prices.

Available data suggested that the pace of inventory liquidation moderated further in the first quarter after

slowing sharply in the fourth quarter of last year. Inventories appeared to approach comfortable levels relative to sales in the aggregate, although inventory positions across industries varied. Months’ supply remained elevated for equipment, materials, and, to a

lesser degree, construction supplies. By contrast, inventories of consumer goods, business supplies, and

high-tech goods appeared low relative to demand.

Consumer price inflation was low in recent months;

both headline and core personal consumption expenditures (PCE) prices were estimated to have risen slightly

in March after remaining unchanged in February. On a

12-month change basis, core PCE prices slowed over

the year ending in March, with deceleration widespread

across categories of expenditures. In contrast, the corresponding change in the headline index moved up

noticeably, as energy prices rebounded. Survey measures of long-term inflation expectations were fairly sta-

Minutes of the Meeting of April 27-28, 2010

ble in recent months at levels slightly lower than those

posted a year ago. Meanwhile, measures of inflation

compensation based on Treasury inflation-protected

securities (TIPS) edged up slightly. Cost pressures

from rising commodity prices showed through to prices at early stages of processing, and the producer price

index for core intermediate materials continued to rise

rapidly through March. However, measures of labor

costs decelerated sharply last year, as compensation per

hour in the nonfarm business sector increased only

slightly over the four quarters of 2009.

The U.S. international trade deficit widened in February, as a rise in nominal imports outpaced a small increase in exports. Increased exports of industrial supplies, capital goods, and automotive products were

partly offset by declines in agricultural goods and consumer goods. The February rise in imports reversed a

similarly sized decrease in January. Imports of oil accounted for more than one-third of the January decline,

reflecting lower volumes, but they accounted for only

about one-tenth of the February increase, as volumes

rebounded but prices fell. Imports of capital goods

rose as strong computer imports more than offset falling aircraft purchases, and imports of industrial supplies and consumer goods also moved up.

Recent indicators in the advanced foreign economies

suggested a continued divergence in the pace of recovery, with a strong performance in Canada, a moderate

expansion in Japan, and a more subdued rebound in

Europe. Fiscal strains in Greece intensified during the

intermeeting period, and in mid-April, euro-area member states announced a plan to provide financing aid to

Greece in coordination with the International Monetary

Fund. However, at the time of the April FOMC meeting, no official agreement had been reached concerning

the scale, composition, and implementation of such an

aid package. Economic activity in emerging markets

continued to expand robustly in the first quarter. Despite the strength of exports, merchandise trade balances declined for some countries where strong domestic demand caused imports to outpace exports. In China, real gross domestic product (GDP) increased at a

higher-than-expected annual rate in the first quarter as

the economic recovery remained broad based, with

industrial production, investment, and domestic demand continuing to grow briskly. In Latin America,

indicators suggested that economic activity in Mexico

and Brazil expanded further in the first quarter. Foreign inflation was boosted by increases in the prices of

oil and other commodities, but core inflation generally

remained subdued.

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Staff Review of the Financial Situation

The decision by the FOMC at the March meeting to

keep the target range for the federal funds rate unchanged and to retain the “extended period” language

in the statement was largely anticipated by market participants. However, some market participants reportedly interpreted the retention of the “extended period”

language as pointing to a longer period of low rates

than previously expected, and Eurodollar futures rates

temporarily declined a bit in response.

On balance over the intermeeting period, the expected

path of policy edged down slightly. Yields on 2-year

and 10-year nominal Treasury securities posted small

mixed changes amid some volatility that reportedly reflected evolving views about the U.S. fiscal outlook,

prospects for U.S. economic growth, and the fiscal situation in peripheral European countries. Inflation

compensation—the difference between nominal Treasury yields and yields on TIPS—rose some over the

period, but survey measures of longer-term inflation

expectations were about unchanged.

Overall, conditions in short-term funding markets remained generally stable during the intermeeting period.

Spreads between London interbank offered rates (Libor) and overnight index swap (OIS) rates were about

unchanged at levels near those that prevailed in late

2007, although they began to edge up in the final days

of the intermeeting period. Spreads in the commercial

paper market were little changed. Equity indexes rose,

on balance, over the intermeeting period, with bank

shares outperforming the broader market. Stock prices

were supported by somewhat better-than-expected macroeconomic data and a favorable response by investors to the initial batch of first-quarter earnings reports,

especially those of banking institutions. Optionimplied volatility on the S&P 500 index generally declined over the period but jumped at end of April on

renewed concerns regarding the fiscal situation in

Greece. The gap between the staff’s estimate of the

expected real equity return over the next 10 years for

S&P 500 firms and the real 10-year Treasury yield—a

rough measure of the equity risk premium—remained

well above its average over the past decade. Yields on

investment-grade corporate bonds edged down, leaving

their spreads to comparable-maturity Treasury securities a bit lower, at levels around those that prevailed in

late 2007. Consistent with more-favorable investor

sentiment toward risky assets, yields and spreads on

speculative-grade corporate bonds declined, and secondary market prices of syndicated leveraged loans rose

further.

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Federal Open Market Committee

Overall, net debt financing by nonfinancial firms was

positive in March. Issuance of nonfinancial bonds

surged, and net issuance of commercial paper rebounded appreciably. Net equity issuance by nonfinancial firms was negative again in the first quarter as

the solid pace of gross public issuance was more than

offset by equity retirements from both cash-financed

mergers and share repurchases. Financial firms issued

a significant volume of debt securities in the first quarter and also raised a moderate amount of gross funds in

the equity market, a pattern that appeared to continue

in the first half of April. Credit quality in the commercial real estate sector continued to deteriorate as the

delinquency rate for securitized commercial mortgages

increased again in March. The decline in outstanding

commercial mortgage debt in the fourth quarter of last

year was the largest on record. Nonetheless, indexes of

prices for credit default swaps on commercial mortgage-backed securities ticked up noticeably over the

period, in line with the overall reduction in financial

market risk premiums.

The conclusion of purchases under the Federal Reserve’s agency MBS program had only a modest market

effect. Over the intermeeting period, spreads on agency MBS retraced much of the increase seen around the

time of the program’s conclusion, ending the period

roughly unchanged. The factors contributing to the

recent narrowing of MBS and mortgage spreads included the low level of mortgage originations, which

damped the supply of new MBS, and Fannie Mae’s and

Freddie Mac’s increased purchases of mortgages

through their buyouts of delinquent loans. Consumer

credit continued to trend lower in recent months,

pushed down by a steep decline in revolving credit.

Spreads on high-quality credit card and auto loan assetbacked securities (ABS) edged down over the period,

with little upward pressure evident from the end of the

portion of the Term Asset-Backed Securities Loan Facility supporting ABS. Nonetheless, fewer ABS were

issued in the first quarter than in the fourth quarter,

reflecting continued weakness in loan originations.

Delinquency rates on consumer loans edged down further in February but remained very elevated. Spreads

of interest rates on credit cards over yields on two-year

Treasury securities continued to drift upward, while

interest rates on new auto loans at dealerships and their

spreads over yields on five-year Treasury securities extended their previous decline.

After adjusting to remove the effects of banks’ adoption of Financial Accounting Standards 166 and 167,

bank credit contracted again in March, as both loans

and securities holdings declined.2 The contraction in

commercial and industrial loans remained pronounced.

The drop in commercial real estate loans persisted, reflecting weak fundamentals that limited originations as

well as charge-offs of existing loans. Residential real

estate loans also decreased further in March, as did credit card loans and other consumer loans.

M2 fell in March, reflecting a slowing in the expansion

of liquid deposits along with a further contraction in

small time deposits and a steep runoff in retail money

market mutual funds. Currency grew at a moderate

pace, likely as a result of continued demand for U.S.

banknotes from abroad coupled with solid domestic

demand. The monetary base contracted as the effect

on reserves of purchases under the Federal Reserve’s

large-scale asset purchase programs was more than offset by a further contraction in credit outstanding under

liquidity and credit facilities and an increase in the

Treasury’s balances at the Federal Reserve.

Until the intensification of the Greek crisis near the

end of the intermeeting period, equity indexes were

higher in nearly all countries, and emerging-market risk

spreads had generally declined. These moves appeared

to reflect growing confidence that the global recovery

was gaining momentum, particularly in emerging market economies. However, sovereign debt spreads in

Greece, Portugal, and other peripheral European countries widened in the days leading up to the April FOMC

meeting, as investor anxiety about the fiscal situation in

those countries increased. Downgrades to the credit

ratings of Greece and Portugal weighed on investor

sentiment, and global markets retraced some of their

earlier gains.

Over the intermeeting period, the Bank of Japan

doubled the size of its three-month fixed-rate funds

facility, the Bank of Canada dropped its conditional

commitment to keeping rates steady through the first

The new accounting standards make it more difficult for

U.S. banks to hold assets off balance sheet. Banks adopted

the standards in the fourth quarter of 2009 and the first quarter of 2010. The cumulative effects of the resulting asset

consolidation were incorporated in the bank credit data published on the Federal Reserve’s H.8 Statistical Release “Assets and Liabilities of Commercial Banks in the United

States” as of March 31, 2010. While all major loan categories

were affected to some degree by banks’ adoption of Financial Accounting Standards 166 and 167, the largest effect was

on credit card loans on commercial bank balance sheets;

banks also consolidated significant amounts of other consumer loans, commercial and industrial loans, and residential

real estate loans.

Minutes of the Meeting of April 27-28, 2010

half of the year, and the Reserve Bank of Australia

raised its policy rate. The trade-weighted value of the

dollar changed little, on net; gains against the euro and

yen were offset by declines against many emerging

market currencies.

Staff Economic Outlook

The economic forecast prepared by the staff for the

April FOMC meeting was similar to that developed for

the March meeting. The staff continued to project that

the accommodative stance of monetary policy, together

with a further attenuation of financial stress, the waning

of adverse effects of earlier declines in wealth, and improving household and business confidence, would

support a moderate recovery in economic activity and a

gradual decline in the unemployment rate over the next

two years. The staff forecast for both real GDP

growth and the unemployment rate through the end of

2011 was roughly in line with previous projections.

Recent data on core consumer prices led the staff to

mark down slightly its forecast for core PCE inflation.

The staff continued to anticipate that downward pressure on inflation from the substantial amount of projected resource slack would be tempered by stable inflation expectations. With energy price increases expected

to slow next year, total PCE inflation was seen as likely

to fall back in line with core inflation by the end of

2011, as in previous projections.

Participants’ Views on Current Conditions and the

Economic Outlook

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 of economic growth, the

unemployment rate, and consumer price inflation for

each year from 2010 through 2012 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 2012 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, meeting participants agreed that the incoming

data and information received from business contacts

indicated that economic activity continued to strengthen and the labor market was beginning to improve.

Although some of the recent data on economic activity

had been better than anticipated, most participants saw

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the incoming information as broadly in line with their

earlier projections for moderate growth; accordingly,

their views on the economic outlook had not changed

appreciably. Participants expected the economic recovery to continue, but, consistent with experience following previous financial crises, most anticipated that

the pickup in output would be rather slow relative to

past recoveries from deep recessions. A moderate pace

of expansion, in turn, would imply only a modest improvement in the labor market this year, with the unemployment rate declining gradually. Most participants

again projected that the economy would grow somewhat faster in 2011 and 2012, generating a more pronounced decline in the unemployment rate. In light of

stable longer-term inflation expectations and the likely

continuation of substantial resource slack, policymakers

anticipated that both overall and core inflation would

remain subdued through 2012, with measured inflation

somewhat below rates that policymakers considered to

be consistent over the longer run with the Federal Reserve’s dual mandate.

Participants expected that economic growth would

continue: Recent data pointed to significant gains in

retail sales, business spending on equipment and software had picked up substantially, and reports from

business contacts and regional surveys indicated that

production was increasing briskly in many sectors. Participants agreed that the growth in real GDP appeared

to reflect a strengthening of private final demand and

not just fiscal stimulus and a slower pace of inventory

decumulation; this welcome development lessened policymakers’ concerns about the economy’s ability to

maintain a self-sustaining recovery without government

support. Businesses appeared to be gaining confidence

in the economic recovery, and narrowing credit spreads

in private debt markets were allowing low policy rates

to be reflected more fully in the cost of capital. At the

same time, rising stock prices and the apparent stabilization of house prices were helping to repair household

balance sheets. As a result, consumers and firms were

beginning to satisfy demands for durable goods and

capital equipment that had been postponed during the

economic downturn. Many participants noted that

employment had increased in recent months, and that

they expected a further firming of labor market conditions going forward. A stronger labor market could

continue to boost consumer and business confidence

and so contribute to further gains in spending.

Although these developments were positive, participants noted several factors that likely would continue

to restrain expansion in economic activity and posed

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Federal Open Market Committee

some downside risks. The recent increase in consumer

spending appeared to be supported importantly by

pent-up demands and possibly by other temporary factors, such as unusually large income tax refunds. With

the personal saving rate having dropped back to a relatively low level, it seemed unlikely that consumer

spending would be the major factor driving growth as

the recovery progressed. Moreover, the recovery in the

housing market appeared to have stalled in recent

months despite various forms of government support.

Although residential real estate values seemed to be

stabilizing and in some areas had reportedly moved

higher, housing sales and starts had leveled off in recent months at depressed levels. Some participants saw

the possibility of elevated foreclosures adding to the

already very large inventory of vacant homes as posing

a downside risk to home prices, thereby limiting the

extent of the pickup in residential investment for a

while.

In the business sector, prospects for nonresidential

construction outside the energy sector remained weak.

Commercial real estate activity continued to fall in most

parts of the country as a result of deteriorating fundamentals, including declining occupancy and rental rates

and tight credit conditions. However, a number of

participants noted that investment in equipment and

software had been strengthening, and they relayed

anecdotal information from their business contacts that

suggested continued growth in orders for capital

equipment.

Business investment was expected to be supported by

improved conditions in financial markets. Large firms

with access to capital markets appeared to be having

little difficulty in obtaining credit, and in many cases

they also had ample retained earnings with which to

fund their operations and investment. However, many

participants noted that while financial markets had improved, bank lending was still contracting and credit

remained tight for many borrowers. Smaller firms in

particular reportedly continued to face substantial difficulty in obtaining bank loans. Because such firms tend

to be more dependent on commercial banks for financing, participants saw limited credit availability as a potential constraint on future investment and hiring by

small businesses, which normally are a significant

source of employment growth in recoveries. Some

participants noted that many small and regional banks

were vulnerable to deteriorating performance of commercial real estate loans.

Economic conditions abroad, especially in several

emerging Asian economies, continued to strengthen in

recent months, contributing to gains in U.S. exports.

However, participants saw the escalation of fiscal

strains in Greece and spreading concerns about other

peripheral European countries as weighing on financial

conditions and confidence in the euro area. If other

European countries responded by intensifying their

fiscal consolidation efforts, the result would likely be

slower growth in Europe and potentially a weaker

global economic recovery. Some participants expressed concern that a crisis in Greece or in some other

peripheral European countries could have an adverse

effect on U.S. financial markets, which could also slow

the recovery in this country.

Developments in labor markets were positive over the

intermeeting period. Nonfarm payrolls posted a modest gain in March, and the upturn in private employment was widespread across industries. Nevertheless,

participants remained concerned about elevated unemployment, including high levels of long-term unemployment and permanent separations, which were seen

as potentially leading to the loss of worker skills and

greater needs for labor reallocation that could slow

employment growth going forward. Moreover, information from business contacts generally underscored

the degree to which firms’ reluctance to add to payrolls

or start large capital projects reflected uncertainty about

the economic outlook and future government policies.

A number of participants pointed out that the economic recovery could eventually lose traction without a

substantial pickup in job creation.

Participants cited a wide array of evidence as indications that underlying inflation remained subdued. The

latest readings on core inflation—which exclude the

relatively volatile prices of food and energy—were generally lower than they had anticipated. One participant

noted that core inflation had been held down in recent

quarters by unusually slow increases in the price index

for shelter, and that the recent behavior of core inflation might be a misleading signal of the underlying inflation trend. However, a number of participants

pointed out that the recent moderation in price changes

was widespread across many categories of spending

and was evident in measures that exclude the most extreme price movements in each period. In addition,

survey measures of longer-term inflation expectations

remained fairly stable, wage growth continued to be

restrained, and unit labor costs were still falling; reports

from business contacts also suggested that pricing

power remained limited. Against this backdrop, most

Minutes of the Meeting of April 27-28, 2010

participants anticipated that substantial resource slack

and stable longer-term inflation expectations would

likely keep inflation subdued for some time.

Participants’ assessments of the risks to the inflation

outlook were mixed. Some participants saw the risks to

inflation as tilted to the downside in the near term, reflecting the quite elevated level of economic slack and

the possibility that inflation expectations could begin to

decline in response to the low level of actual inflation.

Others, however, saw the balance of risks as pointing

to potentially higher inflation and cited pressures on

commodity and energy prices associated with expanding global economic activity as an upside inflation risk;

some also noted the possibility that inflation expectations could rise as a result of the public’s concerns

about the extraordinary size of the Federal Reserve’s

balance sheet in a period of very large federal budget

deficits. While survey measures of longer-term inflation expectations had been fairly stable, some marketbased measures of inflation expectations and inflation

risk suggested increased concern among market participants about higher inflation. To keep inflation expectations well anchored, all participants agreed that it was

important for policy to be responsive to changes in the

economic outlook and for the Federal Reserve to continue to communicate clearly its ability and intent to

begin withdrawing monetary policy accommodation at

the appropriate time and pace.

Committee Policy Action

In the members’ discussion of monetary policy for the

period ahead, they agreed that no changes to the

Committee’s federal funds rate target range were warranted at this meeting. On balance, the economic outlook had changed little since the March meeting. Even

though the recovery appeared to be continuing and was

expected to strengthen gradually over time, most members projected that economic slack would continue to

be quite elevated for some time, with inflation remaining below rates that would be consistent in the longer

run with the Federal Reserve’s dual objectives. Based

on this outlook, members agreed that it would be appropriate to maintain the target range of 0 to ¼ percent

for the federal funds rate. In addition, nearly all members judged that it was appropriate to reiterate the expectation that economic conditions—including low

levels of resource utilization, subdued inflation trends,

and stable inflation expectations—were likely to warrant exceptionally low levels of the federal funds rate

for an extended period. As at previous meetings, a few

members noted that at the current juncture, the risks of

an early start to policy tightening exceeded those asso-

Page 9

ciated with a later start, because the scope for more

accommodative policy was limited by the effective lower bound on the federal funds rate, while the Committee could be flexible in adjusting the magnitude and

pace of tightening in response to evolving economic

circumstances. In light of the improved functioning of

financial markets, Committee members agreed that it

would be appropriate for the statement to be released

following the meeting to indicate that the previously

announced schedule for closing the Term Asset-Backed

Securities Loan Facility was being maintained.

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 engage

in dollar roll transactions as necessary to facilitate settlement of the Federal Reserve’s

agency MBS transactions. 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 suggests that economic activity has continued to

strengthen and that the labor market is beginning to improve. Growth in household

spending has picked up recently but remains

constrained by high unemployment, modest

income growth, lower housing wealth, and

tight credit. Business spending on equipment and software has risen significantly;

however, investment in nonresidential structures is declining and employers remain reluctant to add to payrolls. Housing starts

have edged up but remain at a depressed level. While bank lending continues to contract,

Page 10

Federal Open Market Committee

financial market conditions remain supportive of economic growth. Although the pace

of economic recovery is likely to be moderate for a time, the Committee anticipates a

gradual return to higher levels of resource

utilization in a context of price stability.

With substantial resource slack continuing to

restrain cost pressures and longer-term inflation expectations stable, inflation is likely to

be subdued for some time.

The Committee will maintain the target range

for the federal funds rate at 0 to ¼ percent

and continues to anticipate that economic

conditions, including low rates of resource

utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal

funds rate for an extended period. The

Committee will continue to monitor the economic outlook and financial developments

and will employ its policy tools as necessary

to promote economic recovery and price

stability.

In light of improved functioning of financial

markets, the Federal Reserve has closed all

but one of the special liquidity facilities that

it created to support markets during the crisis. The only remaining such program, the

Term Asset-Backed Securities Loan Facility,

is scheduled to close on June 30 for loans

backed by new-issue commercial mortgagebacked securities; it closed on March 31 for

loans backed by all other types of collateral.”

Voting for this action: Ben Bernanke, William C.

Dudley, James Bullard, Elizabeth Duke, Donald L.

Kohn, Sandra Pianalto, Eric Rosengren, Daniel K. Tarullo, and Kevin Warsh.

Voting against this action: Thomas M. Hoenig.

Mr. Hoenig dissented because he believed it was no

longer advisable to indicate that economic and financial

conditions were likely to warrant “exceptionally low

levels of the federal funds rate for an extended period.”

Mr. Hoenig was concerned that communicating such

an expectation could lead to the buildup of future financial imbalances and increase the risks to longer-run

macroeconomic and financial stability, while limiting

the Committee’s flexibility to begin raising rates modestly in the near term. Mr. Hoenig believed that the

target for the federal funds rate should be increased

toward 1 percent this summer, and that the Committee

could then pause to further assess the economic outlook. He believed this approach would leave considerable policy accommodation in place to foster an expected gradual decline in unemployment in the quarters

ahead and would reduce the risk of an increase in financial imbalances and inflation pressures in coming

years. It would also mitigate the need to push the policy rate to higher levels later in the expansionary phase

of the economic cycle.

It was agreed that the next meeting of the Committee

would be held on Tuesday–Wednesday, June 22–23,

2010. The meeting adjourned at 12:50 p.m. on April

28, 2010.

Notation Vote

By notation vote completed on April 5, 2010, the

Committee unanimously approved the minutes of the

FOMC meeting held on March 16, 2010.

_____________________________

Brian F. Madigan

Secretary

Page 1

Summary of Economic Projections

In conjunction with the April 27–28, 2010, 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

for the years 2010 to 2012 and over the longer run. The

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.

real GDP growth in 2010. Beyond 2010, however, the

contours of participants’ projections for economic activity

and inflation were little changed. Participants continued

to expect the pace of the economic recovery to be restrained by household and business uncertainty, only gradual improvement in labor market conditions, and slow

easing of credit conditions in the banking sector. Participants generally expected that it would take some time for

the economy to converge fully to its longer-run path—

characterized by a sustainable rate of output growth and

by rates of employment and inflation consistent with participants’ interpretation of the Federal Reserve’s dual objectives—but only a minority anticipated that the convergence process would take more than five to six years. As

in January, most participants judged the risks to their

growth outlook as balanced, and most also saw balanced

risks surrounding their inflation projections. Participants

in general continued to judge the uncertainty surrounding

their projections for economic activity and inflation as

unusually high relative to historical norms.

FOMC participants’ forecasts for economic activity and

inflation were broadly similar to their previous projections, which were made in conjunction with the January

2010 FOMC meeting. As depicted in figure 1, the economic recovery was expected to be gradual, with real

gross domestic product (GDP) expanding at a rate only

moderately above the participants’ assessment of its longer-run sustainable growth rate and unemployment declining slowly over the next few years. Most participants also

anticipated that inflation would remain subdued over this

period. As indicated in table 1, participants generally

made modest upward revisions to their projections for

The Outlook

Participants’ projections for real GDP growth in 2010

had a central tendency of 3.2 to 3.7 percent, a little higher

than in January. Readings on consumer spending and

business outlays for equipment and software were seen as

broadly consistent with a moderate pace of economic

recovery. The labor market appeared to be starting to

improve, but job growth was expected to be modest.

Participants pointed to a number of factors that would

support the continued expansion of economic activity,

including accommodative monetary policy and the improved condition of financial markets and institutions.

Table 1. Economic projections of Federal Reserve Governors and Reserve Bank presidents, April 2010

Percent

Variable

Range2

Central tendency1

2011

2012

Longer run

2010

2011

2012

Longer run

Change in real GDP. . . . . . 3.2 to 3.7

January projection. . . . 2.8 to 3.5

2010

3.4 to 4.5

3.5 to 4.5

2.5 to 2.8

2.7 to 4.0

2.3 to 4.0

3.0 to 4.6

2.7 to 4.7

2.8 to 5.0

3.0 to 5.0

2.4 to 3.0

Unemployment rate. . . . . .

January projection. . . .

9.1 to 9.5

9.5 to 9.7

8.1 to 8.5

8.2 to 8.5

6.6 to 7.5

5.0 to 5.3

5.0 to 5.2

8.6 to 9.7

8.6 to 10.0

7.2 to 8.7

7.2 to 8.8

6.4 to 7.7

6.1 to 7.6

5.0 to 6.3

4.9 to 6.3

PCE inflation. . . . . . . . . . .

January projection. . . .

1.2 to 1.5

1.4 to 1.7

1.1 to 1.9

1.1 to 2.0

1.2 to 2.0

1.3 to 2.0

1.7 to 2.0

1.1 to 2.0

1.2 to 2.0

0.9 to 2.4

1.0 to 2.4

0.7 to 2.2

0.8 to 2.0

1.5 to 2.0

Core PCE inflation3. . . . . .

January projection. . . .

0.9 to 1.2

1.1 to 1.7

1.0 to 1.5

1.0 to 1.9

1.2 to 1.6

1.2 to 1.9

0.7 to 1.6

1.0 to 2.0

0.6 to 2.4

0.9 to 2.4

0.6 to 2.2

0.8 to 2.0

NOTE: Projections of change in real gross domestic product (GDP) and in 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 meeting of the Federal Open Market Committee on January 26-27, 2010.

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 consists of 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, 2010–12 and over the longer run

Percent

Change in real GDP

Central tendency of projections

Range of projections

Actual

2005

2006

2007

2008

2009

2010

2011

2012

Longer

run

Percent

Unemployment rate

2005

2006

2007

2008

2009

2010

2011

2012

Longer

run

Percent

PCE inflation

2005

2006

2007

2008

2009

2010

2011

2012

Longer

run

Percent

Core PCE inflation

2005

2006

2007

2008

2009

2010

2011

2012

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 27-28, 2010

Several participants also noted that fiscal policy was currently providing substantial support to real activity.

However, they expected less impetus to GDP growth

from this factor later in the year and anticipated that budgetary pressures would probably continue to weigh on

spending at the state and local levels. Many participants

thought that the expansion was likely to be restrained by

firms’ caution in hiring and spending in light of the considerable uncertainty regarding the economic outlook, and

by limited access to credit by small businesses and consumers.

Looking further ahead, participants’ projections were for

real GDP growth to pick up somewhat in 2011 and 2012;

the projections for growth in both years had a central

tendency of about 3½ to 4½ percent. As in January, participants generally expected the ongoing recovery in

household wealth and gradual improvements in credit

availability to bolster consumer spending. As the recovery became more firmly established, businesses were seen

as likely to boost their outlays on equipment and software

and to increase production in order to rebuild their inventories. Nevertheless, participants indicated several factors

that would likely restrain the pace of expansion, including

a higher household saving rate as households repair balance sheets, significant uncertainty on the part of households and businesses about the outlook for the economy,

and a slow recovery in nonresidential construction.

Moreover, although financial conditions had improved

noticeably in recent months, ongoing strains in the commercial real estate sector were expected to pose risks to

the balance sheets of banking institutions for some time.

Terms and standards on bank loans remained restrictive,

and participants anticipated only a gradual easing of credit

conditions for many households and smaller firms. In the

absence of further shocks, participants generally expected

that real GDP growth would converge over time to an

annual rate of 2.5 to 2.8 percent, the longer-run pace that

appeared to be sustainable in view of expected trends in

the labor force and improvements in labor productivity.

Participants anticipated that labor market conditions

would improve slowly over the next several years. The

central tendency of their projections for the average unemployment rate in the fourth quarter of 2010 was 9.1 to

9.5 percent, only modestly below the levels of late last

year. In line with their outlook for moderate output

growth, participants generally expected that the unemployment rate would decline only to about 6.6 to 7.5 percent by the end of 2012, remaining well above their assessments of its longer-run sustainable rate. Although

some participants noted concerns that substantial ongoing structural adjustments in product and labor markets

Page 3

would reduce the sustainable level of employment, participants’ longer-term unemployment projections had a central tendency of 5.0 to 5.3 percent, essentially the same as

in January.

Most participants revised down slightly their near-term

projections for inflation, and participants generally anticipated that inflation would remain subdued over the next

several years. The central tendency of their projections

for personal consumption expenditures (PCE) inflation

was 1.2 to 1.5 percent for 2010, 1.1 to 1.9 percent for

2011, and 1.2 to 2.0 percent for 2012. Many participants

anticipated that increases in food and energy prices would

lead headline PCE inflation to run slightly above core

PCE inflation over the next few years. Most expected

that inflation would rise gradually toward their individual

assessments of the measured rate of inflation judged to be

most consistent with the Federal Reserve’s dual mandate.

As in January, the central tendency of projections of the

longer-run inflation rate was 1.7 to 2.0 percent. A majority of participants anticipated that inflation in 2012 would

still be below their assessments of the mandate-consistent

inflation rate, while the remainder expected that inflation

would be at or slightly above its longer-run value by that

time.

Uncertainty and Risks

Most participants continued to see their projections of

future economic activity and unemployment as subject to

greater-than-average uncertainty.1 Participants generally

perceived the risks to their projections as roughly balanced, although a few indicated that they now viewed the

risks to economic growth as tilted to the upside. Many

participants pointed to stronger incoming data as suggesting that the economic recovery was more firmly established than had been the case in January, but they emphasized that predicting macroeconomic outcomes in the

wake of a financial crisis and a severe recession was particularly difficult. In addition, participants cited uncertainties regarding the likely persistence of both the recent

pickup in the growth of consumer spending and rapid

labor productivity growth and noted the risk that severe

strains in the commercial real estate sector could continue

to impair bank balance sheets, thus limiting credit availability and restraining growth of output and employment.

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 1990 to 2009. 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 risk attending participants’ projections.

Page 4

Federal Open Market Committee

Most participants continued to see the uncertainty surrounding their inflation projections as elevated. However, a few judged that uncertainty in the outlook for inflation was about in line with typical levels, and one viewed

the uncertainty surrounding the inflation outlook as lower

than average. Nearly all participants judged the risks to

the inflation outlook as roughly balanced; however, two

saw these risks as tilted to the upside, while two regarded

the risks as weighted to the downside. Several participants noted that inflation expectations were well anchored, likely mitigating the tendency for inflation to decline in response to continued slack in resource utilization. Others cited the risk that expected and actual inflation could increase, especially if extraordinarily accommodative monetary policy measures were not unwound in

a timely fashion.

Diversity of Views

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

real GDP growth and the unemployment rate. The distributions of participants’ projections for real GDP

growth this year and next year were slightly narrower than

the distributions of their projections in January, but the

distribution of projections for real GDP growth in 2012

was little changed. As in earlier projections, the dispersion in participants’ forecasts for output growth appeared

to reflect the diversity of their assessments regarding the

current degree of underlying momentum in economic

activity, the evolution of consumer and business sentiment, the likely pace of easing of bank lending standards

and terms, and other factors. Regarding participants’ unemployment rate projections, the distribution for 2010

shifted down somewhat, but the distributions of their

unemployment rate projections for 2011 and 2012 did not

change appreciably. The distributions of participants’

estimates of the longer-run sustainable rates of output

growth and unemployment were essentially the same as in

January.

Table 2. Average historical projection error ranges

Percentage points

Variable

2010

2011

2012

Change in real GDP1 . . . . . . . . .

±1.1

±1.7

±1.8

±0.5

±1.2

±1.5

±0.9

±1.0

±1.1

Unemployment

rate1

.........

Total consumer

prices2

.......

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

mean squared error of projections for 1990 through 2009 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.

Corresponding information about the diversity of participants’ views regarding the inflation outlook is provided in

figures 2.C and 2.D. For overall and core PCE inflation,

the distributions of participants’ projections for 2010

shifted a bit lower relative to the distributions in January.

The distributions of overall and core inflation for 2011

and 2012, however, were little changed and remained fairly wide. The dispersion in participants’ projections over

the next few years was mainly due to differences in their

judgments regarding the determinants of inflation, including their estimates of prevailing resource slack and their

assessments of the extent to which such slack affects actual and expected inflation. In contrast, the relatively

tight distribution of participants’ projections for longerrun 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.

Summary of Economic Projections of the Meeting of April 27-28, 2010

Page 5

Figure 2.A. Distribution of participants’ projections for the change in real GDP, 2010–12 and over the longer run

Number of participants

2010

April projections

January projections

2.22.3

2.42.5

2.62.7

2.82.9

3.03.1

3.23.3

3.43.5

3.63.7

3.83.9

4.04.1

4.24.3

4.44.5

4.64.7

4.84.9

5.05.1

Percent range

Number of participants

2011

2.22.3

2.42.5

2.62.7

2.82.9

3.03.1

3.23.3

3.43.5

3.63.7

3.83.9

4.04.1

4.24.3

4.44.5

4.64.7

4.84.9

5.05.1

Percent range

Number of participants

2012

2.22.3

2.42.5

2.62.7

2.82.9

3.03.1

3.23.3

3.43.5

3.63.7

3.83.9

4.04.1

4.24.3

4.44.5

4.64.7

4.84.9

5.05.1

Percent range

Number of participants

Longer run

2.22.3

2.42.5

2.62.7

2.82.9

3.03.1

3.23.3

3.43.5

3.63.7

Percent range

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

3.83.9

4.04.1

4.24.3

4.44.5

4.64.7

4.84.9

5.05.1

Page 6

Federal Open Market Committee

Figure 2.B. Distribution of participants’ projections for the unemployment rate, 2010–12 and over the longer run

Number of participants

2010

April projections

January projections

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- 10.04.9 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

2011

Percent range

Number of participants

2012

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 27-28, 2010

Page 7

Figure 2.C. Distribution of participants’ projections for PCE inflation, 2010–12 and over the longer run

Number of participants

2010

April projections

January projections

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

Percent range

Number of participants

2011

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

Percent range

Number of participants

2012

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

Percent range

Number of participants

Longer run

0.70.8

0.91.0

1.11.2

1.31.4

1.51.6

Percent range

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

1.71.8

1.92.0

2.12.2

2.32.4

Page 8

Federal Open Market Committee

Figure 2.D. Distribution of participants’ projections for core PCE inflation, 2010–12

Number of participants

2010

April projections

January projections

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

Percent range

Number of participants

2011

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

Percent range

Number of participants

2012

0.50.6

0.70.8

0.91.0

1.11.2

1.31.4

Percent range

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

1.51.6

1.71.8

1.92.0

2.12.2

2.32.4

Summary of Economic Projections of the Meeting of April 27-28, 2010

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 within a range of 1.9 to 4.1 percent in the current year, 1.3 to 4.7 percent in the

second year, and 1.2 to 4.8 percent in the third

year. The corresponding 70 percent confidence

intervals for overall inflation would be 1.1 to 2.9

percent in the current year, 1.0 to 3.0 percent in

the second year, and 0.9 to 3.1 percent in the

third year.

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, are

weighted to the 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.

Page 9

Cite this document

APA

Federal Reserve (2010, April 27). FOMC Minutes. Fomc Minutes, Federal Reserve. https://whenthefedspeaks.com/doc/fomc_minutes_20100428

BibTeX

@misc{wtfs_fomc_minutes_20100428,
  author = {Federal Reserve},
  title = {FOMC Minutes},
  year = {2010},
  month = {Apr},
  howpublished = {Fomc Minutes, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/fomc_minutes_20100428},
  note = {Retrieved via When the Fed Speaks corpus}
}