FOMC Minutes
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Minutes of the Federal Open Market Committee
June 21–22, 2011
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, June 21, 2011,
at 10:30 a.m. and continued on Wednesday, June 22,
2011, at 9:00 a.m.
PRESENT:
Ben Bernanke, Chairman
William C. Dudley, Vice Chairman
Elizabeth Duke
Charles L. Evans
Richard W. Fisher
Narayana Kocherlakota
Charles I. Plosser
Sarah Bloom Raskin
Daniel K. Tarullo
Janet L. Yellen
Jeffrey M. Lacker, Dennis P. Lockhart, Sandra Pianalto, and John C. Williams, Alternate Members of the Federal Open Market Committee
James Bullard, Thomas M. Hoenig, and Eric Rosengren, Presidents of the Federal Reserve
Banks of St. Louis, Kansas City, and Boston,
respectively
William B. English, Secretary and Economist
Deborah J. Danker, Deputy Secretary
Matthew M. Luecke, Assistant Secretary
David W. Skidmore, Assistant Secretary
Michelle A. Smith, Assistant Secretary
Scott G. Alvarez, General Counsel
David J. Stockton, Economist
James A. Clouse, Thomas A. Connors, Steven B.
Kamin, Loretta J. Mester, David Reifschneider,
Harvey Rosenblum, Daniel G. Sullivan, David
W. Wilcox, and Kei-Mu Yi, Associate Economists
Brian Sack, Manager, System Open Market Account
Jennifer J. Johnson, Secretary of the Board, Office
of the Secretary, Board of Governors
Nellie Liang, Director, Office of Financial Stability
Policy and Research, Board of Governors
Robert deV. Frierson, Deputy Secretary, Office of
the Secretary, Board of Governors
William Nelson, Deputy Director, Division of
Monetary Affairs, Board of Governors
Linda Robertson, Assistant to the Board, Office of
Board Members, Board of Governors
Charles S. Struckmeyer, Deputy Staff Director,
Office of the Staff Director, Board of Governors
Seth B. Carpenter, Senior Associate Director, Division of Monetary Affairs, Board of Governors;
Michael Foley, Senior Associate Director, Division of Banking Supervision and Regulation,
Board of Governors; Lawrence Slifman and
William Wascher, Senior Associate Directors,
Division of Research and Statistics, Board of
Governors
Andrew T. Levin, Senior Adviser, Office of Board
Members, Board of Governors
Joyce K. Zickler, Visiting Senior Adviser, Division
of Monetary Affairs, Board of Governors
Daniel M. Covitz and Eric M. Engen, Associate
Directors, Division of Research and Statistics,
Board of Governors; Trevor A. Reeve, Associate Director, Division of International
Finance, Board of Governors
Egon Zakrajšek, Deputy Associate Director, Division of Monetary Affairs, Board of Governors
Beth Anne Wilson, Assistant Director, Division of
International Finance, Board of Governors
David H. Small, Project Manager, Division of
Monetary Affairs, Board of Governors
Brahima Coulibaly, Senior Economist, Division of
International Finance, Board of Governors;
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Louise Sheiner, Senior Economist, Division of
Research and Statistics, Board of Governors
Jean-Philippe Laforte,¹ Economist, Division of Research and Statistics, Board of Governors
Penelope A. Beattie, Assistant to the Secretary, Office of the Secretary, Board of Governors
Randall A. Williams, Records Management Analyst,
Division of Monetary Affairs, Board of Governors
Jeff Fuhrer, Executive Vice President, Federal Reserve Bank of Boston
David Altig, Glenn D. Rudebusch, and Mark E.
Schweitzer, Senior Vice Presidents, Federal
Reserve Banks of Atlanta, San Francisco, and
Cleveland, respectively
Michael Dotsey,¹ William Gavin, Andreas L.
Hornstein, and Edward S. Knotek II, Vice
Presidents, Federal Reserve Banks of Philadelphia, St. Louis, Richmond, and Kansas City,
respectively
Marco Del Negro,¹ Joshua L. Frost, Deborah L.
Leonard, and Jonathan P. McCarthy, Assistant
Vice Presidents, Federal Reserve Bank of New
York
Jeff Campbell,¹ Senior Economist, Federal Reserve
Bank of Chicago
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¹ Attended the portion of the meeting relating to
dynamic stochastic general equilibrium models.
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
Federal Open Market Committee (FOMC) met on
April 26–27, 2011. He also reported on System open
market operations, including the continuing reinvestment into longer-term Treasury securities of principal
payments received on the SOMA’s holdings of agency
debt and agency-guaranteed mortgage-backed securities, as well as the ongoing purchases of additional
Treasury securities authorized at the November 2–3,
2010, FOMC meeting. Since November, purchases by
the Open Market Desk of the Federal Reserve Bank of
New York had increased the SOMA’s holdings by
nearly the full $600 billion authorized.
In light of ongoing strains in some foreign financial
markets, the Committee considered a proposal to extend its dollar liquidity swap arrangements with foreign
central banks past August 1, 2011. Following their discussion, members unanimously approved the following
resolution:
The Federal Open Market Committee directs
the Federal Reserve Bank of New York to
extend the existing temporary reciprocal currency arrangements (“swap arrangements”)
for the System Open Market Account with
the Bank of Canada, the Bank of England,
the European Central Bank, the Bank of Japan, and the Swiss National Bank. The swap
arrangements shall now terminate on August 1, 2012, unless further extended by the
Committee.
Dynamic Stochastic General Equilibrium Models
A staff presentation provided an overview of ongoing
Federal Reserve research on dynamic stochastic general
equilibrium (DSGE) models. DSGE models attempt
to capture the dynamics of the overall economy in a
way that is consistent both with the historical data and
with optimizing behavior by forward-looking households and firms. The presentation began by discussing
the general features of DSGE models and considering
their advantages and limitations relative to other approaches of analyzing macroeconomic dynamics; with
regard to the latter, the presentation noted that while
the current generation of DSGE models is still somewhat limited in the range of policy issues these models
can address, further advances in modeling should increase the usefulness of DSGE models for forecasting
and policy analysis. The presentation then reviewed
some specific features of DSGE models that are currently being studied at the Federal Reserve Board and
the Federal Reserve Banks of New York, Philadelphia,
and Chicago. This review included the four models’
characterizations of the forces affecting the economy in
recent years and the models’ current forecasts for real
economic activity, inflation, and short-term interest
rates. In discussing the staff presentation, meeting participants expressed the view that DSGE models are a
useful addition to the wide range of analytical approaches traditionally used at the Federal Reserve, in
part because they provide an internally consistent way
Minutes of the Meeting of June 21-22, 2011
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of exploring how the behavior of economic agents
might change in response to systematic adjustments to
policy. Some participants also expressed interest in
seeing on a regular basis projections of key macroeconomic variables and other products from the DSGE
models developed in the System. Finally, participants
encouraged further staff work to improve these models
by, for example, expanding the range of questions they
can be used to address.
Exit Strategy Principles
The Committee discussed strategies for normalizing the
stance and conduct of monetary policy, following up
on its discussion of this topic at the April meeting.
Participants stressed that the Committee’s discussions
of this topic were undertaken as part of prudent planning and did not imply that a move toward such normalization would necessarily begin sometime soon.
For concreteness, the Committee considered a set of
specific principles that would guide its strategy of normalizing the stance and conduct of monetary policy.
Participants discussed several specific elements of the
principles, including how they should characterize the
monetary policy framework that the Committee would
adopt after the conduct of policy returned to normal
and whether the principles should encompass the possible timing between the normalization steps. At the
conclusion of the discussion, all but one of the participants agreed on the following key elements of the
strategy that they expect to follow when it becomes
appropriate to begin normalizing the stance and conduct of monetary policy:
The Committee will determine the timing and pace
of policy normalization to promote its statutory
mandate of maximum employment and price stability.
To begin the process of policy normalization, the
Committee will likely first cease reinvesting some
or all payments of principal on the securities holdings in the SOMA.
At the same time or sometime thereafter, the
Committee will modify its forward guidance on the
path of the federal funds rate and will initiate temporary reserve-draining operations aimed at supporting the implementation of increases in the federal funds rate when appropriate.
When economic conditions warrant, the Committee’s next step in the process of policy normalization will be to begin raising its target for the federal
funds rate, and from that point on, changing the
level or range of the federal funds rate target will
be the primary means of adjusting the stance of
monetary policy.
During the normalization
process, adjustments to the interest rate on excess
reserves and to the level of reserves in the banking
system will be used to bring the funds rate toward
its target.
Sales of agency securities from the SOMA will likely commence sometime after the first increase in
the target for the federal funds rate. The timing
and pace of sales will be communicated to the public in advance; that pace is anticipated to be relatively gradual and steady, but it could be adjusted
up or down in response to material changes in the
economic outlook or financial conditions.
Once sales begin, the pace of sales is expected to
be aimed at eliminating the SOMA’s holdings of
agency securities over a period of three to five
years, thereby minimizing the extent to which the
SOMA portfolio might affect the allocation of
credit across sectors of the economy. Sales at this
pace would be expected to normalize the size of
the SOMA securities portfolio over a period of two
to three years. In particular, the size of the securities portfolio and the associated quantity of bank
reserves are expected to be reduced to the smallest
levels that would be consistent with the efficient
implementation of monetary policy.
The Committee is prepared to make adjustments to
its exit strategy if necessary in light of economic
and financial developments.
Staff Review of the Economic Situation
The information reviewed at the June 21–22 meeting
indicated that the pace of the economic recovery
slowed in recent months and that conditions in the
labor market had softened. Measures of inflation
picked up this year, reflecting in part higher prices for
some commodities and imported goods. Longer-run
inflation expectations, however, remained stable.
The expansion of private nonfarm payroll employment
in May was markedly below the average pace of job
gains in the previous months of this year. Initial claims
for unemployment insurance rose, on net, between the
first half of April and the first half of June. The unemployment rate moved up in April and then rose further
to 9.1 percent in May, while the labor force participation rate remained unchanged. Both long-duration unemployment and the share of workers employed part
time for economic reasons continued to be elevated.
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Total industrial production expanded only a bit during
April and May after rising at a solid pace in the first
quarter. Shortages of specialized components imported
from Japan contributed to a decline in the output of
motor vehicles and parts. Manufacturing production
outside of the motor vehicles sector increased moderately, on balance, during the past two months. The
manufacturing capacity utilization rate remained close
to its first-quarter level, but it was still well below its
longer-run average. Forward-looking indicators of industrial activity, such as the new orders diffusion indexes in the national and regional manufacturing surveys, weakened noticeably during the intermeeting period to levels consistent with only tepid gains in factory
output in coming months. However, motor vehicle
assemblies were scheduled to rise notably in the third
quarter from their levels in recent months, as bottlenecks in parts supplies were anticipated to ease.
Growth in consumer spending declined in recent
months from the already modest pace in the first quarter. Total real personal consumption expenditures only
edged up in April. Nominal retail sales, excluding purchases at motor vehicles and parts outlets, increased
somewhat in May, but sales of new light motor vehicles
declined markedly. Labor income rose moderately, as
aggregate hours worked trended up, but total real disposable income remained flat in March and April, as
increases in consumer prices offset gains in nominal
income. In addition, consumer sentiment stayed relatively low through early June.
Activity in the housing market remained depressed, as
both weak demand and the sizable inventory of foreclosed or distressed properties continued to hold back
new construction. Starts and permits of new singlefamily homes were essentially unchanged in April and
May, and they stayed near the very low levels seen since
the middle of last year. Sales of new and existing
homes remained at subdued levels in recent months,
while measures of home prices fell further.
The available indicators suggested that real business
investment in equipment and software was rising a bit
more slowly in the second quarter than the solid pace
seen in the first quarter. Nominal orders and shipments of nondefense capital goods declined in April.
Business purchases of light motor vehicles edged up in
April but dropped in May, while spending for medium
and heavy trucks continued to increase in recent
months. Survey measures of business conditions and
sentiment weakened during the intermeeting period.
Business expenditures for office and commercial build-
ings remained depressed by elevated vacancy rates, low
prices for commercial real estate, and tight credit conditions for construction loans. In contrast, outlays for
drilling and mining structures continued to be lifted by
high energy prices.
Real nonfarm inventory investment rose moderately in
the first quarter, but data for April suggested that the
pace of inventory accumulation had slowed. Bookvalue inventory-to-sales ratios in April were similar to
their pre-recession norms, and survey data also suggested that inventory positions generally remained in a
comfortable range.
The available data on government spending indicated
that real federal purchases increased in recent months,
led by a rebound in outlays for defense in April and
May from unusually low levels in the first quarter. In
contrast, real expenditures by state and local governments appeared to have declined further, as outlays for
construction projects fell in March and April, and state
and local employment continued to contract in April
and May.
The U.S. international trade deficit widened slightly in
March and then narrowed in April to a level below its
average in the first quarter. Exports rose strongly in
both months, with increases widespread across major
categories in March, while the gains in April were concentrated in industrial supplies and capital goods. Imports grew robustly in March, but they fell slightly in
April, as the drop in automotive imports from Japan
together with the decline in imports of petroleum
products more than offset increases in other imported
products.
Headline consumer price inflation, which had risen in
the first quarter, edged down a bit in April and May, as
the prices of consumer food and energy decelerated
from the pace seen in previous months. More recently,
survey data through the middle of June pointed to declines in retail gasoline prices, and prices of food commodities appeared to have decreased somewhat. Excluding food and energy, core consumer price inflation
picked up in April and May, pushing the 12-month
change in the core consumer price index through May
above its level of a year earlier. Upward pressures on
core consumer prices appeared to reflect the elevated
prices of commodities and other imports, along with
notable increases in motor vehicle prices likely arising
from the effects of recent supply chain disruptions and
the resulting extremely low level of automobile inventories. However, near-term inflation expectations from
the Thomson Reuters/University of Michigan Surveys
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of Consumers moved down a little in May and early
June from the high level seen in April, and longer-term
inflation expectations remained within the range that
has generally prevailed over the preceding few years.
Available measures of labor compensation showed that
labor cost pressures were still subdued, as wage increases continued to be restrained by the large amount
of slack in the labor market. In the first quarter, unit
labor costs only edged up, as the modest rise in hourly
compensation in the nonfarm business sector was
mostly offset by further gains in productivity. More
recently, average hourly earnings for all employees rose
in April and May, but the average rate of increase over
the preceding 12 months remained quite low.
Global economic activity appeared to have increased
more slowly in the second quarter than in the first
quarter. The rate of growth in the emerging market
economies stepped down from its rapid pace in the
first quarter, although it remained generally solid. The
Japanese economy contracted sharply following the
earthquake in March, and the associated supply chain
disruptions weighed on the economies of many of Japan’s trading partners. The pace of economic growth
in the euro area remained uneven, with Germany and
France posting moderate gains in economic activity,
while the peripheral European economies continued to
struggle. Recent declines in the prices of oil and other
commodities contributed to some easing of inflationary
pressures abroad.
Staff Review of the Financial Situation
Investors appeared to adopt a more cautious attitude
toward risk, particularly later in the intermeeting period.
The shift in investors’ sentiment likely reflected the
weak tone of incoming economic data in the United
States along with concerns about the outlook for global
economic growth and about potential spillovers from a
possible further deterioration of the situation in peripheral Europe.
The decisions by the FOMC at its April meeting to
continue its asset purchase program and to maintain
the 0 to ¼ percent target range for the federal funds
rate were generally in line with market expectations.
The accompanying statement and subsequent press
briefing by the Chairman prompted a modest decline in
nominal yields, as market participants reportedly perceived a somewhat less optimistic tone in the Committee’s economic outlook. Over the remainder of the
intermeeting period, the expected path for the federal
funds rate, along with yields on nominal Treasury securities, moved down appreciably further, as the bulk
of the incoming economic data was more downbeat
than market participants had apparently anticipated.
Consistent with the weaker-than-expected economic
data and the recent decline in the prices of oil and other
commodities, measures of inflation compensation over
the next 5 years and 5 to 10 years ahead based on nominal and inflation-protected Treasury securities decreased considerably over the intermeeting period.
Market quotes did not suggest expectations of significant movements in nominal Treasury yields following
the anticipated completion of the asset purchase program by the Federal Reserve at the end of June. Although discussions about the federal debt ceiling attracted attention in financial markets, judging from
Treasury yields and other asset prices, investors seemed
to anticipate that the debt ceiling would be increased in
time to avoid any significant market disruptions.
Yields on corporate bonds stepped down modestly, on
net, over the intermeeting period, but by less than the
decline in yields on comparable-maturity Treasury securities, leaving credit risk spreads a little wider. In the
secondary market for syndicated loans, conditions were
little changed, with average bid prices for leveraged
loans holding steady.
Broad U.S. stock price indexes declined, on net, over
the intermeeting period, apparently in response to the
downbeat economic data. Stock prices of financial
firms underperformed the broader market, reflecting
the weaker economic outlook, potential credit rating
downgrades, and heightened concerns about the anticipated capital surcharge for systemically important financial institutions. Option-adjusted volatility on the
S&P 500 index rose somewhat on net.
In the June 2011 Senior Credit Officer Opinion Survey
on Dealer Financing Terms, dealers pointed to a continued gradual easing over the previous three months in
credit terms applicable to major classes of counterparties across all types of transactions covered in the survey. Dealers also reported that the demand for funding
had increased over the same period for a broad range
of securities, with the exception of equities. More recently, however, against a backdrop of disappointing
economic data, heightened uncertainty about the situation in Europe, and, possibly, concerns about the U.S.
federal debt ceiling, market participants reported a general pullback from risk-taking and a decline in liquidity
in a range of financial markets.
Net debt financing by nonfinancial corporations was
strong in April and May. Gross issuance of both in-
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vestment- and speculative-grade bonds by nonfinancial
corporations hit a record high in May before slowing
somewhat in June, and outstanding amounts of commercial and industrial (C&I) loans and nonfinancial
commercial paper increased. Gross public equity issuance by nonfinancial firms maintained a solid pace
over the intermeeting period, and most indicators of
business credit quality improved further.
Commercial mortgage markets continued to show tentative signs of stabilization. In recent months, delinquency rates for commercial real estate loans edged
down from their previous peaks. However, commercial real estate markets remained weak. Property sales
were tepid, and prices remained at depressed levels.
Issuance of commercial mortgage-backed securities
slowed somewhat in the second quarter.
Conditions in residential mortgage markets were little
changed overall but remained strained. Rates on conforming fixed-rate residential mortgages declined about
in line with 10-year Treasury yields over the intermeeting period. Mortgage refinancing activity picked up, on
net, over the intermeeting period but was still relatively
subdued. Outstanding residential mortgage debt contracted further in the first quarter. Rates of serious
delinquency for subprime and prime mortgages were
little changed at elevated levels. The rate of new delinquencies on prime mortgages ticked up in April but
remained well below the level of a few months ago. In
March and April, delinquencies on mortgages backed
by the Federal Housing Administration declined noticeably.
The Federal Reserve continued its competitive sales of
non-agency residential mortgage-backed securities held
by Maiden Lane II LLC over the intermeeting period.
Although the initial offerings of these securities were
well received, investor demand at the most recent sales
was not as strong, a development consistent with the
declines in the prices of non-agency residential mortgage-backed securities over the intermeeting period.
Conditions in consumer credit markets continued to
improve. Growth in total consumer credit picked up in
April, as the gain in nonrevolving credit more than offset a further contraction in revolving credit. Delinquency rates for consumer debt edged down further in
recent months, with delinquency rates on some categories moving back to pre-crisis levels. Issuance of consumer asset-backed securities remained robust over the
intermeeting period.
Bank credit was flat, on balance, in April and May.
Core loans—the sum of C&I, real estate, and consumer
loans—continued to contract modestly, pulled down by
the ongoing decline in commercial and residential real
estate loans. In contrast, C&I loans increased at a brisk
pace in April and May. The most recent Survey of
Terms of Business Lending conducted in May indicated
that banks had eased some lending terms on C&I loans.
The survey responses also suggested that the average
size of loan commitments and their average maturity
had trended up in recent quarters.
M2 expanded at a robust pace in April and May. Liquid deposits, the largest component of M2, maintained
a solid rate of expansion, likely reflecting the very low
opportunity costs of holding such deposits. Currency
continued to advance, supported by strong demand for
U.S. bank notes from abroad.
The broad nominal index of the U.S. dollar fluctuated
over the intermeeting period in response to changes in
investors’ assessment of the outlook for the U.S. economy and the situation in the peripheral European
economies. Since the April FOMC meeting, the dollar
rose modestly, on net, after depreciating over the preceding several months. Headline equity indexes abroad
and foreign benchmark sovereign yields declined over
the intermeeting period in apparent response to signs
of a slowdown in the pace of global economic activity
and reduced demand for risky assets. Concerns about
the possibility of a restructuring of Greek government
debt drove spreads of yields on the sovereign debts of
Greece, Ireland, and Portugal to record highs relative
to yields on German bunds.
In the advanced foreign economies, most central banks
left their policy rates unchanged, and the anticipated
pace of monetary policy tightening indicated by money
market futures quotes was pared back. However, central banks in several emerging market economies continued to tighten policy, and the monetary authorities in
China increased required reserve ratios further.
Staff Economic Outlook
With the recent data on spending, income, production,
and labor market conditions mostly weaker than the
staff had anticipated at the time of the April FOMC
meeting, the near-term projection for the rate of increase in real gross domestic product (GDP) was revised down. The effects of the disaster in Japan and of
higher commodity prices on the rate of increase in real
consumer spending were expected to hold down U.S.
real GDP growth in the near term, but those effects
were anticipated to be transitory. However, the staff
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also read the incoming economic data as suggesting
that the underlying pace of the recovery was softer than
they had previously anticipated, and they marked down
their outlook for economic growth over the medium
term. Nevertheless, the staff still projected real GDP
to increase at a moderate rate in the second half of
2011 and in 2012, with the ongoing recovery in activity
receiving continued support from accommodative
monetary policy, further increases in credit availability,
and anticipated improvements in household and business confidence. The average pace of real GDP
growth was expected to be sufficient to bring the unemployment rate down very slowly over the projection
period, and the jobless rate was anticipated to remain
elevated at the end of 2012.
Although increases in consumer food and energy prices
slowed a bit in recent months, the continued step-up in
core consumer price inflation led the staff to raise
slightly its projection for core inflation over the coming
quarters. However, headline inflation was still expected
to recede over the medium term, as increases in food
and energy prices and in non-oil import prices were
anticipated to ease further. As in previous forecasts,
the staff continued to project that core consumer price
inflation would remain relatively subdued over the projection period, reflecting both stable long-term inflation
expectations and persistent slack in labor and product
markets.
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 output growth, the
unemployment rate, and inflation for each year from
2011 through 2013 and over the longer run. Longerrun 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 to the economy.
Participants’ forecasts 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 economic
information received during the intermeeting period
indicated that the economic recovery was continuing at
a moderate pace, though somewhat more slowly than
they had anticipated at the time of the April meeting.
Participants noted several transitory factors that were
restraining growth, including the global supply chain
disruptions in the wake of the Japanese earthquake, the
unusually severe weather in some parts of the United
States, a drop in defense spending, and the effects of
increases in oil and other commodity prices this year on
household purchasing power and spending. Participants expected that the expansion would gain strength
as the influence of these temporary factors waned.
Nonetheless, most participants judged that the pace of
the economic recovery was likely to be somewhat slower over coming quarters than they had projected in
April. This judgment reflected the persistent weakness
in the housing market, the ongoing efforts by some
households to reduce debt burdens, the recent sluggish
growth of income and consumption, the fiscal contraction at all levels of government, and the effects of uncertainty regarding the economic outlook and future
tax and regulatory policies on the willingness of firms
to hire and invest. Moreover, the recovery remained
subject to some downside risks, such as the possibility
of a more extended period of weak activity and declining prices in the housing sector, the chance of a largerthan-expected near-term fiscal tightening, and potential
financial and economic spillovers if the situation in peripheral Europe were to deteriorate further. Participants still projected that the unemployment rate would
decline gradually toward levels they saw as consistent
with the Committee’s dual mandate, but at a more
gradual pace than they had forecast in April. While
higher prices for energy and other commodities had
boosted inflation this year, with commodity prices expected to change little going forward and longer-term
inflation expectations stable, most participants anticipated that inflation would subside to levels at or below
those consistent with the Committee’s dual mandate.
Activity in the business sector appeared to have slowed
somewhat over the intermeeting period. Although the
effects of the Japanese disaster on U.S. motor vehicle
production accounted for much of the deceleration in
industrial production since March, the most recent
readings from various regional manufacturing surveys
suggested a slowing in the pace of manufacturing activity more broadly. However, business contacts in some
sectors—most notably energy and high tech—reported
that activity and business sentiment had strengthened
further in recent months. Business investment in
equipment and software generally remained robust, but
growth in new orders for nondefense capital goods—
though volatile from month to month—appeared to
have slowed. While FOMC participants expected a
rebound in investment in motor vehicles to boost capi-
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tal outlays in coming months, some also noted that
indicators of current and planned business investment
in equipment and software had weakened somewhat,
and surveys showed some deterioration in business
sentiment. Business contacts in some regions reported
that they were reducing capital budgets in response to
the less certain economic outlook, but in other parts of
the country, contacts noted that business sentiment
remained on a firm footing, supported in part by strong
export demand. Compared with the relatively robust
outlook for the business sector, meeting participants
noted that the housing sector, including residential construction and home sales, remained depressed. Despite
efforts aimed at mitigation, foreclosures continued to
add to the already very large inventory of vacant
homes, putting downward pressure on home prices and
housing construction.
Meeting participants generally noted that the most recent data on employment had been disappointing, and
new claims for unemployment insurance remained elevated. The recent deterioration in labor market conditions was a particular concern for FOMC participants
because the prospects for job growth were seen as an
important source of uncertainty in the economic outlook, particularly in the outlook for consumer spending. Several participants reported feedback from business contacts who were delaying hiring until the economic and regulatory outlook became more certain and
who indicated that they expected to meet any near-term
increase in the demand for their products without
boosting employment; these participants noted the risk
that such cautious attitudes toward hiring could slow
the pace at which the unemployment rate normalized.
Wage gains were generally reported to be subdued, although wages for a few skilled job categories in which
workers were in short supply were said to be increasing
relatively more rapidly.
Changes in financial market conditions since the April
meeting suggested that investors had become more
concerned about risk. Equity markets had seen a broad
selloff, and risk spreads for many corporate borrowers
had widened noticeably. Large businesses that have
access to capital markets continued to enjoy ready
access to credit—including syndicated loans—on relatively attractive terms; however, credit conditions remained tight for smaller, bank-dependent firms. Bankers again reported gradual improvements in credit quality and generally weak loan demand. In identifying
possible risks to financial stability, a few participants
expressed concern that credit conditions in some sectors—most notably the agriculture sector—might have
eased too much amid signs that investors in these markets were aggressively taking on more leverage and risk
in order to obtain higher returns. Meeting participants
also noted that an escalation of the fiscal difficulties in
Greece and spreading concerns about other peripheral
European countries could cause significant financial
strains in the United States. It was pointed out that
some U.S. money market mutual funds have significant
exposures to financial institutions from core European
countries, which, in turn, have substantial exposures to
Greek sovereign debt. Participants were also concerned about the possible effect on financial markets of
a failure to raise the statutory federal debt ceiling in a
timely manner. While admitting that it was difficult to
know what the precise effects of such a development
would be, participants emphasized that even a short
delay in the payment of principal or interest on the
Treasury Department’s debt obligations would likely
cause severe market disruptions and could also have a
lasting effect on U.S. borrowing costs.
Participants noted several factors that had contributed
to the increase in inflation this year. The run-up in
energy prices, as well as an increase in prices of other
commodities and imported goods, had boosted both
headline and core inflation. At same time, extremely
low motor vehicle inventories resulting from global
supply disruptions in the wake of the Japanese earthquake—by contributing to higher motor vehicle prices—had significantly raised inflation, although participants anticipated that these temporary pressures would
lessen as motor vehicle inventories were rebuilt. Participants also observed that crude oil prices fell over the
intermeeting period and other commodity prices also
moderated, developments that were likely to damp
headline inflation at the consumer level going forward.
However, a number of participants pointed out that the
recent faster pace of price increases was widespread
across many categories of spending and was evident in
inflation measures such as trimmed means or medians,
which exclude the most extreme price movements in
each period. The discussion of core inflation and similar indicators reflected the view expressed by some participants that such measures are useful for forecasting
the path of inflation over the medium run. In addition,
reports from business contacts indicated that some
already had passed on, or were intending to try to pass
on, at least a portion of their higher costs to customers
in order to maintain profit margins.
Most participants expected that much of the rise in
headline inflation this year would prove transitory and
that inflation over the medium term would be subdued
Minutes of the Meeting of June 21-22, 2011
Page 9
_____________________________________________________________________________________________
as long as commodity prices did not continue to rise
rapidly and longer-term inflation expectations remained
stable. Nevertheless, a number of participants judged
the risks to the outlook for inflation as tilted to the upside. Moreover, a few participants saw a continuation
of the current stance of monetary policy as posing
some upside risk to inflation expectations and actual
inflation over time. However, other participants observed that measures of longer-term inflation compensation derived from financial instruments had remained
stable of late, and that survey-based measures of
longer-term inflation expectations also had not changed
appreciably, on net, in recent months. These participants noted that labor costs were rising only slowly,
and that persistent slack in labor and product markets
would likely limit upward pressures on prices in coming
quarters. Participants agreed that it would be important to pay close attention to the evolution of both inflation and inflation expectations. A few participants
noted that the adoption by the Committee of an explicit numerical inflation objective could help keep longerterm inflation expectations well anchored. Another
participant, however, expressed concern that the adoption of such an objective could, in effect, alter the relative importance of the two components of the Committee’s dual mandate.
Participants also discussed the medium-term outlook
for monetary policy. Some participants noted that if
economic growth remained too slow to make satisfactory progress toward reducing the unemployment rate
and if inflation returned to relatively low levels after the
effects of recent transitory shocks dissipated, it would
be appropriate to provide additional monetary policy
accommodation. Others, however, saw the recent configuration of slower growth and higher inflation as suggesting that there might be less slack in labor and
product markets than had been thought. Several participants observed that the necessity of reallocating labor across sectors as the recovery proceeds, as well as
the loss of skills caused by high levels of long-term unemployment and permanent separations, may have
temporarily reduced the economy’s level of potential
output. In that case, the withdrawal of monetary accommodation may need to begin sooner than currently
anticipated in financial markets. A few participants
expressed uncertainty about the efficacy of monetary
policy in current circumstances but disagreed on the
implications for future policy.
Committee Policy Action
In the discussion of monetary policy for the period
ahead, members agreed that the Committee should
complete its $600 billion asset purchase program at the
end of the month and that no changes to the target
range for the federal funds rate were warranted at this
meeting. The information received over the intermeeting period indicated that the economic recovery was
continuing at a moderate pace, though somewhat more
slowly than the Committee had expected, and that the
labor market was weaker than anticipated. Inflation
had increased in recent months as a result of higher
prices for some commodities, as well as supply chain
disruptions related to the tragic events in Japan. Nonetheless, members saw the pace of the economic expansion as picking up over the coming quarters and the
unemployment rate resuming its gradual decline toward
levels consistent with the Committee’s dual mandate.
Moreover, with longer-term inflation expectations stable, members expected that inflation would subside to
levels at or below those consistent with the Committee’s dual mandate as the effects of past energy and
other commodity price increases dissipate. However,
many members saw the outlook for both employment
and inflation as unusually uncertain. Against this backdrop, members agreed that it was appropriate to maintain the Committee’s current policy stance and accumulate further information regarding the outlook for
growth and inflation before deciding on the next policy
step. On the one hand, a few members noted that,
depending on how economic conditions evolve, the
Committee might have to consider providing additional
monetary policy stimulus, especially if economic
growth remained too slow to meaningfully reduce the
unemployment rate in the medium run. On the other
hand, a few members viewed the increase in inflation
risks as suggesting that economic conditions might well
evolve in a way that would warrant the Committee taking steps to begin removing policy accommodation
sooner than currently anticipated.
In the statement to be released following the meeting,
all members agreed that it was appropriate to acknowledge that the recovery had been slower than the Committee had expected at the time of the April meeting
and to note the factors that were currently weighing on
economic growth and boosting inflation. The Committee agreed that the statement should briefly describe its
current projections for unemployment and inflation
relative to the levels of those variables that members
see as consistent with the Committee’s dual mandate.
In the discussion of inflation in the statement, members decided to reference inflation—meaning overall
inflation—rather than underlying inflation or inflation
trends, in order to be clear that the Committee’s objec-
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Federal Open Market Committee
_____________________________________________________________________________________________
tive is the level of overall inflation in the medium term.
The Committee also decided to reiterate that economic
conditions were likely to warrant exceptionally low levels for the federal funds rate for an extended period;
in addition, the Committee noted that it would review
regularly the size and composition of its securities holdings, and that it is prepared to adjust those holdings as
appropriate.
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 complete
purchases of $600 billion of longer-term
Treasury securities by the end of this month.
The Committee also directs the Desk to
maintain its existing policy of reinvesting
principal payments on all domestic securities
in the System Open Market Account in
Treasury securities in order to maintain the
total face value of domestic securities at approximately $2.6 trillion. 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 12:30 p.m.:
“Information received since the Federal
Open Market Committee met in April indicates that the economic recovery is continuing at a moderate pace, though somewhat
more slowly than the Committee had expected. Also, recent labor market indicators
have been weaker than anticipated. The
slower pace of the recovery reflects in part
factors that are likely to be temporary, including the damping effect of higher food
and energy prices on consumer purchasing
power and spending as well as supply chain
disruptions associated with the tragic events
in Japan. Household spending and business
investment in equipment and software continue to expand. However, investment in
nonresidential structures is still weak, and the
housing sector continues to be depressed.
Inflation has picked up in recent months,
mainly reflecting higher prices for some
commodities and imported goods, as well as
the recent supply chain disruptions. However, longer-term inflation expectations have
remained stable.
Consistent with its statutory mandate, the
Committee seeks to foster maximum employment and price stability. The unemployment rate remains elevated; however, the
Committee expects the pace of recovery to
pick up over coming quarters and the unemployment rate to resume its gradual decline
toward levels that the Committee judges to
be consistent with its dual mandate. Inflation has moved up recently, but the Committee anticipates that inflation will subside to
levels at or below those consistent with the
Committee’s dual mandate as the effects of
past energy and other commodity price increases dissipate. However, the Committee
will continue to pay close attention to the
evolution of inflation and inflation expectations.
To promote the ongoing economic recovery
and to help ensure that inflation, over time,
is at levels consistent with its mandate, the
Committee decided today to keep the target
range for the federal funds rate at 0 to
¼ percent. The Committee continues to anticipate that economic conditions—including
low rates of resource utilization and a subdued outlook for inflation over the medium
run—are likely to warrant exceptionally low
levels for the federal funds rate for an extended period. The Committee will complete its purchases of $600 billion of longerterm Treasury securities by the end of this
month and will maintain its existing policy of
reinvesting principal payments from its securities holdings. The Committee will regularly review the size and composition of its
securities holdings and is prepared to adjust
those holdings as appropriate.
Minutes of the Meeting of June 21-22, 2011
Page 11
_____________________________________________________________________________________________
The Committee will monitor the economic
outlook and financial developments and will
act as needed to best foster maximum employment and price stability.”
Voting for this action: Ben Bernanke, William C.
Dudley, Elizabeth Duke, Charles L. Evans, Richard W.
Fisher, Narayana Kocherlakota, Charles I. Plosser, Sarah Bloom Raskin, Daniel K. Tarullo, and Janet L. Yellen.
Voting against this action: None.
External Communications
In follow-up to discussions at the January meeting, the
Committee turned to consideration of policies aimed at
supporting effective communication with the public
regarding the outlook for the economy and monetary
policy. The subcommittee on communication, chaired
by Governor Yellen and composed of Governor Duke
and Presidents Fisher and Rosengren, proposed policies for Committee participants and for Federal Reserve System staff to follow in their communications
with the public in order to reinforce the public’s con-
fidence in the transparency and integrity of the monetary policy process. By unanimous vote, the Committee approved the policies.2 Participants all supported
the policies, but several of them emphasized that the
policy for staff, in particular, should be applied with
judgment and common sense so as to avoid interfering
with legitimate research.
It was agreed that the next meeting of the Committee
would be held on Tuesday, August 9, 2011. The meeting adjourned at 12:10 p.m. on June 22, 2011.
Notation Vote
By notation vote completed on May 17, 2011, the
Committee unanimously approved the minutes of the
FOMC meeting held on April 26–27, 2011.
_____________________________
William B. English
Secretary
2
The policies are available at http://www.federalreserve.go
v/monetarypolicy/files/FOMC_ExtCommunicationPartici
pants.pdf and http://www.federalreserve.gov/monetarypol
icy/files/FOMC_ExtCommunicationStaff.pdf .
Page 1
_____________________________________________________________________________________________
Summary of Economic Projections
In conjunction with the June 21–22, 2011, Federal
Open Market Committee (FOMC) meeting, the members of the Board of Governors and the presidents of
the Federal Reserve Banks, all of whom participate in
the deliberations of the FOMC, submitted projections
for growth of real output, the unemployment rate, and
inflation for the years 2011 to 2013 and over the longer
run. The projections were based on information available at the time 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 each
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 depicted in figure 1, FOMC participants expected
the economic recovery to continue at a moderate pace,
with growth of real gross domestic product (GDP)
about the same this year as in 2010 and then strengthening over 2012 and 2013. With the pace of economic
growth modestly exceeding their estimates of the longer-run sustainable rate of increase in real GDP, the un-
employment rate is projected to trend gradually lower
over this projection period. However, participants anticipated that, at the end of 2013, the unemployment
rate would still be well above their estimates of the unemployment rate that they see as consistent, over the
longer run, with the Committee’s dual mandate of maximum employment and price stability. Most participants marked up their projections of inflation for 2011
in light of the increase in inflation in the first half of the
year, but they projected this increase to be transitory,
with overall inflation moving back in line with core
inflation in 2012 and 2013 and remaining at or a bit
below rates that they see as consistent, over the longer
run, with the Committee’s dual mandate. Participants
generally saw the rate of core inflation as likely to stay
roughly the same over the next two years as this year.
On balance, as indicated in table 1, participants anticipated somewhat lower real GDP growth over the near
term relative to their projections in April but left their
projections for inflation mostly unchanged since the
April meeting. Participants made noticeable downward
revisions to their projections for GDP growth this year
and next, but they made little change to their projection
for 2013 and no change to their longer-run projections.
Meeting participants revised up their projections for
the unemployment rate over the forecast period, although they continue to expect a gradual decline in the
unemployment rate over time. Participants’ projections
Table 1. Economic projections of Federal Reserve Board members and Federal Reserve Bank presidents, June 2011
Percent
Variable
Central tendency1
Range2
2011
2012
2013
Longer run
2011
2012
2013
Longer run
Change in real GDP. . . . . .
April projection. . . . . .
2.7 to 2.9
3.1 to 3.3
3.3 to 3.7
3.5 to 4.2
3.5 to 4.2
3.5 to 4.3
2.5 to 2.8
2.5 to 2.8
2.5 to 3.0
2.9 to 3.7
2.2 to 4.0
2.9 to 4.4
3.0 to 4.5
3.0 to 5.0
2.4 to 3.0
2.4 to 3.0
Unemployment rate. . . . . .
April projection. . . . . .
8.6 to 8.9
8.4 to 8.7
7.8 to 8.2
7.6 to 7.9
7.0 to 7.5
6.8 to 7.2
5.2 to 5.6
5.2 to 5.6
8.4 to 9.1
8.1 to 8.9
7.5 to 8.7
7.1 to 8.4
6.5 to 8.3
6.0 to 8.4
5.0 to 6.0
5.0 to 6.0
PCE inflation. . . . . . . . . . .
April projection. . . . . .
2.3 to 2.5
2.1 to 2.8
1.5 to 2.0
1.2 to 2.0
1.5 to 2.0
1.4 to 2.0
1.7 to 2.0
1.7 to 2.0
2.1 to 3.5
2.0 to 3.6
1.2 to 2.8
1.0 to 2.8
1.3 to 2.5
1.2 to 2.5
1.5 to 2.0
1.5 to 2.0
Core PCE inflation3. . . . . .
April projection. . . . . .
1.5 to 1.8
1.3 to 1.6
1.4 to 2.0
1.3 to 1.8
1.4 to 2.0
1.4 to 2.0
1.5 to 2.3
1.1 to 2.0
1.2 to 2.5
1.1 to 2.0
1.3 to 2.5
1.2 to 2.0
NOTE: Projections of change in real gross domestic product (GDP) and projections for both measures 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 April projections were made in conjunction with the meeting of the Federal Open Market Committee on April 26–27, 2011.
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, 2011–13 and over the longer run
Percent
Change in real GDP
5
Central tendency of projections
Range of projections
4
3
2
1
+
0
_
1
Actual
2
2006
2007
2008
2009
2010
2011
2012
2013
Longer
run
Percent
Unemployment rate
10
9
8
7
6
5
2006
2007
2008
2009
2010
2011
2012
2013
Longer
run
Percent
PCE inflation
3
2
1
2006
2007
2008
2009
2010
2011
2012
2013
Longer
run
Percent
Core PCE inflation
3
2
1
2006
2007
2008
2009
2010
2011
2012
2013
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 June 21-22, 2011
Page 3
_____________________________________________________________________________________________
for overall inflation this year were somewhat more narrowly distributed than in April, and their projections
for 2012 and 2013 were similar to the projections made
in April.
A sizable majority of participants continued to judge
the level of uncertainty associated with their projections
for economic growth and inflation as unusually high
relative to historical norms. Most participants viewed
the risks to output growth as being weighted to the
downside, and none saw those risks as weighted to the
upside. Meanwhile, a majority of participants saw the
risks to overall inflation as balanced.
The Outlook
Participants marked down their forecasts for real GDP
growth in 2011 to reflect the unexpected weakness witnessed in the first half of the year, with the central tendency of their projections moving down to 2.7 to 2.9
percent from 3.1 to 3.3 percent in April. Participants
attributed the downward revision in their growth outlook to the likely effects of elevated commodity prices
on real income and consumer sentiment, as well as indications of renewed weakness in the labor market,
surprisingly sluggish consumer spending, a continued
lack of recovery in the housing market, supply disruptions from the events in Japan, and constraints on government spending at all levels.
Looking further ahead, participants’ forecasts for economic growth were also marked down in 2012, as participants saw some of the weakness in economic activity this year as likely to persist. Nevertheless, participants still anticipated a modest acceleration in economic output next year, and they expected a further modest
acceleration in 2013 to growth rates that were largely
unchanged from their previous projection. The central
tendency of their current projections for real GDP
growth in 2012 was 3.3 to 3.7 percent, compared with
3.5 to 4.2 percent in April, and in 2013 the central tendency of the projections for real GDP growth was 3.5
to 4.2 percent. Participants cited the effects of continued monetary policy accommodation, some further
easing in credit market conditions, a waning in the drag
from elevated commodities prices, and an increase in
spending from pent-up demand as factors likely to contribute to a pickup in the pace of the expansion. Participants did, however, see a number of factors that would
likely continue to weigh on GDP growth over the next
two years. Most participants pointed to strains in the
household sector, noting impaired balance sheets, continued declines in house prices, and persistently high
unemployment as restraining the growth of consumer
spending. In addition, some participants noted that
although energy and commodity prices were expected
to stabilize, they would do so at elevated levels and
would likely continue to damp spending growth for a
time. Finally, several participants pointed to a likely
drag from tighter fiscal policy at all levels of government. In the absence of further shocks, participants
generally expected that, over time, real GDP growth
would eventually settle down at an annual rate of 2.5 to
2.8 percent in the longer run.
Partly in response to the recent weak indicators of labor demand and participants’ downwardly revised
views of the economic outlook, participants marked up
their forecasts for the unemployment rate over the entire forecast period. For the fourth quarter of this year,
the central tendency of their projections rose to 8.6 to
8.9 percent from 8.4 to 8.7 percent in April. Similar
upward revisions were made for 2012 and 2013, with
the central tendencies of the projections for those years
at 7.8 to 8.2 percent and 7.0 to 7.5 percent, respectively.
Consistent with their expectations of a moderate recovery, with growth only modestly above trend, the
central tendency of the projections of the unemployment rate at the end of 2013 was well above the 5.2 to
5.6 percent central tendency of their estimates of the
unemployment rate that would prevail over the longer
run in the absence of further shocks. The central tendency for the participants’ projections of the unemployment rate in the longer run was unchanged from
the interval reported in April.
Participants noted that measures of consumer price
inflation had increased this year, reflecting in part higher prices of oil and other commodities. However, participants’ forecasts for total personal consumption expenditures (PCE) inflation in 2011 were little changed
from April, with the central tendency of their estimates
narrowing to a range of 2.3 to 2.5 percent, compared
with 2.1 to 2.8 percent in April. Most participants anticipated that the influence of higher commodity prices
and supply disruptions from Japan on inflation would
be temporary, and that inflation pressures in the future
would be subdued as commodity prices stabilized, inflation expectations remained well anchored, and large
margins of slack in labor markets kept labor costs in
check. As a result, participants anticipated that total
PCE inflation would step down in 2012 and 2013, with
the central tendency of their projections in those years
at 1.5 to 2.0 percent. The lower end of these central
tendencies was revised up somewhat from April, suggesting that fewer participants saw a likelihood of very
low inflation in those years. The projections for these
Page 4
Federal Open Market Committee
_____________________________________________________________________________________________
two years were at or slightly below the 1.7 to 2.0 percent central tendency of participants’ estimates of the
longer-run, mandate-consistent rate of inflation. The
central tendencies of participants’ projections of core
PCE inflation this year shifted up a bit to 1.5 to
1.8 percent, as participants saw some of the run-up in
commodity prices passing through to core prices. For
2012 and 2013, participants saw commodity prices as
likely to stabilize near current levels, and the central
tendencies for their forecasts of core inflation were 1.4
to 2.0 percent, essentially unchanged from their April
projections.
Uncertainty and Risks
A substantial majority of participants continued to
judge that the levels of uncertainty associated with their
projections for economic growth and inflation were
greater than the average levels that had prevailed over
the past 20 years.1 They pointed to a number of factors
that contributed to their assessments of the uncertainty
that they attached to their projections, including the
severity of the recent recession, the uncertain effects of
the current stance of monetary policy, uncertainty
about the direction of fiscal policy, and structural dislocations in the labor market.
Most participants now judged that the balance of risks
to economic growth was weighted to the downside,
and the rest viewed these risks as balanced. The most
frequently cited downside risks included a potential for
a large negative effect on consumer spending from
higher food and energy prices, a weaker labor market,
falling house prices, uncertainty from the debate over
the statutory debt limit and its potential implications
for near-term fiscal policy, and possible negative financial market spillovers from European sovereign debt
problems. The risks surrounding participants’ forecasts
of the unemployment rate shifted higher, with a slight
majority of participants now viewing the risks to the
projection as weighted to the upside, and the rest of the
participants seeing the risks as broadly balanced.
Although a majority of participants judged the risks to
their inflation projections over the period from 2011 to
2013 to be weighted to the upside in April, most parti1
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 1991 to 2010.
At the end of this summary, the box “Forecast Uncertainty”
discusses the sources and interpretation of uncertainty in
the economic forecasts and explains the approach used to
assess the uncertainty and risks attending the participants’
projections.
Table 2. Average historical projection error ranges
Percentage points
Variable
2011
2012
2013
Change in real GDP1 . . . . . . . .
±0.9
±1.6
±1.8
±0.4
±1.2
±1.7
±0.8
±1.0
±1.0
Unemployment
rate1
........
Total consumer
prices2
......
NOTE: Error ranges shown are measured as plus or minus the root
mean squared error of projections for 1991 through 2010 that were
released in the summer 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.
cipants now viewed these risks as broadly balanced.
On the one hand, participants noted that the effect on
headline inflation of the rise in commodity prices earlier this year was likely to subside as those prices stabilized, but they could not rule out the possibility of
those effects being more persistent than anticipated.
On the other hand, with the outlook for the economy
somewhat weaker than previously expected, some participants saw a risk that greater resource slack could
produce more downward pressure on inflation than
projected. A few participants noted the possibility that
the current highly accommodative stance of monetary
policy, if it were to be maintained longer than is appropriate, could lead to higher inflation expectations and
actual inflation.
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 in 2011, 2012, 2013, and over the longer run. The
dispersion in these projections continued to reflect differences in participants’ assessments of many factors,
including the current degree of underlying momentum
in economic activity, the outlook for fiscal policy, the
timing and degree of the recovery of labor markets following the very deep recession, and appropriate future
monetary policy and its effects on economic activity.
Regarding participants’ projections for real GDP
growth, the distribution for this year shifted noticeably
lower but remained about as concentrated as the distribution in April. The distribution for 2012 also shifted
down somewhat and became a bit more concentrated,
while the distribution for 2013 did not change appreci-
Summary of Economic Projections of the Meeting of June 21-22, 2011
Page 5
_____________________________________________________________________________________________
ably. Regarding participants’ projections for the unemployment rate, the distribution for this year and for
2012 shifted up relative to the corresponding distributions in April, and more than one-half of participants
expected the unemployment rate in 2012 to be in the
8.0 to 8.1 percent interval. These shifts reflect the recent softening in labor market conditions along with
the marking down of expected economic growth this
year and next. The distribution of the unemployment
rate in 2013 also shifted upward somewhat but was
narrower than the distribution in April. The distributions of participants’ estimates of the longer-run
growth rate of real GDP and of the unemployment rate
were both little changed from the April projections.
Corresponding information about the diversity of participants’ views regarding the inflation outlook is provided in figures 2.C and 2.D. In general, the dispersion
of participants’ inflation forecasts for the next few
years represented differences in judgments regarding
the fundamental determinants of inflation, including
the degree of resource slack and the extent to which
such slack influences inflation outcomes and expecta-
tions, as well as estimates of how the stance of monetary policy may influence inflation expectations. Regarding overall PCE inflation, the distributions for
2011, 2012, and 2013 all narrowed somewhat, with the
top of the distributions remaining unchanged but the
lower end of the distributions moving up somewhat.
Although participants continued to expect that the
somewhat elevated rate of inflation this year would
subside in subsequent years, fewer participants anticipated very low levels of inflation. The distribution of
participants’ projections for core inflation for this year
shifted noticeably higher, reflecting incoming data and
a view that the pass-through of commodity prices to
core prices may be greater than previously thought;
however, the distributions for 2012 and 2013 were little
changed. The distribution of participants’ projections
for overall inflation over the longer run was essentially
unchanged from its fairly narrow distribution in April,
reflecting the broad similarity in participants’ assessments of the approximate level of inflation that is consistent with the Federal Reserve’s dual objectives of
maximum employment and price stability.
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Federal Open Market Committee
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Figure 2.A. Distribution of participants’ projections for the change in real GDP, 2011–13 and over the longer run
Number of participants
2011
16
June projections
April projections
14
12
10
8
6
4
2
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
16
14
12
10
8
6
4
2
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
2013
16
14
12
10
8
6
4
2
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
16
14
12
10
8
6
4
2
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
Summary of Economic Projections of the Meeting of June 21-22, 2011
Page 7
_____________________________________________________________________________________________
Figure 2.B. Distribution of participants’ projections for the unemployment rate, 2011–13 and over the longer run
Number of participants
2011
16
June projections
April projections
14
12
10
8
6
4
2
5.05.1
5.25.3
5.45.5
5.65.7
5.85.9
6.06.1
6.26.3
6.46.5
6.66.7
6.86.9
7.07.1
7.27.3
7.47.5
7.67.7
7.87.9
8.08.1
8.28.3
8.48.5
8.68.7
8.88.9
9.09.1
Percent range
Number of participants
2012
16
14
12
10
8
6
4
2
5.05.1
5.25.3
5.45.5
5.65.7
5.85.9
6.06.1
6.26.3
6.46.5
6.66.7
6.86.9
7.07.1
7.27.3
7.47.5
7.67.7
7.87.9
8.08.1
8.28.3
8.48.5
8.68.7
8.88.9
9.09.1
Percent range
Number of participants
2013
16
14
12
10
8
6
4
2
5.05.1
5.25.3
5.45.5
5.65.7
5.85.9
6.06.1
6.26.3
6.46.5
6.66.7
6.86.9
7.07.1
7.27.3
7.47.5
7.67.7
7.87.9
8.08.1
8.28.3
8.48.5
8.68.7
8.88.9
9.09.1
Percent range
Number of participants
Longer run
16
14
12
10
8
6
4
2
5.05.1
5.25.3
5.45.5
5.65.7
5.85.9
6.06.1
6.26.3
6.46.5
6.66.7
6.86.9
7.07.1
Percent range
NOTE: Definitions of variables are in the general note to table 1.
7.27.3
7.47.5
7.67.7
7.87.9
8.08.1
8.28.3
8.48.5
8.68.7
8.88.9
9.09.1
Page 8
Federal Open Market Committee
_____________________________________________________________________________________________
Figure 2.C. Distribution of participants’ projections for PCE inflation, 2011–13 and over the longer run
Number of participants
2011
16
June projections
April projections
14
12
10
8
6
4
2
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
2.72.8
2.93.0
3.13.2
3.33.4
3.53.6
Percent range
Number of participants
2012
16
14
12
10
8
6
4
2
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
2.72.8
2.93.0
3.13.2
3.33.4
3.53.6
Percent range
Number of participants
2013
16
14
12
10
8
6
4
2
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
2.72.8
2.93.0
3.13.2
3.33.4
3.53.6
Percent range
Number of participants
Longer run
16
14
12
10
8
6
4
2
0.91.0
1.11.2
1.31.4
1.51.6
1.71.8
1.92.0
2.12.2
Percent range
NOTE: Definitions of variables are in the general note to table 1.
2.32.4
2.52.6
2.72.8
2.93.0
3.13.2
3.33.4
3.53.6
Summary of Economic Projections of the Meeting of June 21-22, 2011
Page 9
_____________________________________________________________________________________________
Figure 2.D. Distribution of participants’ projections for core PCE inflation, 2011–13
Number of participants
2011
16
June projections
April projections
14
12
10
8
6
4
2
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
2012
16
14
12
10
8
6
4
2
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
2013
16
14
12
10
8
6
4
2
1.11.2
1.31.4
1.51.6
1.71.8
Percent range
NOTE: Definitions of variables are in the general note to table 1.
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 the Federal Reserve
Board’s 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 sim-
ilar 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 2.1 to 3.9
percent in the current year, 1.4 to 4.6 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
1.2 to 2.8 percent in the current year, and 1.0 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, 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.
Cite this document
Federal Reserve (2011, June 21). FOMC Minutes. Fomc Minutes, Federal Reserve. https://whenthefedspeaks.com/doc/fomc_minutes_20110622
@misc{wtfs_fomc_minutes_20110622,
author = {Federal Reserve},
title = {FOMC Minutes},
year = {2011},
month = {Jun},
howpublished = {Fomc Minutes, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/fomc_minutes_20110622},
note = {Retrieved via When the Fed Speaks corpus}
}