FOMC Minutes

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Minutes of the Federal Open Market Committee

March 13, 2012

A meeting of the Federal Open Market Committee was

held in the offices of the Board of Governors of the

Federal Reserve System in Washington, D.C., on Tuesday, March 13, 2012, at 8:30 a.m.

PRESENT:

Ben Bernanke, Chairman

William C. Dudley, Vice Chairman

Elizabeth Duke

Jeffrey M. Lacker

Dennis P. Lockhart

Sandra Pianalto

Sarah Bloom Raskin

Daniel K. Tarullo

John C. Williams

Janet L. Yellen

James Bullard, Christine Cumming, Charles L.

Evans, Esther L. George, and Eric Rosengren,

Alternate Members of the Federal Open Market Committee

Richard W. Fisher, Narayana Kocherlakota, and

Charles I. Plosser, Presidents of the Federal

Reserve Banks of Dallas, Minneapolis, and

Philadelphia, 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

Thomas C. Baxter, Deputy General Counsel

Steven B. Kamin, Economist

David W. Wilcox, Economist

David Altig, Thomas A. Connors, Michael P.

Leahy, David Reifschneider, Glenn D. Rudebusch, William Wascher, and John A. Weinberg, Associate Economists

Brian Sack, Manager, System Open Market Account

Michael S. Gibson, Director, Division of Banking

Supervision and Regulation, Board of Governors

Nellie Liang, Director, Office of Financial Stability

Policy and Research, Board of Governors

Jon W. Faust and Andrew T. Levin, Special Advisors to the Board, Office of Board Members,

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

Seth B. Carpenter, Senior Associate Director, Division of Monetary Affairs, Board of Governors

Thomas Laubach, Senior Adviser, Division of Research and Statistics, Board of Governors; Ellen E. Meade, Stephen A. Meyer, and Joyce K.

Zickler, Senior Advisers, Division of Monetary

Affairs, Board of Governors

Eric M. Engen, Michael T. Kiley, and Michael G.

Palumbo, Associate Directors, Division of Research and Statistics, Board of Governors

Edward Nelson, Section Chief, Division of Monetary Affairs, Board of Governors

Harvey Rosenblum and Daniel G. Sullivan, Executive Vice Presidents, Federal Reserve Banks of

Dallas and Chicago, respectively

Craig S. Hakkio, Geoffrey Tootell, and Kei-Mu Yi,

Senior Vice Presidents, Federal Reserve Banks

of Kansas City, Boston, and Minneapolis, respectively

Michael Dotsey, Joseph G. Haubrich, Lorie K. Logan, and David C. Wheelock, Vice Presidents,

Federal Reserve Banks of Philadelphia, Cleveland, New York, and St. Louis, respectively

Marc Giannoni, Senior Economist, Federal Reserve Bank of New York

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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 January 24–25, 2012. He also reported on System open

market operations, including the ongoing reinvestment

into agency-guaranteed mortgage-backed securities

(MBS) of principal payments received on SOMA holdings of agency debt and agency-guaranteed MBS as well

as the operations related to the maturity extension program authorized at the September 20–21, 2011, FOMC

meeting. By unanimous vote, the Committee ratified

the Desk’s domestic transactions over the intermeeting

period. There were no intervention operations in foreign currencies for the System’s account over the intermeeting period.

Staff Review of the Economic Situation

The information reviewed at the March 13 meeting

suggested that economic activity was expanding moderately. Labor market conditions continued to improve

and the unemployment rate declined further, although

it remained elevated. Overall consumer price inflation

was relatively subdued in recent months. More recently, prices of crude oil and gasoline increased substantially. Measures of long-run inflation expectations remained stable.

Private nonfarm employment rose at an appreciably

faster average pace in January and February than in the

fourth quarter of last year, and declines in total government employment slowed in recent months. The

unemployment rate decreased to 8.3 percent in January

and stayed at that level in February. Both the rate of

long-duration unemployment and the share of workers

employed part time for economic reasons continued to

be high. Initial claims for unemployment insurance

trended lower over the intermeeting period and were at

a level consistent with further moderate job gains.

Manufacturing production increased considerably in

January, and the rate of manufacturing capacity utilization stepped up. Factory output was boosted by a sizable expansion in the production of motor vehicles, but

there also were solid and widespread gains in other industries. In February, motor vehicle assemblies remained near the strong pace recorded in January; they

were scheduled to edge up, on net, through the second

quarter. Broader indicators of manufacturing activity,

such as the diffusion indexes of new orders from the

national and regional manufacturing surveys, were at

levels suggesting moderate increases in factory production in the coming months.

Households’ real disposable income increased, on balance, in December and January as labor earnings rose

solidly. Moreover, households’ net worth grew in the

fourth quarter of last year and likely was boosted further by gains in equity values thus far this year. Nevertheless, real personal consumption expenditures (PCE)

were reported to have been flat in December and January. Although households’ purchases of motor vehicles

rose briskly, spending for other consumer goods and

services was weak. In February, nominal retail sales

excluding purchases at motor vehicle and parts outlets

increased moderately, while motor vehicle sales continued to climb. Consumer sentiment was little changed

in February, and households remained downbeat about

both the economic outlook and their own income and

finances.

Housing market activity improved somewhat in recent

months but continued to be restrained by the substantial inventory of foreclosed and distressed properties,

tight credit conditions for mortgage loans, and uncertainty about the economic outlook and future home

prices. After increasing in December, starts of new

single-family homes remained at that higher level in

January, likely boosted in part by unseasonably warm

weather; in both months, starts ran above permit issuance. Sales of new and existing homes stepped up

further in recent months, though they still remained at

quite low levels. Home prices were flat, on balance, in

December and January.

Real business expenditures on equipment and software

rose at a notably slower pace in the fourth quarter of

last year than earlier in the year. Moreover, nominal

orders and shipments of nondefense capital goods declined in January. However, a number of forwardlooking indicators of firms’ equipment spending improved, including some survey measures of business

conditions and capital spending plans. Nominal business spending for nonresidential construction firmed,

on net, in December and January, but the level of

spending was still subdued, in part reflecting high vacancy rates and tight credit conditions for construction

loans. Inventories in most industries looked to be reasonably well aligned with sales in recent months, although stocks of motor vehicles continued to be lean.

Data for federal government spending in January and

February indicated that real defense expenditures continued to step down after decreasing significantly in the

fourth quarter. Real state and local government pur-

Minutes of the Meeting of March 13, 2012

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chases looked to be declining at a slower pace than last

year, as those governments’ payrolls edged up in January and February and their nominal construction

spending rose a little in January.

The U.S. international trade deficit widened in December and January, as imports increased more than exports. The expansion of imports was spread across

most categories, with petroleum products and automotive products posting strong gains in January. The rise

in exports was supported by shipments of capital goods

and automotive products, while exports of consumer

goods and industrial supplies declined on average. Data through December indicated that net exports made a

moderate negative contribution to the rate of growth in

real gross domestic product (GDP) in the fourth quarter of last year.

Overall U.S. consumer prices, as measured by the PCE

price index, increased at a modest rate in December

and January. Consumer energy prices rose in January

after decreasing markedly in December, and survey

data indicated that gasoline prices moved up considerably in February and early March. Meanwhile, increases in consumer food prices slowed in recent months.

Consumer prices excluding food and energy also rose

modestly in December and January. Near-term inflation expectations from the Thomson Reuters/University of Michigan Surveys of Consumers

were unchanged in February, and longer-term inflation

expectations in the survey remained in their recent

range.

Measures of labor compensation generally indicated

that nominal wage gains continued to be subdued. Increases in compensation per hour in the nonfarm business sector picked up somewhat over the four quarters

of 2011. However, the employment cost index increased at a more modest pace than the compensation

per hour measure over the past year, and the 12-month

change in average hourly earnings for all employees

remained muted in January and February.

Recent indicators suggested some improvement in foreign economic activity early this year after a significant

slowing in the fourth quarter of last year. Aggregate

output in the euro area contracted in the fourth quarter,

but manufacturing purchasing managers indexes

(PMIs) improved in January and February relative to

their low fourth-quarter readings, and consumer and

business confidence edged up. Floods caused steep

production declines in the fourth quarter in Thailand

and also had negative effects on output in other countries linked through Thai supply chains. However,

economic activity in Thailand recovered sharply around

year-end, and manufacturing PMIs moved up across

Asia through February. Higher prices for energy and

food put upward pressure on headline inflation in foreign economies, but measures of core inflation remained subdued.

Staff Review of the Financial Situation

On balance, U.S. financial conditions became somewhat more supportive of growth over the intermeeting

period, and strains in global financial markets eased, as

domestic and foreign economic data were generally

better than market participants had expected and investors appeared to see diminished downside risks associated with the situation in Europe.

Measures of the expected path for the federal funds

rate derived from overnight index swap (OIS) rates

suggested that the near-term portion of the expected

policy rate path was about unchanged, on balance,

since the January FOMC meeting, but the path beyond

the middle of 2014 shifted down a bit, reportedly reflecting in part the change in the forward rate guidance

in the Committee’s January statement. On balance,

yields on Treasury securities were little changed over

the intermeeting period. Indicators of inflation compensation over the next five years edged up, while

changes in measures of longer-term inflation compensation were mixed.

Conditions in unsecured short-term dollar funding

markets improved over the period, especially for financial institutions with European parents. The spread of

the three-month London interbank offered rate

(LIBOR) over the OIS rate narrowed. In addition,

spreads of rates on asset-backed commercial paper over

those on AA-rated nonfinancial paper decreased significantly, and the amounts outstanding from programs

with European sponsors remained stable. Moreover,

the average maturity of unsecured U.S. commercial

paper issued by European banks lengthened somewhat

over the intermeeting period.

Responses to the March 2012 Senior Credit Officer

Opinion Survey on Dealer Financing Terms indicated

little change, on balance, over the past three months in

credit terms for important classes of counterparties.

Demand for securities financing was reported to have

risen somewhat across asset types, but dealers indicated

that the risk appetite of most clients had changed relatively little over the previous three months.

Broad U.S. equity price indexes rose significantly over

the intermeeting period; equity prices of large banking

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organizations increased about in line with the broader

market. Aggregate earnings per share for firms in the

Standard & Poor’s 500 index declined in the fourth

quarter, but profit margins for large corporations remained wide by historical standards. Reflecting a narrowing of spreads over yields on comparable-maturity

Treasury securities, yields on investment- and speculative-grade corporate bonds continued to decline over

the period, moving toward the low end of their historical ranges. Prices in the secondary market for syndicated leveraged loans moved up further, supported by

continued strong demand from institutional investors.

The spreads of yields on A2/P2-rated unsecured commercial paper issued by nonfinancial firms over yields

on A1/P1-rated issues narrowed slightly on balance.

Bond issuance by financial firms was strong in January

and February, likely reflecting in part the refinancing of

maturing debt that had been issued during the financial

crisis under the Federal Deposit Insurance Corporation’s Temporary Liquidity Guarantee Program. The

issuance of bonds by domestic nonfinancial firms was

solid in recent months, and indicators of credit quality

remained firm. Growth of commercial and industrial

(C&I) loans continued to be substantial and was widespread across domestic banks, though holdings of such

loans at U.S. branches and agencies of European banks

decreased further. Financing conditions in the commercial real estate sector continued to be tight, and

issuance of commercial mortgage-backed securities

remained low in the fourth quarter of last year. Gross

public equity issuance by nonfinancial firms was still

solid in January and February, boosted by continued

strength in initial public offerings. Share repurchases

and cash-financed mergers by nonfinancial firms maintained their strength in the fourth quarter, leading to a

sharp decline in net equity issuance.

Although mortgage rates remained near their historical

lows, conditions in residential mortgage markets generally remained depressed. Consumer credit rose in recent months, with the growth in nonrevolving credit

led by continued rapid expansion of governmentoriginated student loans. Issuance of consumer credit

asset-backed securities remained at moderate levels in

the fourth quarter of 2011 and in early 2012.

Gross long-term issuance of municipal bonds was subdued in the first two months of this year. Meanwhile,

spreads on credit default swaps for debt issued by

states were roughly flat over the intermeeting period.

Bank credit rose at a modest pace, on average, in January and February, mainly reflecting strong increases in

securities holdings and C&I loans. Commercial real

estate loans held by banks continued to decline, while

noncore loans—a category that includes lending to

nonbank financial institutions—grew at a slower pace

than in previous months. The aggregate credit quality

of loans on banks’ books continued to improve across

most asset classes in the fourth quarter.

M2 advanced at a rapid pace in January, apparently reflecting year-end effects, but its growth slowed in February. The rise in M2 was mainly attributable to continued strength in liquid deposits, reflecting investors’

preferences for safe and liquid assets as well as very low

yields on short-term instruments outside M2. Currency

expanded robustly, and the monetary base also grew

significantly over January and February.

Foreign equity markets ended the period higher, particularly in Japan, and benchmark sovereign bond yields

declined. Spreads of yields on euro-area peripheral

sovereign debt over those on German bunds generally

continued to narrow, and foreign corporate credit

spreads also declined further. The staff’s broad nominal index of the foreign exchange value of the dollar

moved down modestly over the intermeeting period.

Funding conditions for euro-area banks eased over the

period, as the European Central Bank (ECB) conducted its second three-year refinancing operation and

widened the pool of eligible collateral for refinancing

operations. Spreads of three-month euro LIBOR over

the OIS rate narrowed, on balance, and European

banks’ issuance of unsecured senior debt and covered

bonds increased. Dollar funding pressures continued

to diminish, and the implied cost of dollar funding

through the foreign exchange swap market fell moderately further. Reflecting the improved conditions in

funding markets, demand for dollars at ECB lending

operations declined and the outstanding amounts

drawn under the Federal Reserve’s dollar liquidity swap

lines with other foreign central banks remained small.

Several other central banks in advanced and emerging

market economies eased policy further. In particular,

the Bank of England increased the size of its existing

gilt purchase program in February, and the Bank of

Japan scaled up its Asset Purchase Program. The Bank

of Japan also introduced a 1 percent inflation goal.

Staff Economic Outlook

In the economic projection prepared for the March

FOMC meeting, the staff revised up its near-term forecast for real GDP growth a little. Although the recent

data on aggregate spending were, on balance, about in

line with the staff’s expectations at the time of the pre-

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vious forecast, indicators of labor market conditions

and production improved somewhat more than the

staff had anticipated. In addition, the decline in the

unemployment rate over the past year was larger than

what seemed consistent with the modest reported rate

of real GDP growth. Against this backdrop, the staff

reduced its estimate of the level of potential output,

yielding a measure of the current output gap that was a

little narrower and better aligned with the staff’s estimate of labor market slack. In its March forecast, the

staff’s projection for real GDP growth over the medium term was somewhat higher than the one presented in January, mostly reflecting an improved outlook for economic activity abroad, a lower foreign exchange value for the dollar, and a higher projected path

of equity prices. Nevertheless, the staff continued to

forecast that real GDP growth would pick up only

gradually in 2012 and 2013, supported by accommodative monetary policy, easing credit conditions, and improvements in consumer and business sentiment. The

wide margin of slack in product and labor markets was

expected to decrease gradually over the projection period, but the unemployment rate was expected to remain elevated at the end of 2013.

The staff also revised up its forecast for inflation a bit

compared with the projection prepared for the January

FOMC meeting, reflecting recent data indicating higher

paths for the prices of oil, other commodities, and imports, along with a somewhat narrower margin of economic slack in the March forecast. However, with

energy prices expected to level out in the second half of

this year, substantial resource slack persisting over the

forecast period, and stable long-run inflation expectations, the staff continued to project that inflation would

be subdued in 2012 and 2013.

Participants’ Views on Current Conditions and the

Economic Outlook

In their discussion of the economic situation and outlook, meeting participants agreed that the information

received since the Committee’s previous meeting, while

mixed, had been positive, on balance, and suggested

that the economy had been expanding moderately.

Labor market conditions had improved further: Payroll employment had continued to expand, and the unemployment rate had declined notably in recent

months.

Still, unemployment remained elevated.

Household spending and business fixed investment had

continued to advance. Despite signs of improvement

or stabilization in some local housing markets, most

participants agreed that the housing sector remained

depressed. Inflation had been subdued in recent

months, although prices of crude oil and gasoline had

increased of late. Longer-term inflation expectations

had remained stable, and most meeting participants saw

little evidence of cost pressures.

With respect to the economic outlook, participants

generally saw the intermeeting news as suggesting that

economic growth over coming quarters would continue

to be moderate and that the unemployment rate would

decline gradually toward levels that the Committee

judges to be consistent with its dual mandate. While a

few participants indicated that their expectations for

real GDP growth for 2012 had risen somewhat, most

participants did not interpret the recent economic and

financial information as pointing to a material revision

to the outlook for 2013 and 2014. Financial conditions

had improved notably since the January meeting: Equity prices were higher and risk spreads had declined.

Nonetheless, a number of factors continued to be seen

as likely to restrain the pace of economic expansion;

these included slower growth in some foreign economies, prospective fiscal tightening in the United States,

the weak housing market, further household deleveraging, and high levels of uncertainty among households

and businesses. Participants continued to expect most

of the factors restraining economic expansion to ease

over time and so anticipated that the recovery would

gradually gain strength. In addition, participants noted

that recent policy actions in the euro area had helped

reduce financial stresses and lower downside risks in

the short term; however, increased volatility in financial

markets remained a possibility if measures to address

the longer-term fiscal and banking issues in the euro

area were not put in place in a timely fashion. Inflation

had been subdued of late, although the recent increase

in crude oil and gasoline prices would push up inflation

temporarily. With unemployment expected to remain

elevated, and with longer-term inflation expectations

stable, most participants expected that inflation subsequently would run at or below the 2 percent rate that

the Committee judges most consistent with its statutory

mandate over the longer run.

In discussing the household sector, meeting participants generally commented that consumer spending

had increased moderately of late. While a few participants suggested that recent improvements in labor

market conditions and the easing in financial conditions

could help lay the groundwork for a strengthening in

the pace of household spending, several other participants pointed to factors that would likely restrain consumption: Growth in real disposable income was still

sluggish, and consumer sentiment, despite some im-

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provement since last summer, remained weak. A number of participants viewed the recent run-up in petroleum prices as likely to limit gains in consumer spending on non-energy items for a time; a couple of participants noted, however, that the unseasonably warm

weather and the declining price of natural gas had

helped cushion the effect of higher oil and gasoline

prices on consumers’ overall energy bills. Most participants agreed that, while recent housing-sector data had

shown some tentative indications of upward movement, the level of activity in that sector remained depressed and was likely to recover only slowly over time.

One participant, while agreeing that the housing market

had not yet turned the corner, was more optimistic

about the potential for a stronger recovery in the market in light of signs of reduced inventory overhang and

stronger demand in some regions.

Reports from business contacts indicated that activity

in the manufacturing, energy, and agriculture sectors

continued to advance in recent months. In the retail

sector, sales of new autos had strengthened, but reports

from other retailers were mixed. A number of businesses had indicated that they were seeing some improvement in demand and that they had become

somewhat more optimistic of late, with some reporting

that they were adding to capacity. But most firms reportedly remained fairly cautious—particularly on hiring decisions—and continued to be uncertain about the

strength of the recovery.

Participants touched on the outlook for fiscal policy

and the export sector. Assessments of the outlook for

government revenues and expenditures were mixed.

State and local government spending had recently

shown modest growth, following a lengthy period of

contraction, and declines in public-sector employment

appeared to have abated of late. However, it was noted

that if agreement was not reached on a longer-term

plan for the federal budget, an abrupt and sharp fiscal

tightening would occur at the start of 2013. A number

of participants observed that exports continued to be a

positive factor for U.S. growth, while noting risks to

the export picture from economic weakness in Europe

or a greater-than-expected slowdown in China and

emerging Asia.

Participants generally observed the continued improvement in labor market conditions since the January

meeting. A couple of participants stated that the

progress suggested by the payroll numbers was also

apparent in a broad array of labor market indicators,

and others noted survey measures suggesting further

solid gains in employment going forward. One participant pointed to inflation readings and a high rate of

long-duration unemployment as signs that the current

level of output may be much closer to potential than

had been thought, and a few others cited a weaker path

of potential output as a characteristic of the present

expansion. However, a number of participants judged

that the labor market currently featured substantial

slack. In support of that view, various indicators were

cited, including aggregate hours, which during the recession had exhibited a decline that was particularly

severe by historical standards and remained well below

the series’ pre-recession peak; the high number of persons working part time for economic reasons; and low

ratios of job openings to unemployment and of employment to population.

Most participants noted that the incoming information

on components of final spending had exhibited less

strength than the indicators of employment and production. Some participants expressed the view that the

recent increases in payrolls likely reflected, in part, a

reversal of the sharp cuts in employment during the

recession, a scenario consistent with the weak readings

on productivity growth of late. In this view, the recent

pace of employment gains might not be sustained if the

growth rate of spending did not pick up. Several participants noted that the unseasonably warm weather of

recent months added one more element of uncertainty

to the interpretation of incoming data, and that this

factor might account for a portion of the recent improvement in indicators of employment and housing.

In a contrasting view, the improvements registered in

labor market indicators could be seen as raising the

likelihood that GDP data for the recent period would

undergo a significant upward revision.

Many participants noted that strains in global financial

markets had eased somewhat, and that financial conditions were more supportive of economic growth than

at the time of the January meeting. Among the evidence cited were higher equity prices and better conditions in corporate credit markets, especially the markets

for high-yield bonds and leveraged loans. Banking contacts were reporting steady, though modest, growth in

C&I loans. Many meeting participants believed that

policy actions in the euro area, notably the Greek debt

swap and the ECB’s longer-term refinancing operations, had helped to ease strains in financial markets

and reduced the downside risks to the U.S. and global

economic outlook. Nonetheless, a number of participants noted that a longer-term solution to the banking

and fiscal problems in the euro area would require sub-

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stantial further adjustment in the banking and public

sectors. Participants saw the possibility of disruptions

in global financial markets as continuing to pose a risk

to growth.

While the recent readings on consumer price inflation

had been subdued, participants agreed that inflation in

the near term would be pushed up by rising oil and

gasoline prices. A few participants noted that the crude

oil price increases in the latter half of 2010 and the early part of 2011 had been part of a broad-based rise in

commodity prices; in contrast, non-energy commodity

prices had been more stable of late, which suggested

that the recent upward pressure on oil prices was principally due to geopolitical concerns rather than global

economic growth. A couple of participants noted that

recent readings on unit labor costs had shown a larger

increase than earlier, but other participants pointed to

other measures of labor compensation that continued

to show modest increases. With longer-run inflation

expectations still well anchored, most participants anticipated that after the temporary effect of the rise in oil

and gasoline prices had run its course, inflation would

be at or below the 2 percent rate that they judge most

consistent with the Committee’s dual mandate. Indeed,

a few participants were concerned that, with the persistence of considerable resource slack, inflation might be

below the mandate-consistent rate for some time.

Other participants, however, were worried that inflation pressures could increase as the expansion continued; these participants argued that, particularly in light

of the recent rise in oil and gasoline prices, maintaining

the current highly accommodative stance of monetary

policy over the medium run could erode the stability of

inflation expectations and risk higher inflation.

Committee Policy Action

Members viewed the information on U.S. economic

activity received over the intermeeting period as suggesting that the economy had been expanding moderately and generally agreed that the economic outlook,

while a bit stronger overall, was broadly similar to that

at the time of their January meeting. Labor market

conditions had continued to improve and unemployment had declined in recent months, but almost all

members saw the unemployment rate as still elevated

relative to levels that they viewed as consistent with the

Committee’s mandate over the longer run. With the

economy facing continuing headwinds, members generally expected a moderate pace of economic growth

over coming quarters, with gradual further declines in

the unemployment rate. Strains in global financial

markets, while having eased since January, continued to

pose significant downside risks to economic activity.

Recent monthly readings on inflation had been subdued, and longer-term inflation expectations remained

stable. Against that backdrop, members generally anticipated that the recent increase in oil and gasoline

prices would push up inflation temporarily, but that

subsequently inflation would run at or below the rate

that the Committee judges most consistent with its

mandate.

In their discussion of monetary policy for the period

ahead, members agreed that it would be appropriate to

maintain the existing highly accommodative stance of

monetary policy. In particular, they agreed to keep the

target range for the federal funds rate at 0 to ¼ percent,

to continue the program of extending the average maturity of the Federal Reserve’s holdings of securities as

announced in September, and to retain the existing policies regarding the reinvestment of principal payments

from Federal Reserve holdings of securities.

With respect to the statement to be released following

the meeting, members agreed that only relatively small

modifications to the first two paragraphs were needed

to reflect the incoming economic data, the improvement in financial conditions, and the modest changes

to the economic outlook. With the economic outlook

over the medium term not greatly changed, almost all

members again agreed to indicate that the Committee

expects to maintain a highly accommodative stance for

monetary policy and currently anticipates 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 at least through late 2014.

Several members continued to anticipate, as in January,

that the unemployment rate would still be well above

their estimates of its longer-term normal level, and inflation would be at or below the Committee’s longerrun objective, in late 2014. It was noted that the

Committee’s forward guidance is conditional on economic developments, and members concurred that the

date given in the statement would be subject to revision

in response to significant changes in the economic outlook. While recent employment data had been encouraging, a number of members perceived a nonnegligible

risk that improvements in employment could diminish

as the year progressed, as had occurred in 2010 and

2011, and saw this risk as reinforcing the case for leaving the forward guidance unchanged at this meeting.

In contrast, one member judged that maintaining the

current degree of policy accommodation much beyond

this year would likely be inappropriate; that member

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anticipated that a tightening of monetary policy would

be necessary well before the end of 2014 in order to

keep inflation close to the Committee’s 2 percent objective.

The Committee also stated that it is prepared to adjust

the size and composition of its securities holdings as

appropriate to promote a stronger economic recovery

in a context of price stability. A couple of members

indicated that the initiation of additional stimulus could

become necessary if the economy lost momentum or if

inflation seemed likely to remain below its mandateconsistent rate of 2 percent over the medium run.

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 continue

the maturity extension program it began in

September to purchase, by the end of June

2012, Treasury securities with remaining maturities of approximately 6 years to 30 years

with a total face value of $400 billion, and to

sell Treasury securities with remaining maturities of 3 years or less with a total face value

of $400 billion. The Committee also directs

the Desk to maintain its existing policies of

rolling over maturing Treasury securities into

new issues and of reinvesting principal payments on all agency debt and agency mortgage-backed securities in the System Open

Market Account in agency mortgage-backed

securities in order to maintain the total face

value of domestic securities at approximately

$2.6 trillion. 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 January

suggests that the economy has been expanding moderately. Labor market conditions

have improved further; the unemployment

rate has declined notably in recent months

but remains elevated. Household spending

and business fixed investment have continued to advance. The housing sector remains

depressed. Inflation has been subdued in recent months, although prices of crude oil

and gasoline have increased lately. Longerterm inflation expectations have remained

stable.

Consistent with its statutory mandate, the

Committee seeks to foster maximum employment and price stability. The Committee

expects moderate economic growth over

coming quarters and consequently anticipates

that the unemployment rate will decline

gradually toward levels that the Committee

judges to be consistent with its dual mandate.

Strains in global financial markets have

eased, though they continue to pose significant downside risks to the economic outlook. The recent increase in oil and gasoline

prices will push up inflation temporarily, but

the Committee anticipates that subsequently

inflation will run at or below the rate that it

judges most consistent with its dual mandate.

To support a stronger economic recovery

and to help ensure that inflation, over time,

is at the rate most consistent with its dual

mandate, the Committee expects to maintain

a highly accommodative stance for monetary

policy. In particular, the Committee decided

today to keep the target range for the federal

funds rate at 0 to ¼ percent and currently

anticipates 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

at least through late 2014.

Minutes of the Meeting of March 13, 2012

Page 9

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The Committee also decided to continue its

program to extend the average maturity of its

holdings of securities as announced in September. The Committee is maintaining its

existing policies of reinvesting principal

payments from its holdings of agency debt

and agency mortgage-backed securities in

agency mortgage-backed securities and of

rolling over maturing Treasury securities at

auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those

holdings as appropriate to promote a stronger economic recovery in a context of price

stability.”

Voting for this action: Ben Bernanke, William C.

Dudley, Elizabeth Duke, Dennis P. Lockhart, Sandra

Pianalto, Sarah Bloom Raskin, Daniel K. Tarullo, John

C. Williams, and Janet L. Yellen.

Voting against this action: Jeffrey M. Lacker.

Mr. Lacker dissented because he did not agree that

economic conditions were likely to warrant exceptionally low levels of the federal funds rate at least through

late 2014. In his view, with inflation close to the

Committee’s objective of 2 percent, the economy expanding at a moderate pace, and downside risks somewhat diminished, the federal funds rate will most likely

need to rise considerably sooner to prevent the emergence of inflationary pressures. Mr. Lacker continues

to prefer to provide forward guidance regarding future

Committee policy actions through the inclusion of

FOMC participants’ projections of the federal funds

rate in the Summary of Economic Projections (SEP).

Monetary Policy Communications

As it noted in its statement of principles regarding

longer-run goals and monetary policy strategy released

in January, the Committee seeks to explain its monetary

policy decisions to the public as clearly as possible.

With that goal in mind, participants discussed a range

of additional steps that the Committee might take to

help the public better understand the linkages between

the evolving economic outlook and the Federal Reserve’s monetary policy decisions, and thus the conditionality in the Committee’s forward guidance. The

purpose of the discussion was to explore potentially

promising approaches for further enhancing FOMC

communications; no decisions on this topic were

planned for this meeting and none were taken.

Participants discussed ways in which the Committee

might include, in its postmeeting statements, additional

qualitative or quantitative information that could convey a sense of how the Committee might adjust policy

in response to changes in the economic outlook. Participants also discussed whether modifications to the

SEP that the Committee releases four times per year

could be helpful in clarifying the linkages between the

economic outlook and the Committee’s monetary policy decisions. In addition, several participants suggested

that it could be helpful to discuss at a future meeting

some alternative economic scenarios and the monetary

policy responses that might be seen as appropriate under each one, in order to clarify the Committee’s likely

behavior in different contingencies. Finally, participants observed that the Committee introduced several

important enhancements to its policy communications

over the past year or so; these included the Chairman’s

postmeeting press conferences as well as changes to the

FOMC statement and the SEP. Against this backdrop,

some participants noted that additional experience with

the changes implemented to date could be helpful in

evaluating potential further enhancements.

It was agreed that the next meeting of the Committee

would be held on Tuesday–Wednesday, April 24–25,

2012. The meeting adjourned at 4:10 p.m. on

March 13, 2012.

Notation Vote

By notation vote completed on February 14, 2012, the

Committee unanimously approved the minutes of the

FOMC meeting held on January 24–25, 2012.

_____________________________

William B. English

Secretary