FOMC Minutes
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Minutes of the Federal Open Market Committee
June 19–20, 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, June 19, 2012, at 11:00 a.m. and continued on
Wednesday, June 20, 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
Jerome H. Powell
Sarah Bloom Raskin
Jeremy C. Stein
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
Richard M. Ashton,¹ Assistant General Counsel
Steven B. Kamin, Economist
David W. Wilcox, Economist
David Altig, Thomas A. Connors, Michael P. Leahy,
William Nelson, Simon Potter, David Reifschneider, Mark S. Sniderman, William Wascher, John A.
Weinberg, and Kei-Mu Yi, Associate Economists
Brian Sack, Manager, System Open Market Account
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
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; Timothy
P. Clark, Senior Associate Director, Division of
Banking Supervision and Regulation, 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
Daniel M. Covitz, Eric M. Engen, Michael T. Kiley,²
David E. Lebow, and Michael G. Palumbo, Associate Directors, Division of Research and Statistics,
Board of Governors
David Bowman, Deputy Associate Director, Division
of International Finance, Board of Governors
Steven A. Sharpe and John J. Stevens, Assistant Directors, Division of Research and Statistics, Board of
Governors
David H. Small, Project Manager, Division of Monetary Affairs, Board of Governors
Francisco Covas and Jennifer E. Roush, Senior Economists, Division of Monetary Affairs, Board of
Governors; Andrea De Michelis, Senior Economist, Division of International Finance, Board of
Governors
Sarah G. Green, First Vice President, Federal Reserve
Bank of Richmond
_______________________
¹ Attended Tuesday’s morning session only.
² Attended Tuesday’s session only.
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Loretta J. Mester and Harvey Rosenblum, Executive
Vice Presidents, Federal Reserve Banks of Philadelphia and Dallas, respectively
Troy Davig, Geoffrey Tootell, and Christopher J. Waller, Senior Vice Presidents, Federal Reserve Banks
of Kansas City, Boston, and St. Louis, respectively
John Fernald, Group Vice President, Federal Reserve
Bank of San Francisco
Lorie K. Logan and Anna Paulson, Vice Presidents,
Federal Reserve Banks of New York and Chicago,
respectively
Organizational Matters
By unanimous vote, Simon Potter was selected to serve
at the pleasure of the Committee as Manager, System
Open Market Account, effective June 30, 2012, on the
understanding that his selection was subject to being
satisfactory to the Federal Reserve Bank of New York.
Secretary’s note: Advice subsequently was
received that the selection of Mr. Potter as
Manager was satisfactory to the Federal Reserve Bank of New York.
By unanimous vote, the Committee selected James J.
McAndrews to serve as Associate Economist, effective
June 30, 2012, until the selection of his successor at the
first regularly scheduled meeting of the Committee in
2013.
By unanimous vote, the Committee amended the
FOMC Policy on External Communications of Federal
Reserve System Staff to clarify some specific aspects of
the policy.3
Discussion of Communications regarding Economic Projections
Meeting participants discussed several possibilities for
enhancing the clarity and transparency of the Committee’s economic projections and their role in policy decisions and policy communications. In particular, participants noted that while the Summary of Economic Projections (SEP) provides information about their individual projections of key macroeconomic variables and
about the path of monetary policy that each sees as
appropriate and consistent with his or her projections,
the SEP does not provide guidance about how those
The policy is available at www.federalreserve.gov/monetary
policy/files/FOMC_ExtCommunicationStaff.pdf .
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diverse views come together in the Committee’s collective judgment about the outlook and appropriate policy
as expressed in its postmeeting statement. Many participants indicated that if it were possible to construct a
quantitative economic projection and associated path
of appropriate policy that reflected the collective judgment of the Committee, such a projection could potentially be helpful in clarifying how the outlook and policy decisions are related. Participants discussed examples of the economic and policy projections published
by a number of foreign central banks. Participants
generally indicated a willingness to explore adjustments
to the SEP, while highlighting the importance of communicating not only the Committee’s collective judgment but also the diversity of their views regarding the
economic outlook and monetary policy. Many participants noted that developing a quantitative forecast that
reflects the Committee’s collective judgment could be
challenging, given the range of their views about the
economy’s structure and dynamics. Several participants
judged that the incremental gains in transparency that
would result from developing and presenting such a
consensus projection would be modest, given the
breadth of information already provided in the Committee’s policy statements, the minutes of Federal
Open Market Committee (FOMC) meetings, and the
Chairman’s press briefings. Participants agreed to continue to explore ways to increase clarity and transparency in the Committee’s policy communications; many
noted that the Committee had introduced a number of
changes in its communications over the past year or so,
and emphasized that further changes should be considered carefully. At the end of the discussion, the
Chairman asked the subcommittee on communications
to explore the feasibility and workability of potential
approaches to developing an FOMC consensus forecast.
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
FOMC met on April 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
Minutes of the Meeting of June 19–20, 2012
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the intermeeting period. There were no intervention
operations in foreign currencies for the System’s account over the intermeeting period.
By unanimous vote, the Authorization for Domestic
Open Market Operations was amended to include the
authority to conduct small-value operations for the
purposes of routine testing of operational readiness. In
addition, the Authorization was amended to include the
authority to conduct intraday repurchase agreement
(repo) transactions with foreign and international accounts to prevent daylight overdrafts in those accounts.4
Staff Review of the Economic Situation
The information reviewed at the June 19–20 meeting
suggested that economic activity was expanding at a
somewhat more modest pace than earlier in the year.
Improvements in labor market conditions slowed in
recent months, and the unemployment rate remained
elevated. Consumer price inflation declined, primarily
reflecting reductions in the prices of crude oil and gasoline, and measures of long-run inflation expectations
continued to be stable.
Private nonfarm employment rose at a slower pace in
April and May than in the first quarter of the year,
while total government employment continued to trend
down. The unemployment rate stood at 8.2 percent in
May, essentially the same as its average in the first quarter. The rate of long-duration unemployment remained
very high, and the share of workers employed part time
for economic reasons was little changed in recent
months. Indicators of job openings and firms’ hiring
plans were mixed, while initial claims for unemployment insurance were essentially unchanged over the
intermeeting period at a level consistent with modest
net job gains in the coming months.
Manufacturing production edged up, on net, in April
and May after rising at a robust pace in the first quarter.
Meanwhile, the rate of manufacturing capacity utilization remained about the same as earlier in the year. In
recent months, the output of motor vehicles and parts
increased further, on balance, although at a slower rate
than in the first quarter, while factory output outside of
the motor vehicle sector only inched up. Motor vehicle
assemblies were scheduled to hold steady in the coming
months, and broader indicators of manufacturing production, such as the diffusion indexes of new orders
from the national and regional manufacturing surveys,
The authorization is available at www.federalreserve.gov/
monetarypolicy/files/FOMC_DomesticAuthorization.pdf .
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were generally at levels consistent with modest increases in output in the near term.
Real personal consumption expenditures increased solidly in the first quarter. In April and May, however,
nominal retail sales excluding purchases of motor vehicles declined while sales of motor vehicles slowed
from their brisk pace in the first quarter. Factors that
tend to support households’ expenditures were, on balance, a little softer in recent months. The estimated
level of households’ real disposable income was revised
down for the fourth quarter of last year. Moreover,
real disposable income rose at a subdued pace in the
first quarter of this year, though it received some boost
from lower energy prices in April. Households’ net
worth increased in the first quarter, but the decline in
equity prices during the intermeeting period suggested
that net worth may have fallen more recently. Consumer sentiment was lower in early June than earlier in
the year, and it continued to be subdued.
Activity in the housing sector generally improved in
recent months, but it was still restrained by tight credit
standards for mortgage loans and the substantial inventory of foreclosed and distressed properties. Both
starts and permits of new single-family homes rose in
April and May but remained at low levels. Although
starts of new multifamily units ran at a somewhat lower
pace, on average, in April and May than in the first
quarter, permits increased in recent months, likely
pointing to further gains in multifamily construction.
Home prices rose for the fourth consecutive month in
April. Sales of existing homes were a little higher in
April than their monthly average in the first quarter,
but the pace of new home sales was roughly unchanged.
Real business expenditures on equipment and software
increased moderately in the first quarter. In April,
nominal shipments and orders of nondefense capital
goods excluding aircraft decreased. Recent forwardlooking indicators, such as surveys of business conditions and capital spending plans, pointed toward continued moderate increases in outlays for business
equipment in subsequent months. Nominal business
spending for nonresidential construction was essentially
flat in April relative to the first quarter. Meanwhile,
inventories in most industries looked to be roughly
aligned with sales in recent months.
Real federal government purchases fell markedly in the
first quarter, led by a sharp decrease in defense spending. Data for federal government spending in April
and May pointed to a slower pace of decline in defense
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outlays in the second quarter. Real state and local government purchases also decreased in the first quarter.
Moreover, the payrolls of state and local governments
contracted in April and May after edging up in the first
quarter, and nominal construction spending by these
governments continued to decline in April.
The U.S. international trade deficit widened in March
and then narrowed in April to a level near its average in
the first quarter. Both imports and exports rose
strongly in March before receding a bit in April. In
particular, exports to the euro area, which had increased strongly in the first quarter on a seasonally adjusted basis despite the weakness in economic activity
in the region, fell back in April.
Overall U.S. consumer prices were flat in April and
then fell in May as consumer energy prices declined
considerably in both months. Survey data indicated
that gasoline prices fell further in the first half of June,
in line with continued decreases in crude oil prices.
Meanwhile, consumer food prices only edged up in
recent months. Consumer prices excluding food and
energy increased moderately in April and May. Nearterm inflation expectations from the Thomson Reuters/University of Michigan Surveys of Consumers
declined in May and held steady in early June, while
longer-term inflation expectations in the survey remained stable.
Measures of labor compensation indicated that increases in nominal wages continued to be subdued. Gains
in compensation per hour in the nonfarm business sector were quite muted over the year ending in the first
quarter, and with small gains in productivity, unit labor
costs rose only slightly. The employment cost index
increased only a little faster than the compensation per
hour measure over the same period. More recently,
average hourly earnings for all employees edged up in
April and May, and their rate of increase from
12 months earlier continued to be slow.
Recent indicators suggested that overall foreign economic activity was expanding at a below-trend pace in
the second quarter. Euro-area economies appeared to
be slowing: Industrial production declined in the euro
area in April, and the composite purchasing managers
index and indicators of business confidence fell in May
to their lowest levels in more than two years. In China,
data on production and sales in April and May suggested that economic activity was increasing at a less
rapid pace than last year. In both advanced and emerging market economies, declining prices for energy and
other commodities contributed to decreases in
12-month measures of inflation since late last year.
Staff Review of the Financial Situation
Growing concerns about developments in the euro area
and weaker-than-expected economic data in the United
States and abroad both weighed on financial markets
since the time of the April FOMC meeting. The deterioration in investor sentiment was tempered to an extent by market participants’ expectations for further
policy accommodation by central banks as well as by
the anticipation of additional measures to address European fiscal and banking issues.
Yields on longer-dated nominal and inflation-protected
Treasury securities moved down substantially, on net,
over the intermeeting period. The yield on nominal
10-year Treasury securities reached a historically low
level immediately following the release of the May employment report. A sizable portion of the decline in
longer-term Treasury rates over the period appeared to
reflect greater safe-haven demands by investors, along
with some increase in market participants’ expectations
of further Federal Reserve balance sheet actions. Indicators of inflation expectations derived from nominal
and inflation-protected Treasury securities also fell,
apparently responding at least in part to the decline in
commodity prices. The expected path for the federal
funds rate derived from money market futures quotes
shifted down in 2014 and beyond.
There was limited evidence of increased strains in unsecured, short-term dollar funding markets over the
intermeeting period despite heightened concerns about
the situation in Europe. In secured funding markets,
the overnight general collateral Treasury repo rate
edged higher. Market participants attributed some portion of the firming in short-term rates over the past
several months to a temporary increase in short-dated
Treasury securities held by dealers as a result of cumulative net Treasury issuance of such securities and sales
of these securities by the Federal Reserve under its maturity extension program.
Broad U.S. stock price indexes declined, and optionimplied volatility on the S&P 500 index rose. Equity
prices for large domestic banks significantly underperformed the broad indexes amid uncertainty about the
situation in Europe and the outlook for the global
economy. Disclosure of a large trading loss at a major
U.S. bank also contributed to the underperformance.
Investors’ expectation that five large U.S. banks would
have their credit ratings downgraded at the end of June,
as part of rating agencies’ review of major financial in-
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stitutions, may also have weighed on the equity prices
of those banks.
Lending indicated that lending conditions again eased
slightly, although perhaps less so for small businesses.
In the June 2012 Senior Credit Officer Opinion Survey
on Dealer Financing Terms (SCOOS), respondents
reported that terms in a variety of dealer-intermediated
markets were little changed over the past three months.
Some respondents reported a decline in the use of leverage by hedge funds across various transaction types.
M2 increased at a somewhat slower pace in April and
May than in the first quarter of the year. The level of
M2 and its largest component—liquid deposits—
remained elevated, apparently reflecting investors’ continued desire to hold safe and liquid assets.
Yields on investment- and speculative-grade corporate
debt remained low by historical standards, but their
spreads over comparable-maturity Treasury securities
widened a bit. Nonfinancial firms continued to raise
funds at a solid pace over the period, with the proceeds
primarily used to refinance existing debt. Both commercial and industrial (C&I) loans and nonfinancial
commercial paper outstanding increased, on net, during
April and May. New syndicated loan issuance also appeared to remain solid, although there were some reports of tighter terms. Gross public equity issuance by
nonfinancial firms remained strong in April and into
May but then slowed after the poor performance of a
prominent initial public offering.
Financing conditions for the commercial real estate
sector remained strained over the intermeeting period.
Even so, issuance of commercial mortgage-backed securities in April and May outpaced issuance during the
first quarter.
Credit conditions in residential mortgage markets continued to be tight. Mortgage refinancing activity rose in
April and May but remained subdued despite further
declines in mortgage rates to historically low levels.
Consumer credit expanded at a solid pace in recent
months, as increases in student loans boosted nonrevolving credit while revolving credit was about flat.
Delinquency rates for consumer credit remained low,
partly reflecting a shift in the composition of borrowers
toward those with higher credit scores.
Gross issuance of long-term municipal bonds picked
up in April and May, with net issuance turning positive
for the first time since the beginning of 2011. However, credit default swap spreads for state governments
generally moved higher, and spreads on long-term general obligation municipal bonds over comparablematurity Treasury securities rose as well.
Bank credit expanded in April and May. Banks’ holdings of securities continued to rise, and core loans—
C&I, real estate, and consumer loans—also increased
modestly. The May Survey of Terms of Business
Heightened financial strains in the euro area and indications of a weaker pace of global economic activity
weighed on foreign financial markets during the intermeeting period. Yields on most euro-area peripheral
countries’ sovereign debt rose, particularly after the
May 6 elections in Greece failed to produce a new government. In addition, indicators of the conditions of
European banks continued to deteriorate: Rating agencies downgraded major banks in Germany, Italy, Spain,
and several other European countries; prices of euroarea bank stocks fell sharply; and credit default swap
premiums for many euro-area banks increased. Pressures on Spanish banks led euro-area authorities to
agree to provide official aid to the Spanish government
for the purpose of recapitalizing the country’s troubled
banks. Indicators of funding market stresses remained
muted, as many banks obtained funds from the European Central Bank (ECB) rather than interbank markets. The spreads of euro London interbank offered
rates (or euro LIBOR) over comparable overnight index swap rates, along with implied basis spreads from
euro–dollar swaps, were little changed at short maturities, and the amount of dollar swaps outstanding with
the ECB declined on balance. The total outstanding
amount drawn on the Federal Reserve’s dollar liquidity
swap lines with foreign central banks dropped to
$24.2 billion over the intermeeting period.
Although equity prices in many countries rallied modestly late in the intermeeting period, global equity prices
declined, on balance, over the period, with especially
large net decreases in Japan and many emerging market
economies. Flight-to-safety flows helped push yields
on both U.K. and German 10-year sovereign debt to
record lows before these rates partly retraced their declines. The staff’s broad nominal dollar index ended
the intermeeting period up moderately. Signs of a
slowdown in global economic growth prompted policy
easing by central banks in Brazil, China, and Australia,
and the Bank of England announced new lending initiatives.
The risks to the U.S. financial system emanating from
strains in Europe appeared to increase over the intermeeting period. Although signs of strains in short-term
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funding markets were muted, the reliance of some financial firms on these markets remained a potential
vulnerability, given that investors could withdraw rapidly in a period of financial stress. Respondents to the
June 2012 SCOOS reported that financial institutions
and market participants had increased the amount of
resources and attention devoted to the management of
concentrated exposures to central counterparties and
other financial utilities.
Staff Economic Outlook
In the economic projection prepared by the staff for
the June FOMC meeting, the forecast for real gross
domestic product (GDP) growth in the near term was
revised down. The revision reflected data indicating a
slower pace of private-sector job gains, more-subdued
retail sales, a lower trajectory for personal income,
greater restraint in government purchases, and weaker
net exports than the staff anticipated at the time of the
previous projection. Moreover, recent adverse developments in Europe and tighter domestic financial conditions led the staff to revise down somewhat the medium-term forecast for real GDP growth. With the
drag from fiscal policy anticipated to increase next year,
the staff projected that the growth rate of real GDP
would not materially exceed that of potential output
until 2014 when economic activity was expected to accelerate gradually, supported by accommodative monetary policy, further improvements in credit availability,
and rising consumer and business sentiment. Increases
in economic activity were anticipated to narrow the
wide margin of slack in labor and product markets only
slowly over the projection period, and the unemployment rate was expected to still be elevated at the end of
2014.
The staff’s near-term projection for inflation was revised down from the forecast prepared for the April
FOMC meeting, reflecting a greater-than-expected
drop in consumer energy prices. However, the staff’s
projection for inflation over the medium term was essentially unchanged. With the upward pressure from
the earlier run-up in crude oil prices on consumer energy prices unwinding and oil prices expected to decline
further, long-run inflation expectations anticipated to
remain stable, and substantial resource slack persisting
over the forecast period, the staff continued to project
that inflation would be subdued through 2014.
Participants’ Views on Current Conditions and the
Economic Outlook
In conjunction with this FOMC meeting, meeting participants—the 7 members of the Board of Governors
and the presidents of the 12 Federal Reserve Banks, all
of whom participate in the deliberations of the
FOMC—submitted their assessments of real output
growth, the unemployment rate, inflation, and the target federal funds rate for each year from 2012 through
2014 and over the longer run, under each participant’s
judgment of appropriate monetary policy. The 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.
These economic projections and policy assessments are
described in the Summary of Economic Projections,
which is attached as an addendum to these minutes.
In their discussion of the economic situation and outlook, participants agreed that the information received
since the Committee’s previous meeting suggested that
the economy had continued to expand moderately,
though many noted that a variety of indicators showed
smaller gains than had been anticipated. Growth in
employment, in particular, appeared to have slowed in
recent months, and the unemployment rate remained
elevated. Business fixed investment had continued to
advance, and household spending appeared to be rising
at a somewhat slower pace than earlier in the year.
There were further signs of improvement in the housing sector, but the level of activity remained very low.
Volatility in financial markets increased over the intermeeting period, and investors’ appetite for riskier assets
declined, likely in response to heightened fiscal and
financial strains in Europe as well as some weakerthan-expected incoming data about the U.S. economy
and foreign economies. Inflation had slowed somewhat, mainly reflecting the decline in the prices of
crude oil and gasoline in recent months, and longerterm inflation expectations remained stable.
Participants generally interpreted the information that
became available during the intermeeting period as
suggesting that economic growth would most likely
remain moderate over coming quarters and then pick
up very gradually. Most participants saw the incoming
information as indicating somewhat slower growth in
total demand, output, and employment over coming
quarters than they had projected in April, and most
carried forward some of that downward revision to
their projections of medium-term growth. However,
some participants judged that the recent weakness in a
variety of economic indicators was more likely to prove
transitory, and thought that the outlook beyond this
year was essentially unchanged. Reflecting the projected moderate pace of growth in production and em-
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ployment, most participants anticipated that the unemployment rate would decline only slowly. A number of
factors continued to be seen as likely to limit the economic expansion to a moderate pace in the near term;
these included slow growth or even contraction in
some major foreign economies, ongoing and prospective fiscal tightening in the United States, modest
growth in household income, and—despite some recent signs of improvement—continued weakness in the
housing sector. As in April, participants expected that
most of the factors restraining economic expansion
would ease over time, and so anticipated that the recovery eventually would gain strength. However,
strains in global financial markets, which stemmed primarily from fiscal and banking concerns in Europe, had
become more pronounced over the intermeeting period
and continued to pose significant downside risks to the
economic outlook; the possibility of a sharper-thananticipated fiscal tightening in the United States also
posed a downside risk. Looking beyond the temporary
effects on inflation of this year’s fluctuations in oil and
other commodity prices, almost all participants continued to anticipate that inflation over the medium-term
would run at or below the 2 percent rate that the
Committee judges to be most consistent with its statutory mandate. In one participant’s judgment, appropriate monetary policy would lead to inflation modestly
greater than 2 percent for a time in order to bring unemployment down somewhat faster. Some participants
indicated that they saw persistent slack in resource utilization as posing downside risks to the outlook for
inflation; a few participants judged that the highly accommodative stance of monetary policy posed upside
risks to the medium-term inflation outlook.
In discussing the household sector, meeting participants noted that real personal consumption expenditures had continued to expand despite weak growth in
real disposable income, but that the pace of expansion
appeared to have slowed since earlier this year. A few
participants expressed concern that slow growth in
employment and low levels of consumer confidence
would further restrain consumer spending. Many participants, however, said that business contacts had reported that consumer spending was holding up. Several observed that recent declines in gasoline prices
would increase households’ real incomes and could
boost consumer spending in coming quarters. More
broadly, improving household balance sheets and a
diminishing drag from household deleveraging were
seen as likely to help support rising household expenditures over time.
Indicators of home sales, construction, and prices suggested some improvement in the housing sector.
However, not all regions shared in the gains, and the
sector remained depressed overall. Most participants
anticipated that housing markets were likely to recover
only slowly over time, in part because tight credit standards in mortgage lending meant that low mortgage
rates were now generating less of a pickup in home
sales and construction than had been the case during
the recoveries from earlier recessions. A few participants were more sanguine about the potential for a
sizable upturn in housing activity. Still, with residential
investment currently a much smaller share of real GDP
than during past recoveries, the housing sector seemed
unlikely to contribute substantially to a stronger economic recovery.
Anecdotal evidence from business contacts indicated
that activity in the energy and agriculture sectors continued to advance in recent months. Information from
manufacturing and transportation firms was generally
less optimistic than earlier in the year. There were a
number of reports of slowing sales to Europe and Asia.
Contacts in some parts of the country also indicated
that firms had become more cautious in their hiring
and investment decisions, with most capital investment
being undertaken to improve productivity and reduce
costs rather than to expand capacity. Some participants
cited examples of business contacts saying that heightened uncertainty about future tax and regulatory policies had led them to put potential investment projects
on hold until the uncertainty is resolved.
Participants expected that fiscal policy would continue
to be a drag on economic growth over coming quarters.
They generally also saw the federal budget situation as a
downside risk to the economic outlook: If an agreement was not reached to address the expiring tax cuts
and scheduled spending reductions in current law, a
sharp tightening of fiscal policy would occur at the start
of 2013. A few participants reported hearing that defense contractors were making contingency plans to
reduce their workforces if potential spending cuts go
into effect; one reported that some firms already had
begun to make such reductions. In contrast, it was
noted that an agreement on a credible longer-term plan
that put the federal budget on a sustainable path over
the medium run in a way that removes the near-term
fiscal risks to the recovery would help alleviate uncertainty, likely would have positive effects on consumer
and business sentiment, and so could spur an increase
in business investment and hiring.
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Exports helped support U.S. economic growth during
the early months of this year. However, recent reports
from some business contacts pointed to slowing exports to Europe and China, and several participants
noted the risk that economic weakness in Europe or a
more significant slowing in the pace of expansion in
emerging markets in Asia could damp exports further.
A couple of participants expressed the view that the
direct effects on the U.S. economy stemming from
slower economic growth abroad—effects that would
be manifested through declining U.S. exports—would
be noticeable but not large. However, another participant noted that recent appreciation of the dollar in foreign exchange markets would also contribute to reduced exports.
The pace of improvement in labor market conditions
diminished in recent months; in particular, growth in
employment slowed. Job growth late last year and early
this year was boosted by unusually mild winter weather;
some slowing had been expected as weather became
more normal during the spring, but the reported slowing was more substantial than many participants had
anticipated. One participant noted that the apparent
tension between strong employment growth and moderate output growth seen earlier in the year had been
resolved more recently by slower job growth rather
than faster output growth. Even so, average monthly
growth in payrolls from January through May was in
line with last year’s pace.
Meeting participants again discussed the extent of slack
in labor markets. Some participants judged that the
unemployment rate was being substantially boosted by
structural factors such as mismatches between the skills
of unemployed workers and those required for available jobs, a view that would imply less slack in labor
markets than suggested by a simple comparison of the
current unemployment rate to participants’ estimates of
its longer-run normal level. A couple of participants
said they would have expected inflation to slow noticeably if there were substantial and persistent slack. One
implication of the view that there is relatively little slack
is that providing more monetary stimulus would be
likely to raise inflation above the Committee’s objective. Some other participants acknowledged that structural factors were contributing to unemployment, but
said that, in their view, slack remained high and weak
aggregate demand was the major reason that the unemployment rate was still elevated. These participants
cited a range of evidence to support their judgment:
the still-high fraction of workers who report working
part-time jobs because they cannot find full-time work;
research showing that job-finding rates among the
long-term unemployed were somewhat higher in the
recent past than a year earlier; anecdotal evidence to the
effect that employers do not see long spells of unemployment as making applicants less attractive for most
jobs; and reports that employers were receiving large
numbers of applications for each opening and were
being especially discriminating when filling vacant positions. Another participant pointed to research showing
that, in many countries, inflation is less responsive to
downward pressure from labor market slack when inflation is already low than when inflation is elevated,
and to evidence that firms in the United States have
been reluctant to cut nominal wages in recent years, as
indications that sizable slack might not cause inflation
to decline from its already low level. These arguments
imply that slack in labor markets remains considerable
and therefore that a reduction in the unemployment
rate toward its longer-run normal level would not have
much effect on inflation.
Measures of consumer price inflation declined over the
intermeeting period, mainly reflecting reductions in oil
and gasoline prices since earlier in the year. Several
participants noted that they saw little if any evidence of
price pressures, commenting that increases in labor
costs continued to be subdued and that non-energy
commodity prices had declined of late. With longerrun inflation expectations well anchored and the unemployment rate elevated, almost all participants anticipated that inflation in coming quarters and over the
medium run would be at or below the 2 percent rate
that the Committee judges to be most consistent with
its mandate; several had revised down their inflation
forecasts. Most participants viewed the risks to their
inflation outlook as being roughly balanced. Some participants, however, saw persistent slack in resource utilization as weighting the risks to the outlook for inflation to the downside. In contrast, a few saw inflation
risks as tilted to the upside; they generally were skeptical of models that rely on economic slack to forecast
inflation and were concerned that maintaining the current highly accommodative stance of monetary policy
over the medium run risked eroding the stability of
inflation expectations, with a couple noting that large
long-run fiscal imbalances also posed a risk.
Many FOMC participants judged that overall financial
conditions had become somewhat less supportive of
growth in demand for goods and services. Investors’
concerns about the sovereign debt and banking situation in the euro area reportedly intensified during the
intermeeting period, leading to higher risk spreads and
Minutes of the Meeting of June 19–20, 2012
Page 9
_____________________________________________________________________________________________
lower prices for riskier assets including equities and to
broad-based appreciation of the U.S. dollar on foreign
exchange markets. In contrast, a few participants observed that the marked drop in yields on longer-term
U.S. Treasury securities could provide some impetus to
growth. Focusing more narrowly on the banking sector in the United States, it was noted that measures of
credit quality for bank loans generally had continued to
improve, that bank capital levels were quite high, and
that banks had ample liquidity. Consumer and business
loans were increasing, although credit standards remained tight and commercial and residential real estate
lending were relatively weak. A few participants indicated that they were seeing signs that very low interest
rates might be inducing some investors to take on imprudent risks in the search for higher nominal returns.
Participants discussed the risk that strains in global financial markets and pressures on European financial
institutions could worsen and spill over to parts of the
domestic financial sector, and some noted the importance of undertaking adequate preparations to address
such spillovers if they were to occur; it also was recognized that investor sentiment could improve and strains
in global markets might ease. Several participants
commented that it would be desirable to explore the
possibility of developing new tools to promote moreaccommodative financial conditions and thereby support a stronger economic recovery.
Committee Policy Action
Committee members saw the information received
over the intermeeting period as suggesting that the
economy had been expanding moderately. However,
growth in employment had slowed in recent months,
and almost all members saw the unemployment rate as
still elevated relative to levels that they viewed as consistent with the Committee’s mandate. Members generally expected growth to be moderate over coming
quarters and then to pick up very gradually, with the
unemployment rate declining only slowly. Most projected somewhat slower growth through next year, and
a smaller reduction in unemployment, than they had
projected in April. Furthermore, strains in global financial markets, which largely stemmed from the sovereign debt and banking situation in Europe, had increased during the intermeeting period and continued
to pose significant downside risks to economic activity
both here and abroad, making the outlook quite uncertain. The possibility that U.S. fiscal policy would be
more contractionary than anticipated was also cited as a
downside risk. Inflation had slowed, mainly reflecting
the decline in the prices of crude oil and gasoline in
recent months. Averaging through its recent fluctuations, inflation appeared to be running near the Committee’s 2 percent longer-run objective; with longerterm inflation expectations stable, members anticipated
that inflation over the medium run would be at or below that rate. Some members judged that persistent
slack in resource utilization posed downside risks to the
outlook for inflation. In contrast, one member thought
that maintaining the current highly accommodative
stance of monetary policy well into 2014 would pose
upside risks to inflation.
In their discussion of monetary policy for the period
ahead, members agreed that it would be appropriate to
keep the target range for the federal funds rate at 0 to
¼ percent in order to support a stronger economic
recovery and to help ensure that inflation, over time, is
at the 2 percent rate that the Committee judges most
consistent with its mandate. In addition, all members
but one agreed that it would be appropriate to continue
through the end of this year the Committee’s program
to extend the average maturity of the Federal Reserve’s
holdings of securities; specifically, they agreed to continue purchasing Treasury securities with remaining
maturities of 6 years to 30 years at the current pace of
about $44 billion per month while selling or redeeming
an equal amount of Treasury securities with remaining
maturities of approximately 3 years or less. These steps
would increase the Federal Reserve’s holdings of longer-term Treasury securities by about $267 billion while
reducing its holdings of shorter-term Treasury securities by the same amount. Members also agreed to
maintain the Committee’s existing policy regarding the
reinvestment of principal payments from Federal Reserve holdings of agency securities into agency MBS.
Members generally judged that continuing the maturity
extension program would put some downward pressure
on longer-term interest rates and help make broader
financial conditions more accommodative. Some
members noted the risk that continued purchases of
longer-term Treasury securities could, at some point,
lead to deterioration in the functioning of the Treasury
securities market that could undermine the intended
effects of the policy. However, members generally
agreed that such risks seemed low at present, and were
outweighed by the expected benefits of the action.
Several members noted that the downward pressure on
longer-term rates from continuing the Committee’s
maturity extension program was likely to be modest.
One member anticipated little if any effect on economic growth and unemployment and did not agree that
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Federal Open Market Committee
_____________________________________________________________________________________________
the outlook for economic activity and inflation called
for further policy accommodation.
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 and the changes
to the economic outlook. In light of their assessment
of the economic situation, 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. Some Committee
members indicated that their policy judgment reflected
in part their perception of significant downside risks to
growth, especially since the Committee’s ability to respond to weaker-than-expected economic conditions
would be somewhat limited by the constraint imposed
on monetary policy when the policy rate is at or near its
effective lower bound. Members again noted that the
forward guidance is conditional on economic developments and that the date given in the statement would
be subject to revision should there be a significant
change in the economic outlook.
A few members expressed the view that further policy
stimulus likely would be necessary to promote satisfactory growth in employment and to ensure that the inflation rate would be at the Committee’s goal. Several
others noted that additional policy action could be warranted if the economic recovery were to lose momentum, if the downside risks to the forecast became sufficiently pronounced, or if inflation seemed likely to run
persistently below the Committee’s longer-run objective. The Committee agreed that it was prepared to
take further action as appropriate to promote a stronger economic recovery and sustained improvement in
labor market conditions in a context of price stability.
A few members observed that it would be helpful to
have a better understanding of how large the Federal
Reserve’s asset purchases would have to be to cause a
meaningful deterioration in securities market functioning, and of the potential costs of such deterioration for
the economy as a whole.
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 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.
Following the conclusion of these purchases,
the Committee directs the Desk to purchase
Treasury securities with remaining maturities
of 6 years to 30 years with a total face value
of about $267 billion by the end of December 2012, and to sell or redeem Treasury securities with remaining maturities of approximately 3 years or less with a total face value
of about $267 billion. For the duration of
this program, the Committee directs the
Desk to suspend its current policy of rolling
over maturing Treasury securities into new
issues. The Committee directs the Desk to
maintain its existing policy of reinvesting
principal payments on all agency debt and
agency mortgage-backed securities in the
System Open Market Account in agency
mortgage-backed securities. These actions
should 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 12:30 p.m.:
“Information received since the Federal
Open Market Committee met in April suggests that the economy has been expanding
moderately this year. However, growth in
Minutes of the Meeting of June 19–20, 2012
Page 11
_____________________________________________________________________________________________
employment has slowed in recent months,
and the unemployment rate remains elevated. Business fixed investment has continued to advance. Household spending appears to be rising at a somewhat slower pace
than earlier in the year. Despite some signs
of improvement, the housing sector remains
depressed. Inflation has declined, mainly reflecting lower prices of crude oil and gasoline, and longer-term inflation expectations
have remained stable.
Consistent with its statutory mandate, the
Committee seeks to foster maximum employment and price stability. The Committee expects economic growth to remain
moderate over coming quarters and then to
pick up very gradually. Consequently, the
Committee anticipates that the unemployment rate will decline only slowly toward levels that it judges to be consistent with its
dual mandate. Furthermore, strains in global
financial markets continue to pose significant
downside risks to the economic outlook.
The Committee anticipates that inflation
over the medium term 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.
The Committee also decided to continue
through the end of the year its program to
extend the average maturity of its holdings
of securities. Specifically, the Committee intends to purchase Treasury securities with
remaining maturities of 6 years to 30 years at
the current pace and to sell or redeem an
equal amount of Treasury securities with remaining maturities of approximately 3 years
or less. This continuation of the maturity
extension program should put downward
pressure on longer-term interest rates and
help to make broader financial conditions
more accommodative. The Committee is
maintaining its existing policy of reinvesting
principal payments from its holdings of
agency debt and agency mortgage-backed securities in agency mortgage-backed securities. The Committee is prepared to take further action as appropriate to promote a
stronger economic recovery and sustained
improvement in labor market conditions in a
context of price stability.”
Voting for this action: Ben Bernanke, William C.
Dudley, Elizabeth Duke, Dennis P. Lockhart, Sandra
Pianalto, Jerome H. Powell, Sarah Bloom Raskin, Jeremy C. Stein, Daniel K. Tarullo, John C. Williams, and
Janet L. Yellen.
Voting against this action: Jeffrey M. Lacker.
Mr. Lacker dissented because he opposed continuation
of the maturity extension program. He did not believe
that further monetary stimulus at this time would make
a substantial difference for economic growth and employment without also increasing inflation by more
than would be desirable. In Mr. Lacker’s view, the outlook for economic growth had clearly weakened of late,
but he questioned whether the maturity extension program would have much effect in current circumstances.
Should inflation fall substantially and persistently below
the Committee’s 2 percent goal, however, he felt that
monetary stimulus might then be appropriate to ensure
the return of inflation toward target.
It was agreed that the next meeting of the Committee
would be held on Tuesday–Wednesday, July 31–August 1, 2012. The meeting adjourned at 11:05 a.m. on
June 20, 2012.
Notation Vote
By notation vote completed on May 15, 2012, the
Committee unanimously approved the minutes of the
FOMC meeting held on April 24–25, 2012.
_____________________________
William B. English
Secretary
Page 1
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Summary of Economic Projections
In conjunction with the June 19–20, 2012, Federal
Open Market Committee (FOMC) meeting, meeting
participants—the 7 members of the Board of Governors and the 12 presidents of the Federal Reserve
Banks, all of whom participate in the deliberations of
the FOMC—submitted their assessments, under each
participant’s judgment of appropriate monetary policy,
of real output growth, the unemployment rate, inflation, and the target federal funds rate for each year
from 2012 through 2014 and over the longer run.
These assessments were based on information available
at the time of the meeting and participants’ individual
assumptions about the factors likely to affect economic
outcomes. The longer-run projections represent each
participant’s judgment 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. “Appropriate monetary
policy” is defined as the future path of policy that participants deem most likely to foster outcomes for economic activity and inflation that best satisfy their individual interpretations of the Federal Reserve’s objectives of maximum employment and stable prices.
Overall, the assessments that FOMC participants submitted in June indicated that, under appropriate monetary policy, the pace of economic expansion over the
2012−14 period would likely continue to be moderate
and inflation would remain subdued (see table 1 and
figure 1). Participants judged that the growth rate of
real gross domestic product (GDP) would pick up
gradually and that the unemployment rate would edge
down very slowly. Participants projected that inflation,
as measured by the annual change in the price index for
personal consumption expenditures (PCE), would run
close to or below the FOMC’s longer-run inflation objective of 2 percent.
As shown in figure 2, most participants judged that
highly accommodative monetary policy was likely to be
warranted over the forecast period. In particular,
13 participants thought that it would be appropriate for
the first increase in the target federal funds rate to occur during 2014 or later. A majority of participants
judged that appropriate monetary policy would involve
an extension of the maturity extension program (MEP)
through the end of 2012.
Overall, participants judged the uncertainty associated
with the outlook for real activity and the unemployment rate to be unusually high relative to historical
norms, with the risks weighted mainly toward slower
economic growth and a higher unemployment rate.
Many participants also viewed the uncertainty surrounding their projections for inflation to be greater
than normal, but most saw the risks to inflation to be
broadly balanced.
The Outlook for Economic Activity
Conditional upon their individual assumptions about
appropriate monetary policy, participants judged that
Table 1. Economic projections of Federal Reserve Board members and Federal Reserve Bank presidents, June 2012
Percent
Variable
Range2
Central tendency1
2012
2013
2014
Longer run
2012
2013
2014
Longer run
Change in real GDP. . . . . .
April projection. . . . . .
1.9 to 2.4
2.4 to 2.9
2.2 to 2.8
2.7 to 3.1
3.0 to 3.5
3.1 to 3.6
2.3 to 2.5
2.3 to 2.6
1.6 to 2.5
2.1 to 3.0
2.2 to 3.5
2.4 to 3.8
2.8 to 4.0
2.9 to 4.3
2.2 to 3.0
2.2 to 3.0
Unemployment rate. . . . . .
April projection. . . . . .
8.0 to 8.2
7.8 to 8.0
7.5 to 8.0
7.3 to 7.7
7.0 to 7.7
6.7 to 7.4
5.2 to 6.0
5.2 to 6.0
7.8 to 8.4
7.8 to 8.2
7.0 to 8.1
7.0 to 8.1
6.3 to 7.7
6.3 to 7.7
4.9 to 6.3
4.9 to 6.0
PCE inflation. . . . . . . . . . .
April projection. . . . . .
1.2 to 1.7
1.9 to 2.0
1.5 to 2.0
1.6 to 2.0
1.5 to 2.0
1.7 to 2.0
2.0
2.0
1.2 to 2.0
1.8 to 2.3
1.5 to 2.1
1.5 to 2.1
1.5 to 2.2
1.5 to 2.2
2.0
2.0
Core PCE inflation3. . . . . .
April projection. . . . .
1.7 to 2.0
1.8 to 2.0
1.6 to 2.0
1.7 to 2.0
1.6 to 2.0
1.8 to 2.0
1.7 to 2.0
1.7 to 2.0
1.4 to 2.1
1.6 to 2.1
1.5 to 2.2
1.7 to 2.2
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 24–25, 2012.
1. The central tendency excludes the three highest and three lowest projections for each variable in each year.
2. The range for a variable in a given year includes all participants’ projections, from lowest to highest, for that variable in that year.
3. Longer-run projections for core PCE inflation are not collected.
Page 2
Federal Open Market Committee
_____________________________________________________________________________________________
Figure 1. Central tendencies and ranges of economic projections, 2012–14 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
3
2007
2008
2009
2010
2011
2012
2013
2014
Longer
run
Percent
Unemployment rate
10
9
8
7
6
5
2007
2008
2009
2010
2011
2012
2013
2014
Longer
run
Percent
PCE inflation
3
2
1
2007
2008
2009
2010
2011
2012
2013
2014
Longer
run
Percent
Core PCE inflation
3
2
1
2007
2008
2009
2010
2011
2012
2013
2014
Longer
run
Note: Definitions of variables are in the general note to table 1. The data for the actual values of the variables are
annual.
Summary of Economic Projections of the Meeting of June 19–20, 2012
_____________________________________________________________________________________________
Figure 2. Overview of FOMC participants’ assessments of appropriate monetary policy, June 2012
Number of participants
Appropriate timing of policy firming
9
8
7
7
6
6
5
4
3
3
3
2
1
2012
2013
2014
2015
Appropriate pace of policy firming
Percent
Target federal funds rate at year-end
6
5
4
3
2
1
0
2012
2013
2014
Longer run
Note: In the upper panel, the height of each bar denotes the number of FOMC participants who judge that, under
appropriate monetary policy, the first increase in the target federal funds rate from its current range of 0 to 1/4 percent
will occur in the specified calendar year. In April 2012, the numbers of FOMC participants who judged that the first
increase in the target federal funds rate would occur in 2012, 2013, 2014, and 2015 were, respectively, 3, 3, 7, and 4. In
the lower panel, each shaded circle indicates the value (rounded to the nearest 1/4 percentage point) of an individual
participant’s judgment of the appropriate level of the target federal funds rate at the end of the specified calendar year
or over the longer run.
Page 4
Federal Open Market Committee
_____________________________________________________________________________________________
the economy would continue to expand at a moderate
pace in 2012 and 2013 before picking up in 2014 to a
pace somewhat above what participants view as the
longer-run rate of output growth. The central tendency
of their projections for the change in real GDP in 2012
was 1.9 to 2.4 percent, lower than in April. Many participants characterized the incoming data—especially
for household spending and the labor market—as having been weaker than they had anticipated in April. In
addition, most noted that the worsening situation in
Europe was leading to a slowdown in global economic
growth and greater volatility in financial markets.
Compared with their April submissions, most participants lowered their medium-run projections of economic activity somewhat. The central tendencies of
participants’ projections of real economic growth in
2013 and 2014 were 2.2 to 2.8 percent and 3.0 to
3.5 percent, respectively. The central tendency for the
longer-run rate of increase of real GDP was 2.3 to
2.5 percent, little changed from April. Participants
cited several headwinds that were likely to hold back
the pace of economic expansion over the forecast period, including the difficult fiscal and financial situation
in Europe, a still-depressed housing market, tight credit
for some borrowers, and fiscal restraint in the United
States.
Consistent with the downward revisions to their projections for real GDP growth in 2012 and 2013, nearly
all participants marked up their assessments for the rate
of unemployment. Participants projected the unemployment rate at the end of 2012 to remain at or
slightly below recent levels, with a central tendency of
8.0 to 8.2 percent, somewhat higher than their April
submissions.
Participants anticipated gradual improvement in labor market conditions by 2014, but
even so, they generally thought that the unemployment
rate at the end of that year would still lie well above
their individual estimates of its longer-run normal level.
The central tendencies of participants’ forecasts for the
unemployment rate were 7.5 to 8.0 percent at the end
of 2013 and 7.0 to 7.7 percent at the end of 2014. The
central tendency of participants’ estimates of the longer-run normal rate of unemployment that would prevail
under the assumption of appropriate monetary policy
and in the absence of further shocks to the economy
was 5.2 to 6.0 percent, unchanged from April. Most
participants projected that the gap between the current
unemployment rate and their estimates of its longerrun normal rate would be closed in five or six years, a
couple judged that less time would be needed, and one
thought more time would be necessary because of the
persistent headwinds impeding the economic expansion.
Figures 3.A and 3.B provide details on the diversity of
participants’ views regarding the likely outcomes for
real GDP growth and the unemployment rate over the
next three years and over the longer run. The dispersion in these projections reflects differences in participants’ assessments of many factors, including appropriate monetary policy and its effects on the economy, the
underlying momentum in economic activity, the spillover effects of the fiscal and financial situation in Europe, the prospective path for U.S. fiscal policy, the
extent of structural dislocations in the labor market,
and the likely evolution of credit and financial market
conditions. Compared with their April assessments,
the range of participants’ forecasts for the change in
real GDP in 2012 and 2013 shifted lower, while the
dispersion of individual forecasts for growth in 2014
was about unchanged. Consistent with the downward
shift in the distribution of forecasts for economic
growth, the distribution of projections for the unemployment rate shifted up in 2012 and 2013 and, to a
lesser extent, in 2014. As in April, the dispersion of
estimates for the longer-run rate of output growth was
fairly narrow, generally in a range of 2.2 to 2.7 percent.
In contrast, participants’ views about the level to which
the unemployment rate would converge in the longer
run were more diverse, reflecting, among other things,
different views on the outlook for labor supply and the
structure of the labor market.
The Outlook for Inflation
Participants’ views about the medium-run outlook for
inflation under the assumption of appropriate monetary policy were little changed from April. However,
nearly all of them marked down their assessment of
headline inflation in the near term, pointing to recent
declines in the prices of crude oil and gasoline that
were sharper than previously projected. Almost all participants judged that both headline and core inflation
would remain subdued over the 2012−14 period, running at rates at or below the FOMC’s longer-run objective of 2 percent. Some participants noted that inflation expectations had remained stable, and several
pointed to resource slack and moderate increases in
labor compensation as sources of restraint on prices.
Specifically, the central tendency of participants’ projections for inflation, as measured by the PCE price index,
moved down in 2012 to 1.2 to 1.7 percent and was little
changed in 2013 and 2014 at 1.5 to 2.0 percent. The
central tendencies of the forecasts for core inflation
Summary of Economic Projections of the Meeting of June 19–20, 2012
_____________________________________________________________________________________________
Figure 3.A. Distribution of participants’ projections for the change in real GDP, 2012–14 and over the longer run
Number of participants
2012
20
18
16
14
12
10
8
6
4
2
June projections
April projections
1.6 1.7
1.8 1.9
2.0 2.1
2.2 2.3
2.4 2.5
2.6 2.7
2.8 2.9
3.0 3.1
3.2 3.3
3.4 3.5
3.6 3.7
3.8 3.9
4.0 4.1
4.2 4.3
Percent range
Number of participants
2013
1.6 1.7
20
18
16
14
12
10
8
6
4
2
1.8 1.9
2.0 2.1
2.2 2.3
2.4 2.5
2.6 2.7
2.8 2.9
3.0 3.1
3.2 3.3
3.4 3.5
3.6 3.7
3.8 3.9
4.0 4.1
4.2 4.3
Percent range
Number of participants
2014
1.6 1.7
20
18
16
14
12
10
8
6
4
2
1.8 1.9
2.0 2.1
2.2 2.3
2.4 2.5
2.6 2.7
2.8 2.9
3.0 3.1
3.2 3.3
3.4 3.5
3.6 3.7
3.8 3.9
4.0 4.1
4.2 4.3
Percent range
Number of participants
Longer run
1.6 1.7
1.8 1.9
20
18
16
14
12
10
8
6
4
2
2.0 2.1
2.2 2.3
2.4 2.5
2.6 2.7
2.8 2.9
3.0 3.1
3.2 3.3
Percent range
Note: Definitions of variables are in the general note to table 1.
3.4 3.5
3.6 3.7
3.8 3.9
4.0 4.1
4.2 4.3
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Figure 3.B. Distribution of participants’ projections for the unemployment rate, 2012–14 and over the longer run
Number of participants
2012
20
18
16
14
12
10
8
6
4
2
June projections
April projections
4.8 4.9
5.0 5.1
5.2 5.3
5.4 5.5
5.6 5.7
5.8 5.9
6.0 6.1
6.2 6.3
6.4 6.5
6.6 6.7
6.8 6.9
7.0 7.1
7.2 7.3
7.4 7.5
7.6 7.7
7.8 7.9
8.0 8.1
8.2 8.3
8.4 8.5
Percent range
Number of participants
2013
4.8 4.9
20
18
16
14
12
10
8
6
4
2
5.0 5.1
5.2 5.3
5.4 5.5
5.6 5.7
5.8 5.9
6.0 6.1
6.2 6.3
6.4 6.5
6.6 6.7
6.8 6.9
7.0 7.1
7.2 7.3
7.4 7.5
7.6 7.7
7.8 7.9
8.0 8.1
8.2 8.3
8.4 8.5
Percent range
Number of participants
2014
4.8 4.9
20
18
16
14
12
10
8
6
4
2
5.0 5.1
5.2 5.3
5.4 5.5
5.6 5.7
5.8 5.9
6.0 6.1
6.2 6.3
6.4 6.5
6.6 6.7
6.8 6.9
7.0 7.1
7.2 7.3
7.4 7.5
7.6 7.7
7.8 7.9
8.0 8.1
8.2 8.3
8.4 8.5
Percent range
Number of participants
Longer run
4.8 4.9
5.0 5.1
20
18
16
14
12
10
8
6
4
2
5.2 5.3
5.4 5.5
5.6 5.7
5.8 5.9
6.0 6.1
6.2 6.3
6.4 6.5
6.6 6.7
6.8 6.9
7.0 7.1
Percent range
Note: Definitions of variables are in the general note to table 1.
7.2 7.3
7.4 7.5
7.6 7.7
7.8 7.9
8.0 8.1
8.2 8.3
8.4 8.5
Summary of Economic Projections of the Meeting of June 19–20, 2012
_____________________________________________________________________________________________
were broadly the same as those for the headline measure in 2013 and 2014.
Figures 3.C and 3.D provide information about the
diversity of participants’ views about the outlook for
inflation. Relative to the assessments compiled in
April, the projections for headline inflation shifted
down in 2012, reflecting the declines in energy prices.
The distributions of participants’ projections for headline and core inflation in 2013 and 2014 were slightly
lower than those reported in April.
Appropriate Monetary Policy
As indicated in figure 2, most participants judged that
exceptionally low levels of the federal funds rate would
remain appropriate at least until late 2014. In particular, seven participants thought that it would be appropriate to commence policy firming in 2014, while
another six participants thought that the first increase
in the target federal funds rate would not be warranted
until 2015 (upper panel). Eleven participants indicated
that the appropriate federal funds rate at the end of
2014 would be 75 basis points or lower (lower panel),
and those who judged that policy liftoff would not occur until 2015 thought the federal funds rate would be
1½ percent or lower at the end of that year. As in
April, six participants judged that economic conditions
would warrant an increase in the target federal funds
rate in either 2012 or 2013 in order to achieve the
Committee’s statutory mandate. Those participants
judged that the appropriate value for the federal funds
rate would range from 1½ to 3 percent at the end of
2014.
All participants reported levels for the appropriate target federal funds rate at the end of 2014 that were well
below their estimates of the level expected to prevail in
the longer run. Estimates of the longer-run target federal funds rate ranged from 3 to 4½ percent, reflecting
the Committee’s inflation objective of 2 percent and
participants’ judgments about the longer-run equilibrium level of the real federal funds rate.
Participants also provided qualitative information on
their views regarding the appropriate path of the Federal Reserve’s balance sheet. Of the 12 participants
whose assessments of appropriate monetary policy included additional balance sheet policies, 11 indicated
that their assumptions incorporated an extension
through the end of 2012 of the MEP, and 2 participants conditioned their economic forecasts on a new
program of securities purchases. Two indicated that
they would consider such purchases in the event that
the economy did not make satisfactory progress in im-
proving labor market conditions or in the event of a
significant deterioration in the economic outlook or a
further increase in downside risks to that outlook. Almost all participants assumed that the Committee
would carry out the normalization of the balance sheet
according to the principles approved at the June 2011
FOMC meeting. That is, prior to the first increase in
the federal funds rate, the Committee would likely
cease reinvesting some or all principal payments on
securities in the System Open Market Account
(SOMA), and it would likely begin sales of agency securities from the SOMA sometime after the first rate
increase, aiming to eliminate the SOMA’s holdings of
agency securities over a period of three to five years.
In general, participants linked their preferred start dates
for the normalization process to their views for the
appropriate timing for the first increase in the target
federal funds rate. One participant who thought that
the liftoff of the federal funds rate should occur relatively soon indicated that the reinvestment of maturing
securities should continue for a time after liftoff.
The key factors informing participants’ individual assessments of the appropriate setting for monetary policy included their judgments regarding the maximum
level of employment, the extent to which current conditions had deviated from mandate-consistent levels,
and participants’ projections of the likely time horizon
necessary to return employment and inflation to such
levels. Several participants noted that their assessments
of appropriate monetary policy reflected the subpar
pace of the economic expansion and the persistent
shortfall in aggregate demand since the 2007–09 recession, and two commented that the neutral level of the
federal funds rate was likely somewhat below its historical norm. One participant expressed concern that a
protracted period of very accommodative monetary
policy could lead to a buildup of risks in the financial
system. Participants also noted that because the appropriate stance of monetary policy depends importantly on the evolution of real activity and inflation
over time, their assessments of the appropriate future
path of the federal funds rate and the balance sheet
could change if economic conditions were to evolve in
an unexpected manner.
Figure 3.E details the distribution of participants’
judgments regarding the appropriate level of the target
federal funds rate at the end of each calendar year from
2012 to 2014 and over the longer run. Most participants judged that economic conditions would warrant
maintaining the current low level of the federal funds
rate through the end of 2013. Views on the appropri-
Page 8
Federal Open Market Committee
_____________________________________________________________________________________________
Figure 3.C. Distribution of participants’ projections for PCE inflation, 2012–14 and over the longer run
Number of participants
2012
20
18
16
14
12
10
8
6
4
2
June projections
April projections
1.1 1.2
1.3 1.4
1.5 1.6
1.7 1.8
1.9 2.0
2.1 2.2
2.3 2.4
Percent range
Number of participants
2013
20
18
16
14
12
10
8
6
4
2
1.1 1.2
1.3 1.4
1.5 1.6
1.7 1.8
1.9 2.0
2.1 2.2
2.3 2.4
Percent range
Number of participants
2014
20
18
16
14
12
10
8
6
4
2
1.1 1.2
1.3 1.4
1.5 1.6
1.7 1.8
1.9 2.0
2.1 2.2
2.3 2.4
Percent range
Number of participants
Longer run
1.1 1.2
20
18
16
14
12
10
8
6
4
2
1.3 1.4
1.5 1.6
1.7 1.8
Percent range
Note: Definitions of variables are in the general note to table 1.
1.9 2.0
2.1 2.2
2.3 2.4
Summary of Economic Projections of the Meeting of June 19–20, 2012
_____________________________________________________________________________________________
Figure 3.D. Distribution of participants’ projections for core PCE inflation, 2012–14
Number of participants
2012
20
June projections
April projections
18
16
14
12
10
8
6
4
2
1.3 1.4
1.5 1.6
1.7 1.8
1.9 2.0
2.1 2.2
Percent range
Number of participants
2013
20
18
16
14
12
10
8
6
4
2
1.3 1.4
1.5 1.6
1.7 1.8
1.9 2.0
2.1 2.2
Percent range
Number of participants
2014
20
18
16
14
12
10
8
6
4
2
1.3 1.4
1.5 1.6
1.7 1.8
Percent range
Note: Definitions of variables are in the general note to table 1.
1.9 2.0
2.1 2.2
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Federal Open Market Committee
_____________________________________________________________________________________________
Figure 3.E. Distribution of participants’ projections for the target federal funds rate, 2012–14 and over the longer run
Number of participants
2012
June projections
April projections
0.00 0.37
0.38 0.62
0.63 0.87
20
18
16
14
12
10
8
6
4
2
0.88 1.12
1.13 1.37
1.38 1.62
1.63 1.87
1.88 2.12
2.13 2.37
2.38 2.62
2.63 2.87
2.88 3.12
3.13 3.37
3.38 3.62
3.63 3.87
3.88 4.12
4.13 4.37
4.38 4.62
Percent range
Number of participants
2013
20
18
16
14
12
10
8
6
4
2
0.00 0.37
0.38 0.62
0.63 0.87
0.88 1.12
1.13 1.37
1.38 1.62
1.63 1.87
1.88 2.12
2.13 2.37
2.38 2.62
2.63 2.87
2.88 3.12
3.13 3.37
3.38 3.62
3.63 3.87
3.88 4.12
4.13 4.37
4.38 4.62
Percent range
Number of participants
2014
20
18
16
14
12
10
8
6
4
2
0.00 0.37
0.38 0.62
0.63 0.87
0.88 1.12
1.13 1.37
1.38 1.62
1.63 1.87
1.88 2.12
2.13 2.37
2.38 2.62
2.63 2.87
2.88 3.12
3.13 3.37
3.38 3.62
3.63 3.87
3.88 4.12
4.13 4.37
4.38 4.62
Percent range
Number of participants
Longer run
20
18
16
14
12
10
8
6
4
2
0.00 0.37
0.38 0.62
0.63 0.87
0.88 1.12
1.13 1.37
1.38 1.62
1.63 1.87
1.88 2.12
2.13 2.37
2.38 2.62
2.63 2.87
2.88 3.12
3.13 3.37
3.38 3.62
3.63 3.87
3.88 4.12
4.13 4.37
4.38 4.62
Percent range
Note: The target federal funds rate is measured as the level of the target rate at the end of the calendar year or
in the longer run.
Summary of Economic Projections of the Meeting of June 19–20, 2012
_____________________________________________________________________________________________
ate level of the federal funds rate at the end of 2014
were more widely dispersed, with 11 participants seeing
the appropriate level of the federal funds rate as ¾ percentage point or lower and 4 of them seeing the appropriate rate as 2 percent or higher. Those who judged
that a longer period of very accommodative monetary
policy would be appropriate generally projected that the
unemployment rate would remain further above its
longer-run normal level at the end of 2014. In contrast,
the 6 participants who judged that policy firming
should begin in 2012 or 2013 indicated that the Committee would need to act soon to keep inflation near
the FOMC’s longer-run objective of 2 percent and to
prevent a rise in inflation expectations.
Uncertainty and Risks
Nearly all participants judged that their current level of
uncertainty about GDP growth and unemployment was
higher than was the norm during the previous 20 years
(figure 4).1 About half of all participants judged the
level of uncertainty associated with their inflation forecasts to be higher as well, while another eight participants viewed uncertainty about inflation as broadly
similar to historical norms. The main factors cited as
underlying the elevated uncertainty about economic
outcomes were the ongoing fiscal and financial situation in Europe, the outlook for fiscal policy in the
United States, and a general slowdown in global economic growth, including the possibility of a significant
slowdown in China. As in April, participants noted the
difficulties associated with forecasting the path of the
U.S. economic recovery following a financial crisis and
recession that differed markedly from recent historical
experience. Several commented that in the aftermath
of the financial crisis, they were more uncertain about
the level of potential output and its trend rate of
growth.
A majority of participants reported that they saw the
risks to their forecasts of real GDP growth as weighted
toward the downside and, accordingly, the risks to their
Table 2 provides estimates of the forecast uncertainty for
the change in real GDP, the unemployment rate, and total
consumer price inflation over the period from 1992 to 2011.
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.
1
Table 2. Average historical projection error ranges
Percentage points
Variable
Change in real
2012
2013
2014
........
±1.0
±1.6
±1.7
........
±0.4
±1.2
±1.7
±0.8
±1.0
±1.1
GDP1
Unemployment
rate1
Total consumer
prices2
......
NOTE: Error ranges shown are measured as plus or minus the root
mean squared error of projections for 1992 through 2011 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. Definitions of variables are in the general note to 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.
projections of the unemployment rate as tilted to the
upside. The most frequently identified sources of risk
were the situation in Europe, which many participants
thought had the potential to slow global economic activity, particularly over the near term, and the fiscal situation in the United States.
Most participants continued to judge the risks to their
projections for inflation as broadly balanced, with several highlighting the recent stability of inflation expectations. However, five participants saw the risks to inflation as tilted to the downside, a larger number than in
April; a couple of them noted that slack in resource
markets could turn out to be greater or could put more
downward pressure on inflation than they were anticipating. Two participants saw the risks to inflation as
weighted to the upside, in light of concerns about U.S.
fiscal imbalances, the current highly accommodative
stance of monetary policy, or the Committee’s ability to
effectively remove policy accommodation when it becomes appropriate to do so.
Page 12
Federal Open Market Committee
_____________________________________________________________________________________________
Figure 4. Uncertainty and risks in economic projections
Number of participants
Uncertainty about GDP growth
20
18
16
14
12
10
8
6
4
2
June projections
April projections
Lower
Broadly
similar
Higher
Number of participants
Risks to GDP growth
20
18
16
14
12
10
8
6
4
2
June projections
April projections
Weighted to
downside
Broadly
balanced
Number of participants
Uncertainty about the unemployment rate
Lower
Broadly
similar
20
18
16
14
12
10
8
6
4
2
Higher
Number of participants
Risks to the unemployment rate
Weighted to
downside
Broadly
balanced
Number of participants
Uncertainty about PCE inflation
Lower
Broadly
similar
20
18
16
14
12
10
8
6
4
2
Higher
Lower
Broadly
similar
Higher
Weighted to
upside
Risks to PCE inflation
Weighted to
downside
20
18
16
14
12
10
8
6
4
2
20
18
16
14
12
10
8
6
4
2
Number of participants
Broadly
balanced
Number of participants
Uncertainty about core PCE inflation
Weighted to
upside
20
18
16
14
12
10
8
6
4
2
Weighted to
upside
Number of participants
Risks to core PCE inflation
Weighted to
downside
Broadly
balanced
20
18
16
14
12
10
8
6
4
2
Weighted to
upside
Note: For definitions of uncertainty and risks in economic projections, see the box “Forecast Uncertainty.” Definitions of variables are in the general note to table 1.
Summary of Economic Projections of the Meeting of June 19–20, 2012
_____________________________________________________________________________________________
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 similar to that experienced in the past and the risks
around the projections are broadly balanced,
the numbers reported in table 2 would imply a
probability of about 70 percent that actual
GDP would expand within a range of 2.0 to
4.0 percent in the current year, 1.4 to 4.6 per-
cent in the second year, and 1.3 to 4.7 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, 1.0 to
3.0 percent in the second year, and 0.9 to
3.1 percent in the third year.
Because current conditions may differ
from those that prevailed, on average, over history, participants provide judgments as to
whether the uncertainty attached to their projections of each variable is greater than, smaller
than, or broadly similar to typical levels of
forecast uncertainty in the past, as shown in
table 2. Participants also provide judgments as
to whether the risks to their projections are
weighted to the upside, are weighted to the
downside, or are broadly balanced. That is,
participants judge whether each variable is
more likely to be above or below their projections of the most likely outcome. These judgments about the uncertainty and the risks attending each participant’s projections are distinct from the diversity of participants’ views
about the most likely outcomes. Forecast uncertainty is concerned with the risks associated
with a particular projection rather than with
divergences across a number of different projections.
As with real activity and inflation, the outlook for the future path of the federal funds
rate is subject to considerable uncertainty. This
uncertainty arises primarily because each participant’s assessment of the appropriate stance of
monetary policy depends importantly on the
evolution of real activity and inflation over
time. If economic conditions evolve in an unexpected manner, then assessments of the appropriate setting of the federal funds rate
would change from that point forward.
Cite this document
Federal Reserve (2012, June 19). FOMC Minutes. Fomc Minutes, Federal Reserve. https://whenthefedspeaks.com/doc/fomc_minutes_20120620
@misc{wtfs_fomc_minutes_20120620,
author = {Federal Reserve},
title = {FOMC Minutes},
year = {2012},
month = {Jun},
howpublished = {Fomc Minutes, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/fomc_minutes_20120620},
note = {Retrieved via When the Fed Speaks corpus}
}