FOMC Minutes
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Minutes of the Federal Open Market Committee
January 29–30, 2013
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, January 29, 2013, at 2:00 p.m., and continued
on Wednesday, January 30, 2013, at 9:00 a.m.
PRESENT:
Ben Bernanke, Chairman
William C. Dudley, Vice Chairman
James Bullard
Elizabeth Duke
Charles L. Evans
Esther L. George
Jerome H. Powell
Sarah Bloom Raskin
Eric Rosengren
Jeremy C. Stein
Daniel K. Tarullo
Janet L. Yellen
Christine Cumming, Richard W. Fisher, Narayana
Kocherlakota, Sandra Pianalto, and Charles I.
Plosser, Alternate Members of the Federal
Open Market Committee
Jeffrey M. Lacker, Dennis P. Lockhart, and John C.
Williams, Presidents of the Federal Reserve
Banks of Richmond, Atlanta, and San Francisco, 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
Thomas A. Connors, Troy Davig, Michael P.
Leahy, James J. McAndrews, Stephen A. Meyer, David Reifschneider, Daniel G. Sullivan,
Christopher J. Waller, and William Wascher,
Associate Economists
Simon Potter, Manager, System Open Market Account
Nellie Liang,¹ Director, Office of Financial Stability
Policy and Research, Board of Governors
Jon W. Faust, Special Advisor to the Board, Office
of Board Members, Board of Governors
James A. Clouse and William Nelson, Deputy Directors, Division of Monetary Affairs, Board of
Governors; Mark E. Van Der Weide, Deputy
Director, Division of Banking Supervision and
Regulation, Board of Governors
Linda Robertson, Assistant to the Board, Office of
Board Members, Board of Governors
Joyce K. Zickler, Senior Adviser, Division of Monetary Affairs, Board of Governors
Eric M. Engen, Thomas Laubach, and David E.
Lebow, Associate Directors, Division of Research and Statistics, Board of Governors
Beth Anne Wilson, Deputy Associate Director, Division of International Finance, Board of Governors
Karen M. Pence and Stacey Tevlin, Assistant Directors, Division of Research and Statistics,
Board of Governors
Jeremy B. Rudd, Adviser, Division of Research and
Statistics, Board of Governors
David H. Small, Project Manager, Division of
Monetary Affairs, Board of Governors
Andrew Figura, Group Manager, Division of Research and Statistics, Board of Governors
John C. Driscoll and Jennifer E. Roush, Senior
Economists, Division of Monetary Affairs,
Board of Governors; Ruth Judson, Senior
Economist, Division of International Finance,
Board of Governors
_______________________
¹ Attended Tuesday’s session only.
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Jonathan D. Rose, Economist, Division of Monetary Affairs, Board of Governors
Sarah G. Green, First Vice President, Federal Reserve Bank of Richmond
David Altig, Jeff Fuhrer, Loretta J. Mester, Glenn
D. Rudebusch, and Mark S. Sniderman, Executive Vice Presidents, Federal Reserve Banks of
Atlanta, Boston, Philadelphia, San Francisco,
and Cleveland, respectively
Ron Feldman and Lorie K. Logan, Senior Vice
Presidents, Federal Reserve Banks of Minneapolis and New York, respectively
Evan F. Koenig and Steven M. Friedman, Vice
Presidents, Federal Reserve Banks of Dallas
and New York, respectively
Charles L. Evans, President of the Federal Reserve
Bank of Chicago, with Sandra Pianalto, President of the
Federal Reserve Bank of Cleveland, as alternate.
James Bullard, President of the Federal Reserve Bank
of St. Louis, with Richard W. Fisher, President of the
Federal Reserve Bank of Dallas, as alternate.
Esther L. George, President of the Federal Reserve
Bank of Kansas City, with Narayana Kocherlakota,
President of the Federal Reserve Bank of Minneapolis,
as alternate.
By unanimous vote, the following officers of the Federal Open Market Committee were selected to serve
until the selection of their successors at the first regularly scheduled meeting of the Committee in 2014:
Ben Bernanke
William C. Dudley
William B. English
Deborah J. Danker
Matthew M. Luecke
David W. Skidmore
Michelle A. Smith
Scott G. Alvarez
Thomas C. Baxter
Richard M. Ashton
Steven B. Kamin
David W. Wilcox
Chairman
Vice Chairman
Secretary and Economist
Deputy Secretary
Assistant Secretary
Assistant Secretary
Assistant Secretary
General Counsel
Deputy General Counsel
Assistant General Counsel
Economist
Economist
William C. Dudley, President of the Federal Reserve
Bank of New York, with Christine Cumming, First
Vice President of the Federal Reserve Bank of New
York, as alternate.
Thomas A. Connors
Troy Davig
Michael P. Leahy
James J. McAndrews
Stephen A. Meyer
David Reifschneider
Daniel G. Sullivan
Geoffrey Tootell
Christopher J. Waller
William Wascher
Associate Economists
Eric Rosengren, President of the Federal Reserve Bank
of Boston, with Charles I. Plosser, President of the
Federal Reserve Bank of Philadelphia, as alternate.
By unanimous vote, the Federal Reserve Bank of New
York was selected to execute transactions for the System Open Market Account.
Versions of the current Committee documents are available
at http://www.federalreserve.gov/monetarypolicy/rules_au
thorizations.htm .
By unanimous vote, Simon Potter was selected to serve
at the pleasure of the Committee as Manager, System
Open Market Account, on the understanding that his
selection was subject to being satisfactory to the Federal Reserve Bank of New York.
Matthew D. Raskin, Markets Officer, Federal Reserve Bank of New York
Robert L. Hetzel, Senior Economist, Federal Reserve Bank of Richmond
Annual Organizational Matters2
In the agenda for this meeting, it was reported that advices of the election of the following members and alternate members of the Federal Open Market Committee for a term beginning January 29, 2013, had been
received and that these individuals had executed their
oaths of office.
The elected members and alternate members were as
follows:
2
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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 Authorization for Domestic
Open Market Operations was approved with two
amendments. The first broadened the actions that the
Open Market Desk may take, at the Chairman’s instruction during an intermeeting period, to include
transactions to address temporary disruptions of an
operational or highly unusual nature in U.S. dollar
funding markets. For example, if secured funding rates
were to increase to high levels in the wake of a natural
disaster, the risk of a broader, more systemic disruption
to the functioning of asset markets could result. In this
case, the prospect that repurchase operations could
potentially alleviate some of the market strains might
warrant immediate action. Consistent with Committee
practice, the Chairman, if feasible, would consult with
the Committee before making any such instruction.
The second amendment harmonized the language referring to the Committee’s longer-run objectives with
that in the Committee’s Statement on Longer-Run
Goals and Monetary Policy Strategy. The Guidelines
for the Conduct of System Open Market Operations in
Federal-Agency Issues remained suspended.
AUTHORIZATION FOR DOMESTIC OPEN
MARKET OPERATIONS
(Amended effective on January 29, 2013)
1. The Federal Open Market Committee authorizes
and directs the Federal Reserve Bank of New York, to
the extent necessary to carry out the most recent domestic policy directive adopted at a meeting of the
Committee:
A. To buy or sell U.S. government securities, including securities of the Federal Financing Bank, and
securities that are direct obligations of, or fully guaranteed as to principal and interest by, any agency of
the United States in the open market, from or to securities dealers and foreign and international accounts maintained at the Federal Reserve Bank of
New York, on a cash, regular, or deferred delivery
basis, for the System Open Market Account at market prices, and, for such Account, to exchange maturing U.S. government and federal agency securities
with the Treasury or the individual agencies or to allow them to mature without replacement; and
B. To buy or sell in the open market U.S. government securities, and securities that are direct obliga-
tions of, or fully guaranteed as to principal and interest by, any agency of the United States, for the System Open Market Account under agreements to resell or repurchase such securities or obligations (including such transactions as are commonly referred
to as repo and reverse repo transactions) in 65 business days or less, at rates that, unless otherwise expressly authorized by the Committee, shall be determined by competitive bidding, after applying reasonable limitations on the volume of agreements with
individual counterparties.
2. The Federal Open Market Committee authorizes
the Federal Reserve Bank of New York to undertake
transactions of the type described in paragraphs 1.A
and 1.B from time to time for the purpose of testing
operational readiness. The aggregate par value of such
transactions of the type described in paragraph 1.A
shall not exceed $5 billion per calendar year. The outstanding amount of such transactions of the type described in paragraph 1.B shall not exceed $5 billion at
any given time. These transactions shall be conducted
with prior notice to the Committee.
3. In order to ensure the effective conduct of open
market operations, the Federal Open Market Committee authorizes the Federal Reserve Bank of New York
to use agents in agency MBS-related transactions.
4. In order to ensure the effective conduct of open
market operations, the Federal Open Market Committee authorizes the Federal Reserve Bank of New York
to lend on an overnight basis U.S. government securities and securities that are direct obligations of any
agency of the United States, held in the System Open
Market Account, to dealers at rates that shall be determined by competitive bidding. The Federal Reserve
Bank of New York shall set a minimum lending fee
consistent with the objectives of the program and apply
reasonable limitations on the total amount of a specific
issue that may be auctioned and on the amount of securities that each dealer may borrow. The Federal Reserve Bank of New York may reject bids that could
facilitate a dealer’s ability to control a single issue as
determined solely by the Federal Reserve Bank of New
York. The Federal Reserve Bank of New York may
lend securities on longer than an overnight basis to accommodate weekend, holiday, and similar trading conventions.
5. In order to ensure the effective conduct of open
market operations, while assisting in the provision of
short-term investments or other authorized services for
foreign and international accounts maintained at the
Federal Reserve Bank of New York and accounts
maintained at the Federal Reserve Bank of New York
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as fiscal agent of the United States pursuant to section
15 of the Federal Reserve Act, the Federal Open Market Committee authorizes and directs the Federal Reserve Bank of New York:
A. For the System Open Market Account, to sell
U.S. government securities and securities that are direct obligations of, or fully guaranteed as to principal
and interest by, any agency of the United States to
such accounts on the bases set forth in paragraph 1.A
under agreements providing for the resale by such
accounts of those securities in 65 business days or
less on terms comparable to those available on such
transactions in the market;
B. For the New York Bank account, when appropriate, to undertake with dealers, subject to the conditions imposed on purchases and sales of securities
in paragraph l.B, repurchase agreements in U.S. government securities and securities that are direct obligations of, or fully guaranteed as to principal and interest by, any agency of the United States, and to arrange corresponding sale and repurchase agreements
between its own account and such foreign, international, and fiscal agency accounts maintained at the
Bank; and
C. For the New York Bank account, when appropriate, to buy U.S. government securities and obligations that are direct obligations of, or fully guaranteed as to principal and interest by, any agency of the
United States from such foreign and international accounts maintained at the Bank under agreements
providing for the repurchase by such accounts of
those securities on the same business day.
Transactions undertaken with such accounts under the
provisions of this paragraph may provide for a service
fee when appropriate.
6. In the execution of the Committee’s decision regarding policy during any intermeeting period, the
Committee authorizes and directs the Federal Reserve
Bank of New York, upon the instruction of the Chairman of the Committee, to (i) adjust somewhat in exceptional circumstances the degree of pressure on reserve positions and hence the intended federal funds
rate and to take actions that result in material changes
in the composition and size of the assets in the System
Open Market Account other than those anticipated by
the Committee at its most recent meeting or (ii) undertake transactions of the type described in paragraphs
1.A and 1.B in order to appropriately address temporary disruptions of an operational or highly unusual
nature in U.S. dollar funding markets. Any such adjustment as described in clause (i) shall be made in the
context of the Committee’s discussion and decision at
its most recent meeting and the Committee’s long-run
objectives to foster maximum employment and price
stability, and shall be based on economic, financial, and
monetary developments during the intermeeting period. Consistent with Committee practice, the Chairman, if feasible, will consult with the Committee before
making any instruction under this paragraph.
The Committee voted unanimously to amend the Authorization for Foreign Currency Operations and the
Procedural Instructions with Respect to Foreign Currency Operations, and to reaffirm the Foreign Currency
Directive in the form shown below. The approval of
these documents included approval of the System’s
warehousing agreement with the U.S. Treasury. The
Authorization for Foreign Currency Operations and
the Procedural Instructions with Respect to Foreign
Currency Operations were amended to include the authority to conduct small-value operations against the
full range of foreign transactions that the Desk is authorized to conduct. This change was made to allow
for prudent testing of operational readiness, and is
similar in purpose to the amendment that the Committee approved in June 2012 to the Authorization for
Domestic Open Market Operations.
AUTHORIZATION FOR FOREIGN CURRENCY
OPERATIONS
(Amended effective on January 29, 2013)
1. The Federal Open Market Committee authorizes
and directs the Federal Reserve Bank of New York, for
the System Open Market Account, to the extent necessary to carry out the Committee’s foreign currency directive and express authorizations by the Committee
pursuant thereto, and in conformity with such procedural instructions as the Committee may issue from
time to time:
A. To purchase and sell the following foreign currencies in the form of cable transfers through spot or
forward transactions on the open market at home
and abroad, including transactions with the U.S.
Treasury, with the U.S. Exchange Stabilization Fund
established by section 10 of the Gold Reserve Act of
1934, with foreign monetary authorities, with the
Bank for International Settlements, and with other
international financial institutions:
Australian dollars
Brazilian reais
Canadian dollars
Danish kroner
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euro
Japanese yen
Korean won
Mexican pesos
New Zealand dollars
Norwegian kroner
Pounds sterling
Singapore dollars
Swedish kronor
Swiss francs
B. To hold balances of, and to have outstanding
forward contracts to receive or to deliver, the foreign
currencies listed in paragraph A above.
C. To draw foreign currencies and to permit foreign banks to draw dollars under the reciprocal currency arrangements listed in paragraph 2 below, provided that drawings by either party to any such arrangement shall be fully liquidated within 12 months
after any amount outstanding at that time was first
drawn, unless the Committee, because of exceptional
circumstances, specifically authorizes a delay.
D. To maintain an overall open position in all foreign currencies not exceeding $25.0 billion. For this
purpose, the overall open position in all foreign currencies is defined as the sum (disregarding signs) of
net positions in individual currencies, excluding
changes in dollar value due to foreign exchange rate
movements and interest accruals. The net position in
a single foreign currency is defined as holdings of
balances in that currency, plus outstanding contracts
for future receipt, minus outstanding contracts for
future delivery of that currency, i.e., as the sum of
these elements with due regard to sign.
2. The Federal Open Market Committee directs the
Federal Reserve Bank of New York to maintain reciprocal currency arrangements (“swap” arrangements) for
the System Open Market Account for periods up to a
maximum of 12 months with the following foreign
banks, which are among those designated by the Board
of Governors of the Federal Reserve System under
section 214.5 of Regulation N, Relations with Foreign
Banks and Bankers, and with the approval of the
Committee to renew such arrangements on maturity:
Foreign bank
Amount of arrangement
(millions of dollars equivalent)
Bank of Canada
Bank of Mexico
2,000
3,000
Any changes in the terms of existing swap arrangements, and the proposed terms of any new arrangements that may be authorized, shall be referred for review and approval to the Committee.
3. All transactions in foreign currencies undertaken
under paragraph 1.A above shall, unless otherwise expressly authorized by the Committee, be at prevailing
market rates. For the purpose of providing an investment return on System holdings of foreign currencies
or for the purpose of adjusting interest rates paid or
received in connection with swap drawings, transactions with foreign central banks may be undertaken at
non-market exchange rates.
4. It shall be the normal practice to arrange with foreign central banks for the coordination of foreign currency transactions. In making operating arrangements
with foreign central banks on System holdings of foreign currencies, the Federal Reserve Bank of New York
shall not commit itself to maintain any specific balance,
unless authorized by the Federal Open Market Committee. Any agreements or understandings concerning
the administration of the accounts maintained by the
Federal Reserve Bank of New York with the foreign
banks designated by the Board of Governors under
section 214.5 of Regulation N shall be referred for review and approval to the Committee.
5. Foreign currency holdings shall be invested to
ensure that adequate liquidity is maintained to meet
anticipated needs and so that each currency portfolio
shall generally have an average duration of no more
than 18 months (calculated as Macaulay duration).
Such investments may include buying or selling outright obligations of, or fully guaranteed as to principal
and interest by, a foreign government or agency thereof; buying such securities under agreements for repurchase of such securities; selling such securities under
agreements for the resale of such securities; and holding various time and other deposit accounts at foreign
institutions. In addition, when appropriate in connection with arrangements to provide investment facilities
for foreign currency holdings, U.S. government securities may be purchased from foreign central banks under
agreements for repurchase of such securities within 30
calendar days.
6. All operations undertaken pursuant to the preceding paragraphs shall be reported promptly to the Foreign Currency Subcommittee and the Committee. The
Foreign Currency Subcommittee consists of the
Chairman and Vice Chairman of the Committee, the
Vice Chairman of the Board of Governors, and such
other member of the Board as the Chairman may designate (or in the absence of members of the Board
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serving on the Subcommittee, other Board members
designated by the Chairman as alternates, and in the
absence of the Vice Chairman of the Committee, the
Vice Chairman’s alternate). Meetings of the Subcommittee shall be called at the request of any member, or
at the request of the Manager, System Open Market
Account (“Manager”), for the purposes of reviewing
recent or contemplated operations and of consulting
with the Manager on other matters relating to the Manager’s responsibilities. At the request of any member
of the Subcommittee, questions arising from such reviews and consultations shall be referred for determination to the Federal Open Market Committee.
7. The Chairman is authorized:
A. With the approval of the Committee, to enter
into any needed agreement or understanding with the
Secretary of the Treasury about the division of responsibility for foreign currency operations between
the System and the Treasury;
B. To keep the Secretary of the Treasury fully advised concerning System foreign currency operations,
and to consult with the Secretary on policy matters
relating to foreign currency operations;
C. From time to time, to transmit appropriate reports and information to the National Advisory
Council on International Monetary and Financial
Policies.
8. Staff officers of the Committee are authorized to
transmit pertinent information on System foreign currency operations to appropriate officials of the Treasury Department.
9. All Federal Reserve Banks shall participate in the
foreign currency operations for System Account in accordance with paragraph 3G(1) of the Board of Governors’ Statement of Procedure with Respect to Foreign Relationships of Federal Reserve Banks dated January 1, 1944.
10. The Federal Open Market Committee authorizes
the Federal Reserve Bank of New York to undertake
transactions of the type described in paragraphs 1, 2,
and 5, and foreign exchange and investment
transactions that it may be otherwise authorized to
undertake from time to time for the purpose of testing
operational readiness. The aggregate amount of such
transactions shall not exceed $2.5 billion per calendar
year. These transactions shall be conducted with prior
notice to the Committee.
PROCEDURAL INSTRUCTIONS WITH RESPECT
TO FOREIGN CURRENCY OPERATIONS
(Amended effective on January 29, 2013)
In conducting operations pursuant to the authorization
and direction of the Federal Open Market Committee
as set forth in the Authorization for Foreign Currency
Operations and the Foreign Currency Directive, the
Federal Reserve Bank of New York, through the Manager, System Open Market Account (“Manager”), shall
be guided by the following procedural understandings
with respect to consultations and clearances with the
Committee, the Foreign Currency Subcommittee, and
the Chairman of the Committee, unless otherwise directed by the Committee. All operations undertaken
pursuant to such clearances shall be reported promptly
to the Committee.
1. The Manager shall clear with the Subcommittee
(or with the Chairman, if the Chairman believes that
consultation with the Subcommittee is not feasible in
the time available):
A. Any operation that would result in a change in
the System’s overall open position in foreign currencies exceeding $300 million on any day or $600 million since the most recent regular meeting of the
Committee.
B. Any operation that would result in a change on
any day in the System’s net position in a single foreign currency exceeding $150 million, or $300 million
when the operation is associated with re-payment of
swap drawings.
C. Any operation that might generate a substantial
volume of trading in a particular currency by the System, even though the change in the System’s net position in that currency might be less than the limits
specified in 1.B.
D. Any swap drawing proposed by a foreign bank
not exceeding the larger of (i) $200 million or (ii) 15
percent of the size of the swap arrangement.
2. The Manager shall clear with the Committee (or
with the Subcommittee, if the Subcommittee believes
that consultation with the full Committee is not feasible
in the time available, or with the Chairman, if the
Chairman believes that consultation with the Subcommittee is not feasible in the time available):
A. Any operation that would result in a change in
the System’s overall open position in foreign currencies exceeding $1.5 billion since the most recent regular meeting of the Committee.
B. Any swap drawing proposed by a foreign bank
exceeding the larger of (i) $200 million or (ii) 15 percent of the size of the swap arrangement.
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3. The Manager shall also consult with the Subcommittee or the Chairman about proposed swap
drawings by the System and about any operations that
are not of a routine character.
4. The Federal Open Market Committee authorizes
the Federal Reserve Bank of New York to undertake
transactions of the type described in paragraphs 1, 2,
and 5 of the Foreign Authorization and foreign exchange and investment transactions that it may be otherwise authorized to undertake from time to time for
the purpose of testing operational readiness. The aggregate amount of such transactions shall not exceed
$2.5 billion per calendar year. These transactions shall
be conducted with prior notice to the Committee.
FOREIGN CURRENCY DIRECTIVE
(Reaffirmed January 29, 2013)
1. System operations in foreign currencies shall generally be directed at countering disorderly market conditions, provided that market exchange rates for the
U.S. dollar reflect actions and behavior consistent with
IMF Article IV, Section 1.
2. To achieve this end the System shall:
A. Undertake spot and forward purchases and sales
of foreign exchange.
B. Maintain reciprocal currency (“swap”) arrangements with selected foreign central banks.
C. Cooperate in other respects with central banks
of other countries and with international monetary
institutions.
3. Transactions may also be undertaken:
A. To adjust System balances in light of probable
future needs for currencies.
B. To provide means for meeting System and
Treasury commitments in particular currencies, and
to facilitate operations of the Exchange Stabilization
Fund.
C. For such other purposes as may be expressly
authorized by the Committee.
4. System foreign currency operations shall be conducted:
A. In close and continuous consultation and cooperation with the United States Treasury;
B. In cooperation, as appropriate, with foreign
monetary authorities; and
C.
In a manner consistent with the obligations of
the United States in the International Monetary Fund
regarding exchange arrangements under IMF Article
IV.
All participants but one supported making only minor
wording changes to the Statement on Longer-Run
Goals and Monetary Policy Strategy. Mr. Tarullo abstained because he did not think the statement had advanced the cause of achieving or communicating greater consensus in the policy views of the Committee.
STATEMENT ON LONGER-RUN GOALS AND
MONETARY POLICY STRATEGY
(Amended effective on January 29, 2013)
“The Federal Open Market Committee (FOMC) is
firmly committed to fulfilling its statutory mandate
from the Congress of promoting maximum employment, stable prices, and moderate long-term interest
rates. The Committee seeks to explain its monetary
policy decisions to the public as clearly as possible.
Such clarity facilitates well-informed decisionmaking by
households and businesses, reduces economic and financial uncertainty, increases the effectiveness of monetary policy, and enhances transparency and accountability, which are essential in a democratic society.
Inflation, employment, and long-term interest rates
fluctuate over time in response to economic and financial disturbances. Moreover, monetary policy actions
tend to influence economic activity and prices with a
lag. Therefore, the Committee’s policy decisions reflect
its longer-run goals, its medium-term outlook, and its
assessments of the balance of risks, including risks to
the financial system that could impede the attainment
of the Committee’s goals.
The inflation rate over the longer run is primarily determined by monetary policy, and hence the Committee
has the ability to specify a longer-run goal for inflation.
The Committee judges that inflation at the rate of 2
percent, as measured by the annual change in the price
index for personal consumption expenditures, is most
consistent over the longer run with the Federal Reserve’s statutory mandate. Communicating this inflation goal clearly to the public helps keep longer-term
inflation expectations firmly anchored, thereby fostering price stability and moderate long-term interest rates
and enhancing the Committee’s ability to promote
maximum employment in the face of significant economic disturbances.
The maximum level of employment is largely determined by nonmonetary factors that affect the structure
and dynamics of the labor market. These factors may
change over time and may not be directly measurable.
Consequently, it would not be appropriate to specify a
fixed goal for employment; rather, the Committee’s
policy decisions must be informed by assessments of
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the maximum level of employment, recognizing that
such assessments are necessarily uncertain and subject
to revision. The Committee considers a wide range of
indicators in making these assessments. Information
about Committee participants’ estimates of the longerrun normal rates of output growth and unemployment
is published four times per year in the FOMC’s Summary of Economic Projections. For example, in the
most recent projections, FOMC participants’ estimates
of the longer-run normal rate of unemployment had a
central tendency of 5.2 percent to 6.0 percent, unchanged from one year ago but substantially higher
than the corresponding interval several years earlier.
In setting monetary policy, the Committee seeks to
mitigate deviations of inflation from its longer-run goal
and deviations of employment from the Committee’s
assessments of its maximum level. These objectives are
generally complementary. However, under circumstances in which the Committee judges that the objectives are not complementary, it follows a balanced approach in promoting them, taking into account the
magnitude of the deviations and the potentially different time horizons over which employment and inflation are projected to return to levels judged consistent
with its mandate.
The Committee intends to reaffirm these principles
and to make adjustments as appropriate at its annual
organizational meeting each January.”
By unanimous vote, the Policy on External Communications of Committee Participants and the Policy on
External Communications of Federal Reserve System
Staff were amended to clarify the precise beginning and
end of the communication blackout period surrounding
regular meetings of the Federal Open Market Committee (FOMC).
By unanimous vote, the Rules of Procedure were
amended to change the quorum requirements to state
that a meeting of the FOMC could not be convened
without a representative of a Reserve Bank.
By unanimous vote, the Committee reaffirmed its Program for Security of FOMC Information.
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 as well as the System open
market operations during the period since the FOMC
met on December 11–12, 2012. By unanimous vote,
the Committee ratified the Open Market 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 January 29–30 meeting indicated that the expansion in overall economic
activity slowed in the fourth quarter of last year, reflecting weather-related disruptions and other transitory
factors, but private domestic final demand grew at a
solid rate. Employment continued to increase at a
moderate pace, and the unemployment rate, though
still high, was lower at the end of the fourth quarter
than in the preceding quarter. Consumer price inflation was subdued, and measures of longer-run inflation
expectations remained stable.
Private nonfarm employment expanded in December
at about the same rate as in the fourth quarter as a
whole, while government employment decreased. The
unemployment rate was 7.8 percent in December, below its average in the third quarter, while the labor
force participation rate was the same as its third-quarter
average. The rate of long-duration unemployment and
the share of workers employed part time for economic
reasons edged down in December, but both measures
were still elevated. The rate of private-sector hiring,
along with indicators of job openings and firms’ hiring
plans, was generally muted but remained consistent
with continued moderate increases in employment in
the coming months.
Manufacturing production increased briskly in November and December after declining in October when
activity was disrupted by Hurricane Sandy. As a result,
factory output expanded only slightly in the fourth
quarter as a whole, and the rate of manufacturing capacity utilization was only a little higher in December
than in the third quarter. The production of motor
vehicles and parts increased considerably in the fourth
quarter, but factory output outside of the motor vehicle
sector declined somewhat. Automakers’ schedules indicated that the pace of motor vehicle assemblies in the
first quarter would be roughly the same as in the fourth
quarter. Broader indicators of manufacturing production, such as the diffusion indexes of new orders from
the national and regional manufacturing surveys, were
at levels consistent with only modest increases in factory output in the near term.
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Increases in real personal consumption expenditures
picked up somewhat in the fourth quarter, boosted
importantly by higher spending on motor vehicles.
After being roughly flat in the third quarter, households’ real disposable income rose considerably, in part
reflecting an acceleration of income payments in anticipation of increases in individual income tax rates after
the turn of the year. In December and January, consumer sentiment was more downbeat than in the previous several months.
Conditions in the housing sector continued to improve,
but construction activity remained at a relatively low
level, restrained by tight underwriting standards for
mortgage loans and the substantial inventory of foreclosed and distressed properties. Starts of both new
single-family homes and multifamily units advanced in
the fourth quarter, and permits also rose, which pointed to additional gains in construction in the coming
months. Home prices increased further in November.
In the fourth quarter, sales of both new and existing
homes were higher than in the previous quarter.
Real business expenditures on equipment and software
rose briskly in the fourth quarter after declining moderately in the preceding quarter. Although nominal new
orders for nondefense capital goods excluding aircraft
also increased markedly last quarter, the level of orders
remained below shipments. Moreover, other recent
forward-looking indicators, such as surveys of business
conditions and capital spending plans, suggested that
outlays for business equipment would rise only modestly in the coming months. Real business spending for
nonresidential construction declined somewhat in the
fourth quarter and remained at a relatively low level. A
reduction in the accumulation of nonfarm business
inventories subtracted a considerable amount from the
change in real gross domestic product (GDP) in the
fourth quarter.
Real federal government purchases decreased substantially in the fourth quarter, primarily because of a sharp
decline in defense spending that followed a marked
increase in the previous quarter. Real state and local
government purchases decreased slightly in the fourth
quarter.
The U.S. international trade deficit widened substantially in November, as imports rose more quickly than exports. The rise in imports was fairly broad-based, led
by strong increases in consumer goods, while the increase in exports mainly reflected higher sales of capital
goods and automotive products. Exports to Europe
posted another significant decline in November. Based
on data for October and November and an estimate of
the trade data for December, the advance release of the
national income and product accounts showed that real
net exports of goods and services made a small negative arithmetic contribution to the change in U.S. real
GDP in the fourth quarter, with exports declining
more than imports.
Overall U.S. consumer prices increased more slowly in
the fourth quarter than in the previous quarter. Consumer energy prices declined in November and December, and survey data indicated that retail gasoline
prices fell further in the first few weeks of January.
Consumer food prices continued to rise at a faster pace
in November and December than in the third quarter,
likely reflecting the ongoing effects of last summer’s
drought. In the fourth quarter, the rise in consumer
prices excluding food and energy slowed. Near-term
inflation expectations from the Thomson Reuters/University of Michigan Surveys of Consumers
rose a little in December and early January; longer-term
inflation expectations were unchanged.
Available measures of labor compensation indicated
that recent gains in nominal wages remained relatively
slow. Increases in average hourly earnings for all employees picked up a little in the fourth quarter but continued to be fairly subdued.
Economic growth in the advanced foreign economies
appeared to remain weak in the fourth quarter. In the
euro area, industrial production and retail sales were
below their third-quarter levels through November,
and real GDP contracted in the United Kingdom. In
Japan, indicators of production and exports remained
weak; however, household consumption showed some
improvement, and the new government introduced a
large fiscal stimulus program and called for aggressive
monetary easing to end deflation. In emerging market
economies, real GDP growth is estimated to have
picked up in China in the fourth quarter, consistent
with other Chinese indicators that pointed to an improvement in activity. Production and exports rebounded at year-end in a number of other emerging
Asian economies as well. Inflation generally remained
well contained in both advanced foreign economies and
emerging market economies.
Staff Review of the Financial Situation
U.S. financial market conditions improved on net between the December and January FOMC meetings,
largely in response to the partial resolution of the issues
associated with the so-called fiscal cliff, a positive start
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to the corporate earnings reporting season, and some
favorable policy developments in Europe.
The expected path of the federal funds rate based on
market quotes moved up on balance over the intermeeting period, likely reflecting a somewhat more positive assessment of the economic outlook. Results from
the Desk’s survey of primary dealers conducted prior to
the January meeting showed that dealers continued to
view the third quarter of 2015 as the most likely time of
the first increase in the target federal funds rate. In
addition, the median dealer continued to see the first
quarter of 2014 as the most likely time for the Committee’s asset purchases to conclude, although fewer dealers than in December expected those purchases to continue beyond 2014.
Treasury coupon yields increased over the intermeeting
period, including a notable rise just after year-end when
passage of the American Taxpayer Relief Act of 2012
apparently lessened concerns about the risk of substantially higher fiscal drag on growth in the near term.
More-positive investor sentiment regarding the outlook
for global economic growth, along with some optimism
about a federal debt ceiling deal, may also have contributed to the increase in yields. Measures of inflation
compensation derived from nominal and inflationprotected Treasury securities rose slightly over the intermeeting period.
Conditions in short-term dollar funding markets were
generally little changed on balance; year-end funding
pressures were modest overall and roughly in line with
market expectations. The outstanding amount of unsecured commercial paper issued by European financial
institutions increased noticeably.
Indicators of the condition of domestic financial institutions generally improved over the intermeeting period. A broad index of bank stock prices rose, and the
median spread on credit default swaps of the largest
banking organizations moved lower.
Broad U.S. equity price indexes increased on net over
the intermeeting period, buoyed by many of the same
factors that contributed to the rise in Treasury yields.
In addition, the fourth-quarter earnings reporting season started off well, as earnings and revenue results
were above analysts’ expectations for a higher-thanaverage number of firms. Option-implied volatility for
the S&P 500 index over the near term dipped to its
lowest level since early 2007. The option-implied price
of insurance against downside risk on the index at
longer horizons remained elevated.
Yields on speculative-grade corporate bonds decreased
over the intermeeting period, and yields on investmentgrade corporate bonds were up a bit. Risk spreads on
speculative-grade bonds narrowed substantially, and
spreads on investment-grade bonds decreased as well.
Net debt financing by nonfinancial firms increased in
the fourth quarter. Outstanding volumes of corporate
bonds, commercial and industrial loans, and nonfinancial commercial paper all expanded. The pace of gross
public issuance of equity by nonfinancial firms remained solid in the fourth quarter, but it was subdued
in January, likely because of seasonal factors.
Conditions in the commercial real estate sector continued to be strained amid elevated vacancy and delinquency rates. However, issuance of commercial mortgage-backed securities strengthened during the fourth
quarter, and spreads on those securities narrowed over
the intermeeting period.
Conforming home mortgage rates edged up, on net,
after touching new lows during the intermeeting period.
Yields on residential mortgage-backed securities (MBS)
rose by more, leaving the spread between the primary
mortgage rate and MBS yields narrower. Mortgage
refinancing originations in December and January
stayed near their highest levels since the housing market began to recover. The share of existing mortgages
that were seriously delinquent edged down in October
and November but remained high.
Consumer credit expanded briskly again in October
and November. Nonrevolving credit continued to increase at a robust pace because of growth in student
and auto loans, while revolving credit moved roughly
sideways. Issuance of consumer asset-backed securities
remained strong in the fourth quarter.
Growth of bank credit in the fourth quarter slowed to
about half its pace compared with earlier in the year, as
loan growth declined. According to the January Senior
Loan Officer Opinion Survey on Bank Lending Practices, domestic banks continued to ease somewhat their
lending standards and some loan terms, on balance;
they also experienced an increase in demand, on net, in
most major loan categories in the fourth quarter.
M2 and its largest component, liquid deposits, expanded robustly in December. Initial data suggested that
the expiration of unlimited deposit insurance on noninterest-bearing transaction accounts at year-end had only
a limited effect on bank deposits through early January.
The monetary base expanded at a strong rate in De-
Minutes of the Meeting of January 29–30, 2013
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cember, reflecting growth in both currency and reserve
balances.
Foreign financial conditions improved over the intermeeting period as markets responded favorably to the
passage of fiscal policy legislation in the United States
and to further progress in addressing euro-area strains.
On net, global equity prices rose and euro-area peripheral spreads narrowed. As global risk sentiment improved, the dollar depreciated against the euro and
most emerging market currencies. Against the yen,
however, the dollar appreciated substantially. The yen’s
depreciation appeared to occur in part in response to
statements from Japan’s new prime minister, who
urged the Bank of Japan to ease policy more aggressively. At its January meeting, the Bank of Japan restated its monetary policy framework, replacing its inflation goal of 1 percent with an inflation target of
2 percent, and announced it would commence a program of asset purchases in January 2014 with no predetermined limit on the maximum amount ultimately
purchased. Yields on long-term Japanese sovereign
bonds rose a few basis points on net over the intermeeting period, but yields on other foreign benchmark
sovereign bonds increased more, reflecting both the
improvement in global sentiment and reduced expectations for additional monetary accommodation, as the
European Central Bank and the Bank of England kept
their policy rates on hold and appeared to signal less
likelihood of further easing.
Staff Economic Outlook
In the economic forecast prepared by the staff for the
January meeting of the FOMC, the near-term projection for real GDP growth was revised up, in large part
because the fiscal policy legislation enacted in early
January was slightly less restrictive than the staff had
assumed. The staff’s medium-term forecast for real
GDP growth was essentially unchanged. With fiscal
policy still anticipated to be tighter this year than last
year, the staff expected that increases in real GDP
would only moderately exceed the growth rate of potential output. In 2014 and 2015, real GDP was projected to accelerate gradually, supported by an eventual
lessening of fiscal policy restraint, increases in consumer and business sentiment, further improvements in
credit availability and financial conditions, and accommodative monetary policy. The expansion in economic
activity was expected to slowly reduce the slack in labor
and product markets over the projection period, and
progress in reducing the unemployment rate was anticipated to be gradual.
The staff’s forecast for inflation was little changed from
that prepared for the December FOMC meeting. The
staff continued to project that inflation would be subdued through 2015. That forecast is based on the expectation that crude oil prices will trend down slowly
from their current levels, the boost to retail food prices
from last summer’s drought will be temporary and relatively small, longer-run inflation expectations will remain stable, and significant resource slack will persist
over the forecast period.
Participants’ Views on Current Conditions and the
Economic Outlook
In their discussion of the economic situation, meeting
participants indicated that they viewed the information
received during the intermeeting period as suggesting
that, apart from some temporary factors that had led to
a pause in overall output growth in recent months, the
economy remained on a moderate growth path. In
particular, participants saw the economic outlook as
little changed or modestly improved relative to the December meeting. Most participants judged that there
had been some reduction in downside risks facing the
economy: Strains in global financial markets had eased
somewhat, and U.S. fiscal policymakers had come to a
partial resolution of the so-called fiscal cliff. Supported
by a highly accommodative stance of monetary policy,
the housing sector was strengthening, and the unemployment rate appeared likely to continue its gradual
decline. Nearly all participants anticipated that inflation
over the medium-term would run at or below the
Committee’s 2 percent objective.
In their discussion of the household sector, participants
noted various factors influencing consumer spending.
Some participants stated that low interest rates appeared to be contributing to strong sales of autos or,
more generally, of consumer durables. It was also noted that continued deleveraging by households was improving their financial positions, which would likely
support increased spending. Holiday shopping reportedly was relatively solid, and, reflecting the improvement in the housing market, demand for home furnishings and construction materials was up. However,
some participants were concerned that the recent increase in the payroll tax could have a significant negative effect on spending, particularly on the part of lower-income consumers.
Participants remarked on the ongoing recovery in the
housing market, pointing variously to rising house prices, growth in residential construction and sales, and the
lower inventory of homes for sale. A number of partic-
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ipants thought it likely that higher home values and low
mortgage rates were helping support other sectors of
the economy as well, and a couple saw the housing
market as having the potential to cause overall growth
to be stronger than expected this year. Nonetheless, it
was noted that mortgage credit remained tight and the
fraction of homeowners with mortgage balances exceeding the value of their homes remained high.
In general, participants indicated that, relative to the
recent past, more business contacts reported an improvement in confidence and some cautious optimism
about the economic outlook. Anecdotal reports suggested that uncertainty about the evolution of the
economy and government policy continued to restrain
firms’ hiring and capital spending decisions, but the
passage of fiscal legislation in early January helped resolve some of the uncertainty about federal tax policy.
Moreover, it was noted that businesses were in a good
position to expand once they came to view the economic environment as more favorable. Survey data
from one District indicated that more than half of the
respondents expected to increase employment this year,
with many citing expected sales growth as the reason.
Reports from a number of industries across the country
also suggested a more positive assessment of future
prospects, particularly in the automotive, energy, and
technology sectors. However, reports from the nonautomotive manufacturing sector were less positive. In
agriculture, record payouts from crop insurance following last year’s drought supported farm incomes, and
land prices continued to rise. Reports on business
conditions in the commercial real estate sector were
more mixed but, on the whole, somewhat improved.
The strength of exports reportedly varied, with indications of higher demand from Mexico but some relatively pessimistic readings from firms about business conditions in Europe. Participants generally welcomed an
apparent pickup in economic growth in parts of Asia
and saw reduced risk that the Chinese economy would
slow abruptly, but it was noted that no economy was
currently in a position to lead global growth higher.
The passage of legislation in early January resolved
some of the uncertainties surrounding the federal fiscal
outlook, but near-term uncertainties remained, including the prospect of automatic budget cuts. Participants
generally agreed that fiscal negotiations could develop
in a way that would result in significantly greater drag
on economic growth than in their baseline outlook.
One participant noted positive news about the fiscal
position of the states; in some cases, revenues had risen
sufficiently to enable increases in state government
spending and employment.
In their comments on labor market developments, participants viewed the decline in the unemployment rate
from the third quarter to the fourth and the continued
moderate gains in payroll employment as consistent
with a gradually improving job market. However, the
unemployment rate remained well above estimates of
its longer-run normal level, and other indicators, such
as the share of long-term unemployed and the number
of people working part time for economic reasons,
suggested that the recovery in the labor market was far
from complete. One participant reported that firms in
his District continued to have difficulty finding workers
with suitable skills, suggesting that labor market mismatch was a factor deterring job growth. A few others,
however, pointed to evidence that weak aggregate demand was the primary factor restraining job growth,
citing data and analyses in support of the view that
there was still a substantial margin of slack in the labor
market. For example, a couple of participants noted
evidence suggesting that a shift in the relationship between the unemployment rate and the level of job vacancies in recent years was unlikely to persist as the
economy recovered and unemployment benefits returned to customary levels. Similarly, one participant
cited empirical analysis showing that employment
growth was lower in the states where a greater share of
small businesses identified lack of demand as their
most important business problem. Several participants
expressed concern that continuation of only slow job
growth and persistently high long-duration unemployment could lead to permanent damage to the labor
market.
Participants generally saw recent price developments as
consistent with their projections that inflation would
remain at or below the Committee’s 2 percent objective
over the medium run. There was little evidence of
wage or cost pressures outside of isolated sectors, and
measures of inflation expectations remained stable.
However, a few participants expressed concerns that
the current highly accommodative stance of monetary
policy posed upside risks to inflation in the medium or
longer term.
Participants also touched on the implications for monetary policy of changes in estimates of the economy’s
potential output. A number of participants thought
that the growth of potential output had been reduced
in recent years, possibly in part because restrictive financial conditions and weak economic activity in the
Minutes of the Meeting of January 29–30, 2013
Page 13
_____________________________________________________________________________________________
aftermath of the financial crisis had reduced investment, business formation, and the pace of adoption of
new technologies. Many of these participants worried
that, should the economy continue to operate below
potential for too long, reduced investment and underutilization of labor could further undermine the
growth of potential output over time. A couple of participants noted that uncertainties concerning both the
level of, and the source of shifts in, potential output
made it difficult to base decisions about monetary policy on real-time measures of the output gap.
Participants noted that financial conditions appeared to
have been supported by the recent fiscal agreement, a
perceived reduction in the risk that the debt ceiling
would not be raised in a timely manner, accommodative monetary policy, and actions taken by European
authorities. With regard to Europe, participants continued to see downside risks to growth emanating from
that region, given its unresolved imbalances and weak
economic outlook. Several participants mentioned that
domestic credit conditions appeared to have improved:
Automobile loans were expanding rapidly and it was
reported that competition to make commercial and
industrial loans was robust. Although mortgage availability was still limited, a couple of participants indicated
that they expected increased competition to bring
about some lessening of the restraints on mortgage
credit. In general, after having been depressed for
some time, investor appetite for risk had increased. A
few participants commented that the Committee’s accommodative policies were intended in part to promote
a more balanced approach to risk-taking, but several
others expressed concern about the potential for excessive risk-taking and adverse consequences for financial
stability. Some participants mentioned the potential for
a sharp increase in longer-term interest rates to adversely affect financial stability and indicated their interest in further work on this topic.
The Committee again discussed the possible benefits
and costs of additional asset purchases. Most participants commented that the Committee’s asset purchases
had been effective in easing financial conditions and
helping stimulate economic activity, and many pointed,
in particular, to the support that low longer-term interest rates had provided to housing or consumer durable
purchases. In addition, the Committee’s highly accommodative policy was seen as helping keep inflation
over the medium term closer to its longer-run goal of 2
percent than would otherwise have been the case. Policy was also aimed at improving the labor market outlook. In this regard, several participants stressed the
economic and social costs of high unemployment, as
well as the potential for negative effects on the economy’s longer-term path of a prolonged period of underutilization of resources. However, many participants
also expressed some concerns about potential costs and
risks arising from further asset purchases. Several participants discussed the possible complications that additional purchases could cause for the eventual withdrawal of policy accommodation, a few mentioned the
prospect of inflationary risks, and some noted that further asset purchases could foster market behavior that
could undermine financial stability. Several participants
noted that a very large portfolio of long-duration assets
would, under certain circumstances, expose the Federal
Reserve to significant capital losses when these holdings were unwound, but others pointed to offsetting
factors and one noted that losses would not impede the
effective operation of monetary policy. A few also
raised concerns about the potential effects of further
asset purchases on the functioning of particular financial markets, although a couple of other participants
noted that there had been little evidence to date of such
effects. In light of this discussion, the staff was asked
for additional analysis ahead of future meetings to support the Committee’s ongoing assessment of the asset
purchase program.
Several participants emphasized that the Committee
should be prepared to vary the pace of asset purchases,
either in response to changes in the economic outlook
or as its evaluation of the efficacy and costs of such
purchases evolved. For example, one participant argued that purchases should vary incrementally from
meeting to meeting in response to incoming information about the economy. A number of participants
stated that an ongoing evaluation of the efficacy, costs,
and risks of asset purchases might well lead the Committee to taper or end its purchases before it judged
that a substantial improvement in the outlook for the
labor market had occurred. Several others argued that
the potential costs of reducing or ending asset purchases too soon were also significant, or that asset purchases should continue until a substantial improvement in
the labor market outlook had occurred. A few participants noted examples of past instances in which policymakers had prematurely removed accommodation,
with adverse effects on economic growth, employment,
and price stability; they also stressed the importance of
communicating the Committee’s commitment to maintaining a highly accommodative stance of policy as long
as warranted by economic conditions. In this regard, a
number of participants discussed the possibility of
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providing monetary accommodation by holding securities for a longer period than envisioned in the Committee’s exit principles, either as a supplement to, or a replacement for, asset purchases.
Participants also discussed the economic thresholds in
the Committee’s forward guidance on the path of the
federal funds rate. On the whole, participants judged
that financial markets had adapted to the shift from
date-based communication to guidance based on economic thresholds without difficulty, although a few
participants stated that communications challenges remained. For example, one participant commented that
some market participants appeared to have incorrectly
interpreted the thresholds as triggers that, when
reached, would necessarily lead to an immediate rise in
the federal funds rate. A couple of participants noted
that this policy tool would be more effective if the
Committee were able to communicate a consensus expectation for the path of the federal funds rate after a
threshold was crossed. One participant also indicated a
preference for lowering the threshold for the unemployment rate as a means of providing additional accommodation.
Committee Policy Action
Committee members saw the information received
over the intermeeting period as suggesting that growth
in economic activity had paused in recent months, in
large part because of weather-related disruptions and
other transitory factors. Employment had continued to
expand at a moderate pace, but the unemployment rate
remained elevated. However, members generally expected that, with appropriately accommodative monetary policy, economic growth would proceed at a moderate pace and the unemployment rate would gradually
decline toward levels they judged to be consistent with
the Committee’s dual mandate. Although members
saw strains in global financial markets as having eased
somewhat, they continued to see an increase in such
strains as well as slower global growth and a greaterthan-expected fiscal tightening in the United States as
downside risks to the economy. Members generally
continued to anticipate that, with longer-term inflation
expectations stable and slack in resource utilization remaining, inflation over the medium term would run at
or below the Committee’s longer-run objective of 2
percent.
In their discussion of monetary policy for the period
ahead, members saw the economic outlook as relatively
little changed since the previous meeting. Accordingly,
all but one member judged that maintaining the highly
accommodative stance of monetary policy was warranted in order to foster a stronger economic recovery
in a context of price stability. The Committee agreed
that it would be appropriate to continue purchases of
MBS at a pace of $40 billion per month and purchases
of longer-term Treasury securities at a pace of $45 billion per month, as well as to maintain the Committee’s
reinvestment policies. The Committee also retained its
forward guidance about the federal funds rate, including the thresholds on the unemployment and inflation
rates. Some members remarked favorably on the move
away from providing calendar dates in the forward
guidance and toward highlighting the economic conditionality of future monetary policy. One member dissented from the Committee’s policy decision, expressing concern that the continued high level of monetary
accommodation increased the risks of future economic
and financial imbalances and, over time, could cause an
increase in long-term inflation expectations.
In the statement to be released following the meeting,
the Committee made relatively small modifications to
the language of its December statement, including to
acknowledge both the pause in economic growth during the fourth quarter and some easing of the strains in
global financial markets. In light of the importance of
ongoing U.S. fiscal concerns, members discussed
whether to include a reference to unresolved fiscal issues, but decided to refrain. Similarly, one member
raised a question about whether the statement language
adequately captured the importance of the Committee’s
assessment of the likely efficacy and costs in its asset
purchase decisions, but the Committee decided to
maintain the current language pending a review,
planned for the March meeting, of its asset purchases.
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:
“Consistent with its statutory mandate, the
Federal Open Market Committee seeks
monetary and financial conditions that will
foster maximum employment and price stability. In particular, 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 undertake open market operations as necessary to maintain such conditions. The
Desk is directed to continue purchasing
Minutes of the Meeting of January 29–30, 2013
Page 15
_____________________________________________________________________________________________
longer-term Treasury securities at a pace of
about $45 billion per month and to continue
purchasing agency mortgage-backed securities at a pace of about $40 billion per month.
The Committee also directs the Desk to engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of
the Federal Reserve’s agency MBS transactions. The Committee directs the Desk to
maintain its policy of rolling over maturing
Treasury securities into new issues and its
policy of reinvesting principal payments on
all agency debt and agency mortgage-backed
securities in agency mortgage-backed securities. 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 December
suggests that growth in economic activity
paused in recent months, in large part because of weather-related disruptions and
other transitory factors. Employment has
continued to expand at a moderate pace but
the unemployment rate remains elevated.
Household spending and business fixed investment advanced, and the housing sector
has shown further improvement. Inflation
has been running somewhat below the
Committee’s longer-run objective, apart
from temporary variations that largely reflect
fluctuations in energy prices. 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 that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels
the Committee judges consistent with its dual mandate. Although strains in global financial markets have eased somewhat, the
Committee continues to see downside risks
to the economic outlook. The Committee
also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.
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 will continue purchasing additional agency mortgage-backed
securities at a pace of $40 billion per month
and longer-term Treasury securities at a pace
of $45 billion per month. 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
and of rolling over maturing Treasury securities at auction. Taken together, these actions
should maintain downward pressure on
longer-term interest rates, support mortgage
markets, and help to make broader financial
conditions more accommodative.
The Committee will closely monitor incoming information on economic and financial
developments in coming months. If the outlook for the labor market does not improve
substantially, the Committee will continue its
purchases of Treasury and agency mortgagebacked securities, and employ its other policy
tools as appropriate, until such improvement
is achieved in a context of price stability. In
determining the size, pace, and composition
of its asset purchases, the Committee will, as
always, take appropriate account of the likely
efficacy and costs of such purchases.
To support continued progress toward maximum employment and price stability, the
Committee expects that a highly accommodative stance of monetary policy will remain
appropriate for a considerable time after the
asset purchase program ends and the economic recovery strengthens. In particular,
the Committee decided to keep the target
range for the federal funds rate at 0 to
¼ percent and currently anticipates that this
exceptionally low range for the federal funds
rate will be appropriate at least as long as the
unemployment rate remains above 6½ percent, inflation between one and two years
ahead is projected to be no more than a half
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percentage point above the Committee’s
2 percent longer-run goal, and longer-term
inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider
other information, including additional
measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to
begin to remove policy accommodation, it
will take a balanced approach consistent with
its longer-run goals of maximum employment and inflation of 2 percent.”
Voting for this action: Ben Bernanke, William C.
Dudley, James Bullard, Elizabeth Duke, Charles L. Evans, Jerome H. Powell, Sarah Bloom Raskin, Eric
Rosengren, Jeremy C. Stein, Daniel K. Tarullo, and
Janet L. Yellen.
Voting against this action: Esther L. George.
Ms. George dissented out of concern that the continued high level of monetary accommodation increased
the risks of future economic and financial imbalances
and, over time, could cause an increase in inflation expectations. In her view, the potential costs and risks
posed by the Committee’s asset purchases outweighed
their uncertain benefits. Although she noted that monetary policy needed to remain supportive of the economy, Ms. George believed that policy had become too
accommodative and that possible unintended side effects of ongoing asset purchases, posing risks to financial stability and complicating future monetary policy,
argued against continuing on the Committee’s current
path.
Discussion of Communications Regarding Economic Projections
As a follow-up to the FOMC’s discussion in October
about providing more information on the Committee’s
collective judgment regarding the economic outlook
and appropriate monetary policy, the staff presented
several options for enhancing the Summary of Eco
nomic Projections (SEP). Most of the options involved displaying the information currently collected
from participants in new ways by using different summary statistics or aggregations. In the ensuing discussion, participants expressed a range of views on the
advantages and disadvantages of implementing changes
to the SEP. For example, they generally judged that
the addition of the median of participants’ projections
could be useful to better illustrate the central outlook
of the Committee. Many participants also expressed
interest in exploring the potential for using the SEP to
convey information about issues related to the Committee’s future asset purchases and the Federal Reserve’s balance sheet. However, the discussion highlighted the complexity involved in providing this information, in part because participants’ quantitative
assessments of the likely evolution of the Federal Reserve’s asset holdings under appropriate policy may not
adequately convey the nature of the conditionality and
the broader cost–benefit considerations guiding the
Committee’s actions in this area. At the end of the
discussion, the Chairman asked the subcommittee on
communications to explore potential approaches to
providing more information about participants’ individual views of appropriate balance sheet policy and its
conditionality.
It was agreed that the next meeting of the Committee
would be held on Tuesday–Wednesday, March 19-20,
2013. The meeting adjourned at 1:45 p.m. on January
30, 2013.
Notation Vote
By notation vote completed on January 2, 2013, the
Committee unanimously approved the minutes of the
FOMC meeting held on December 11–12, 2012.
_____________________________
William B. English
Secretary
Cite this document
Federal Reserve (2013, January 29). FOMC Minutes. Fomc Minutes, Federal Reserve. https://whenthefedspeaks.com/doc/fomc_minutes_20130130
@misc{wtfs_fomc_minutes_20130130,
author = {Federal Reserve},
title = {FOMC Minutes},
year = {2013},
month = {Jan},
howpublished = {Fomc Minutes, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/fomc_minutes_20130130},
note = {Retrieved via When the Fed Speaks corpus}
}