FOMC Minutes

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Minutes of the Federal Open Market Committee

April 30–May 1, 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, April 30, 2013, at 2:00 p.m. and continued on

Wednesday, May 1, 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

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

Steven B. Kamin, Economist

David W. Wilcox, Economist

Thomas A. Connors, Troy Davig, Michael P. Leahy,

Stephen A. Meyer, David Reifschneider, Daniel G.

Sullivan, and William Wascher, Associate Economists

Simon Potter, Manager, System Open Market Account

Michael S. Gibson, Director, Division of Banking Supervision and Regulation, Board of Governors

James A. Clouse and William Nelson, Deputy Directors, Division of Monetary Affairs, Board of Governors

Andreas Lehnert, Deputy Director, Office of Financial

Stability Policy and Research, Board of Governors

Jon W. Faust, Special Adviser 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

Joyce K. Zickler, Senior Adviser, Division of Monetary

Affairs, Board of Governors

Michael T. Kiley and Thomas Laubach, 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; Min Wei, Assistant Director, Division

of Monetary Affairs, Board of Governors

Stefania D’Amico, Senior Economist, Division of

Monetary Affairs, Board of Governors

Randall A. Williams, Records Project Manager, Division of Monetary Affairs, Board of Governors

Kenneth C. Montgomery, First Vice President, Federal

Reserve Bank of Boston

David Altig, Jeff Fuhrer, and Loretta J. Mester, Executive Vice Presidents, Federal Reserve Banks of Atlanta, Boston, and Philadelphia, respectively

Lorie K. Logan and Mark E. Schweitzer, Senior Vice

Presidents, Federal Reserve Banks of New York

and Cleveland, respectively

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Fred Furlong, Group Vice President, Federal Reserve

Bank of San Francisco

Evan F. Koenig and David C. Wheelock, Vice Presidents, Federal Reserve Banks of Dallas and St.

Louis, respectively

Robert L. Hetzel and Andrea Tambalotti, Senior Economists, Federal Reserve Banks of Richmond and

New York, respectively

Jonathan Heathcote, Senior Research Economist, Federal Reserve Bank of Minneapolis

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

The Manager of the System Open Market Account

(SOMA) reported on developments in domestic and

foreign financial markets as well as the System open

market operations during the period since the Federal

Open Market Committee (FOMC) met on March 19–

20, 2013. 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.

By unanimous vote, the Committee agreed to extend

the reciprocal currency (swap) arrangements with the

Bank of Canada and the Banco de México for an additional year beginning in mid-December 2013; these

arrangements are associated with the Federal Reserve’s

participation in the North American Framework

Agreement of 1994. The arrangement with the Bank of

Canada allows for cumulative drawings of up to $2 billion equivalent, and the arrangement with the Banco de

México allows for cumulative drawings of up to

$3 billion equivalent. The vote to renew the System’s

participation in these swap arrangements was taken at

this meeting because a provision in the Framework

Agreement requires each party to provide six months’

prior notice of an intention to terminate its participation.

Staff Review of the Economic Situation

The information reviewed at the April 30–May 1 meeting indicated that economic activity expanded at a

moderate pace in the first quarter. In March, the unemployment rate edged down further, although it continued to be elevated, and employment growth slowed.

Consumer price inflation was relatively low, while

measures of longer-run inflation expectations remained

stable.

After faster gains in January and February, private nonfarm employment increased at a subdued rate in March,

and government employment declined slightly. The

unemployment rate was 7.6 percent in March, a little

below its average in the fourth quarter of last year. The

labor force participation rate also edged down to below

its fourth-quarter average. The rate of long-duration

unemployment and the share of workers employed part

time for economic reasons declined somewhat in

March, but these measures remained well above their

pre-recession levels. Indicators of near-term labor

market conditions were consistent with projections of

moderate increases in employment in the coming

months: Measures of job openings generally moved

up, but the rate of gross private-sector hiring and indicators of firms’ hiring plans were subdued, on balance,

and initial claims for unemployment insurance trended

up a little over the intermeeting period.

Manufacturing production decreased slightly in March

but expanded at a brisk rate in the first quarter as a

whole, supported in part by a recovery in output following Hurricane Sandy, and the rate of manufacturing

capacity utilization in March was somewhat higher than

in the fourth quarter. The production of motor vehicles and parts rose solidly in March, but factory output

outside of the motor vehicle sector declined. Automakers’ schedules indicated that the pace of motor

vehicle assemblies in the coming months would be a bit

below that in March. Broad indicators of manufacturing production, such as the diffusion indexes of new

orders from the national and regional manufacturing

surveys, were at levels that pointed to small increases in

factory output in the near term.

Real personal consumption expenditures (PCE) expanded at a solid pace in March and in the first quarter

as a whole. Some factors that tend to influence household spending were generally positive in recent months.

For example, real disposable income increased in February and March, supported in part by recent declines

in retail gasoline prices that raised household purchasing power and offset to some extent the effects of this

year’s higher payroll and income taxes. In addition,

household net worth likely rose in recent months as a

result of higher equity values and home prices. In contrast, consumer sentiment in the Thomson Reuters/University of Michigan Surveys of Consumers was

roughly flat, on balance, in March and April and remained relatively downbeat.

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Conditions in the housing sector continued to improve,

as real expenditures for residential investment expanded briskly in the first quarter, although from a low level.

Total combined starts of new single-family homes and

multifamily units increased in March to a level well

above that at the beginning of the year. Home prices

continued to rise through February, and sales of new

homes rose in March, but sales of existing homes decreased a little.

Growth in real business expenditures on equipment

and software slowed in the first quarter. Nominal

shipments of nondefense capital goods excluding aircraft continued to rise gradually in February and March,

but new orders were slightly below the level of shipments, pointing to modest gains in shipments in the

near term. Other forward-looking indicators, such as

surveys of business conditions and capital spending

plans, also suggested that outlays for business equipment would rise at a subdued pace in the coming

months. Real business spending for nonresidential

construction declined a little in the first quarter. Real

inventory investment increased in the first quarter, and

business inventories in most industries appeared to be

broadly aligned with sales in recent months.

Real federal government purchases declined markedly

in the first quarter, led by a significant decrease in defense spending, which may have partially reflected the

anticipated effects of the federal spending sequestration. Real state and local government purchases also

decreased somewhat in the first quarter, as state and

local construction expenditures continued to decline.

The advance release of first-quarter data for the national income and product accounts showed that real net

exports of goods and services also subtracted moderately from real gross domestic product (GDP) growth,

as real imports outpaced real exports.

Overall consumer prices, as measured by the price index for PCE, edged down in March and rose just

1 percent from a year earlier. Consumer energy prices

declined in March, and retail gasoline prices fell further

in the first few weeks of April. Consumer food prices

only edged up in March. Consumer prices excluding

food and energy were flat in March, and their increase

from 12 months earlier was similar to that for total

consumer prices. Near-term inflation expectations

from the Thomson Reuters/University of Michigan

Surveys of Consumers were slightly lower in April, and

longer-term inflation expectations in the survey were

little changed and remained within the narrow range

that they have occupied for several years.

Measures of labor compensation indicated that gains in

nominal wages remained subdued. Increases in the

employment cost index were modest over the year ending in the first quarter. Average hourly earnings for all

employees were unchanged in March, and hourly earnings gains in the first quarter as a whole were muted.

Economic growth in foreign economies overall in the

first quarter of 2013 showed only a small improvement

from that registered in the second half of 2012. Real

GDP growth picked up in the United Kingdom, and

recent indicators suggested that the pace of contraction

moderated in the euro area. In contrast, economic

growth in China slowed abruptly after surging late last

year. Foreign inflation appeared to increase a little in

the first quarter, partly as a result of higher food prices

in several emerging market economies, but remained

quite moderate.

Staff Review of the Financial Situation

Financial conditions improved a little, on balance, over

the intermeeting period. Yields of longer-term Treasury securities and foreign benchmark sovereign bonds

declined appreciably, reflecting the somewhat negative

tone of U.S. and foreign economic data releases as well

as policy actions by the Bank of Japan that were more

accommodative than the markets had expected. Equity

prices rose modestly, on net, supported in part by solid

quarterly earnings reports.

The expected path of the federal funds rate implied by

market quotes shifted down moderately over the intermeeting period. However, the Desk’s survey of

primary dealers, conducted prior to the April 30–May 1

meeting, indicated that the dealers continued to view

the third quarter of 2015 as the most likely time for the

initial increase in the target federal funds rate. The median dealer anticipated that the FOMC would maintain

its current pace of asset purchases through December

2013 and saw the second quarter of 2014 as the most

probable time for the end of asset purchases, implying

a slight upward revision to the projected total size of

the Federal Reserve’s asset purchase program.

Over the intermeeting period, near-term measures of

inflation compensation derived from yields on nominal

and inflation-protected Treasury securities moved lower amid somewhat disappointing economic data and

declines in energy and other commodity prices; forward

measures of inflation compensation changed little at

longer horizons. Yields on agency mortgage-backed

securities (MBS) decreased about in line with those on

nominal Treasury securities of comparable duration.

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Conditions in domestic dollar funding markets were

generally little changed, and offshore dollar funding

markets reacted only modestly to the elevated uncertainty surrounding the negotiations, early in the intermeeting period, to resolve the banking crisis in Cyprus.

Some indicators of the condition of domestic financial

institutions weakened slightly. Share prices for the

largest domestic banking organizations declined somewhat, on balance, and bank credit default swap spreads

edged a bit higher, on average, across the larger firms in

the sector.

Broad equity price indexes increased, on net, over the

intermeeting period, likely reflecting solid quarterly

earnings reports, stable medium-term earnings expectations, and lower interest rates. Option-implied volatility for the S&P 500 index over the near term remained

in a range that was low by historical standards.

Yields on corporate bonds fell roughly in line with

those on Treasury securities of comparable maturity,

generally leaving their spreads little changed. The rate

of corporate bond issuance by nonfinancial firms remained robust in March and April. Consistent with

recent trends, some companies reportedly retired a notable portion of their outstanding commercial paper

and issued longer-term bonds in comparable amounts.

Syndicated leveraged loans were issued at a record pace

in the first quarter, supported by strong demand for

this type of asset, particularly from nonbank institutions. Gross public issuance of equity by nonfinancial

firms was solid over the same period.

Conditions in some segments of the commercial real

estate (CRE) sector continued to improve in recent

months. Outstanding CRE loans held by commercial

banks edged up in the past two quarters following a

prolonged period of decline, and commercial mortgagebacked security issuance was strong in the first quarter.

According to the Senior Loan Officer Opinion Survey

on Bank Lending Practices (SLOOS) conducted in

April, the fraction of banks that eased standards on

CRE loans over the past three months increased to a

relatively high level, while demand for these loans

strengthened further. CRE prices continued to move

up slowly, and price indexes for various market segments reached levels last seen in late 2008.

Rates on conforming home mortgage loans declined

over the intermeeting period, and the spread between

the primary mortgage rate and MBS yields remained

well below its peak during the second half of 2012.

The estimated pace of mortgage refinancing origina-

tions continued to be high, supported by historically

low mortgage rates. However, purchase mortgage applications stayed at low levels. Overall delinquencies

trended lower for both prime and subprime mortgages,

primarily reflecting the very tight underwriting standards imposed over the past several years.

Consumer credit continued to expand in January and

February, mostly driven by sizable increases in nonrevolving credit. Growth was particularly strong in auto

loans as well as in student loans extended through the

Department of Education’s Direct Loan Program. In

contrast, total revolving credit was about flat amid continued tight underwriting standards and terms on credit

card loans. Issuance of consumer asset-backed securities—in particular, those backed by subprime auto

loans—remained robust in recent months.

Total bank credit expanded moderately during the first

quarter of 2013. Gains continued to be concentrated in

commercial and industrial (C&I) loans, which increased

especially strongly at domestic banks. In the April

SLOOS, relatively large net fractions of these banks

reported having eased standards and reduced spreads

on C&I loans to firms of all sizes.

M2 grew at a faster pace in March and April than earlier in the year, possibly boosted by the higher level of

annual tax payments and refunds relative to recent

years. Meanwhile, the monetary base expanded briskly

over those two months, driven mainly by the increase

in reserve balances resulting from the Federal Reserve’s

asset purchases.

Early in the intermeeting period, prices of a range of

risky assets abroad fell in reaction to reports of the

“bail-in” of depositors at banks in Cyprus and the imposition of an extended bank holiday in that country,

but outside of Cyprus those movements generally

proved temporary. Euro-area equity indexes, which fell

as stresses in Cyprus intensified, ended the period up

slightly. By contrast, stock prices in Japan rose sharply,

as the Bank of Japan surprised investors with the scale

of its new monetary policy program aimed at raising

inflation to 2 percent. Yields on longer-term Japanese

government bonds displayed considerable volatility in

the days following the announcement, although they

were little changed, on net, over the intermeeting period. Outside of Japan, foreign benchmark sovereign

yields fell over the intermeeting period, with market

commentary citing weak U.S. and foreign macroeconomic data releases, increased expectations for further

monetary accommodation by some foreign central

banks, and the announcement by the Bank of Japan.

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After appreciating, on balance, since early this year, the

dollar depreciated against most currencies, although it

continued to appreciate against the yen. Emerging

market stock prices changed little, on net, and emerging

market equity mutual funds experienced modest outflows.

Staff Economic Outlook

In the economic forecast prepared by the staff for the

April 30–May 1 FOMC meeting, the projection for real

GDP growth was little revised from that prepared for

the March meeting. With fiscal policy expected to be

tighter this year than last year, the staff still anticipated

that the pace of expansion in real GDP would only

somewhat exceed the growth rate of potential output in

2013. The staff also continued to project that real

GDP would accelerate gradually in 2014 and 2015,

supported by an eventual easing in the effects of fiscal

policy restraint on economic growth, increases in consumer and business sentiment, further improvements in

credit availability and financial conditions, and accommodative monetary policy. The expansion in economic

activity was anticipated to slowly reduce the slack in

labor and product markets over the projection period,

and the unemployment rate was expected to decline

gradually.

The staff’s forecast for inflation was also little revised

from the projection prepared for the March FOMC

meeting. With longer-run inflation expectations assumed to remain stable, energy prices expected to continue to trend down, and significant resource slack persisting over the forecast period, the staff continued to

project that inflation would remain subdued through

2015.

The staff viewed the uncertainty around its forecast for

economic activity as similar to the average level over

the past 20 years. However, the risks to this outlook

were viewed as skewed to the downside, reflecting in

part concerns about the situation in Europe. Although

the staff saw the outlook for inflation as uncertain, the

risks were viewed as balanced and not unusually high.

Participants’ Views on Current Conditions and the

Economic Outlook

In their discussion of the economic situation, meeting

participants generally indicated that they viewed the

information received during the intermeeting period as

suggesting that the economy was expanding at a moderate pace despite some softness in recent economic

data. Conditions in the labor market showed some

continued improvement, although the unemployment

rate remained elevated. Spending by consumers con-

tinued to expand, supported by better credit conditions, rising equity and housing prices, and lower energy prices; and the housing sector improved further.

However, growth in business investment spending

slowed somewhat, and fiscal policy appeared to be exerting significant near-term restraint on the economy.

Perhaps reflecting more subdued growth abroad, especially in Europe and China, net exports weakened in

the first quarter.

Participants generally saw the economic outlook as little changed since they met in March. However, economic data releases over the intermeeting period were

mixed, raising some concern that the recovery might be

slowing after a solid start earlier this year, thereby repeating the pattern observed in recent years. Various

views on this prospect were offered, from those participants who put more emphasis on the underlying momentum of the economy, noting the strengthening in

private domestic final demand, to those who stressed

the growing fiscal restraint or the other headwinds still

facing the economy. Participants continued to anticipate that, with appropriate monetary policy, growth

would proceed at a moderate pace over the medium

run and that the unemployment rate would decline

gradually toward levels consistent with the Committee’s

mandate. A number of participants noted that the balance of risks to growth remained to the downside, although a couple suggested that such risks had diminished appreciably since last fall. A few participants

warned that, in light of ongoing fiscal restraint and a

weak global outlook, economic data could remain soft

for the next few months, regardless of the underlying

strength of the economy.

Consumer spending was reported to be strong in a

number of areas of the country and, more broadly, appeared to be supported by rising equity and house prices, improved household balance sheets, and easier credit conditions. However, concerns were expressed that

this rate of growth in consumer expenditures might not

be sustainable without the support of a notable pickup

in business investment and hiring. Other factors that

might affect spending also were mentioned. For example, the losses in income and wealth experienced

during the crisis might lead households to be more cautious in their spending and to save at a higher rate;

wealth gains in recent years appeared concentrated

among higher-net-worth individuals, who may have a

lower propensity to spend out of additional wealth; and

retailers reported weakness in spending by lowerincome households, who had been more affected by

the increase in payroll taxes.

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Participants saw the housing market as having

strengthened further during the intermeeting period

and pointed variously to rising house prices, growth in

home sales, a lower inventory of houses for sale, a reduction in the average time houses stayed on the market, and encouraging reports from homebuilders. More

all-cash or investor purchases were being reported, and

the pace of home purchases overall appeared to be

constrained less by a lack of demand than by a lack of

homes for sale, in part reflecting fewer newly foreclosed houses coming onto the market. The rate of

new delinquencies on mortgages declined nearly to precrisis levels, and the pipeline of properties in the foreclosure process was being slowly worked down, in part

through modifications and short sales. Over time, the

supply of homes for sale was expected to increase as

new construction picked up and sellers saw more attractive opportunities to put their houses on the market. The improvement in the housing sector was also

seen as contributing to a pickup in activity in related

industries.

With some exceptions, business contacts were reporting continued caution about expanding investment or

payrolls. Reports included some weakening in manufacturing activity, due in part to reduced demand from

abroad, and farm exports in one District were projected

to be flat following strong growth in previous years.

However, the CRE sector showed some signs of recovery, and survey results indicated that the terms of

CRE lending were easing and loan demand increasing.

The federal spending sequestration and recent tax increases were viewed as restraining aggregate demand.

Participants differed somewhat in their assessments of

the magnitude of these effects on the economy, with

views ranging from an estimate of substantial fiscal

drag to one of less restraint than previously expected.

A few participants mentioned the sequestration’s impact on hiring and spending by the defense industry or

government contractors, but one participant noted that

a decline in expected future tax liabilities of the private

sector associated with lower federal spending might

provide a partial offset to the economic effects of the

budget cuts.

Participants generally saw signs of improvement in labor market conditions despite the weaker-thanexpected March payroll employment figure. Employment growth in earlier months had been solid, and

more-recent improvements included the further decline

in the unemployment rate in March and the gradual

progress being made in some other labor market indi-

cators. However, several participants cautioned that

the drop in the unemployment rate in the latest month

was also accompanied by another reduction in the labor

force participation rate; the decline in labor force participation over recent quarters could indicate that the

reduction in overall labor market slack had been substantially smaller than suggested by the change in the

unemployment rate over that period. One participant

commented that assessing the shortfall of employment

from its maximum level required taking account of not

only the gap between the unemployment rate and its

corresponding natural rate, but also the gap between

the labor force participation rate and its longer-term

trend—a trend which was admittedly subject to considerable uncertainty. A few participants mentioned that

job growth may have been restrained to an extent by

businesses postponing hiring because of uncertainties

over the implementation of health-care legislation or

because they were unable to find certain types of skilled

workers.

Both headline and core PCE inflation in the first quarter came in below the Committee’s longer-run goal of

2 percent, but these recent lower readings appeared to

be due, in part, to temporary factors; other measures of

inflation as well as inflation expectations had remained

more stable. Accordingly, participants generally continued to expect that inflation would move closer to the

2 percent objective over the medium run. Nonetheless,

a number of participants expressed concern that inflation was below the Committee’s target and stressed

that future price developments bore careful watching.

Most of the recent reports from business contacts revealed little upward pressure on prices or wages. A

couple of participants expressed the view that an additional monetary policy response might be warranted

should inflation fall further. It was also pointed out

that, even absent further disinflation, continued low

inflation might pose a threat to the economic recovery

by, for example, raising debt burdens. One participant

focused instead on the upside risks to inflation over the

longer term resulting from highly accommodative

monetary policy.

Financial conditions appeared to have eased further

over the intermeeting period: Longer-term interest

rates declined significantly, banks loosened their C&I

lending terms and standards on balance, and competition to make commercial and auto loans was strong.

Businesses were reportedly still borrowing to refinance,

but they had begun to take out more new loans as well.

While the Committee’s accommodative policy continued to provide support to financial conditions, events

Minutes of the Meeting of April 30–May 1, 2013

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abroad also influenced U.S. markets over the intermeeting period. In particular, the Bank of Japan announced

a new monetary policy program that was considerably

more expansionary than markets had expected. Financial conditions in Europe improved somewhat over the

period, but some participants still saw the situation in

Europe as posing downside risks to U.S. growth. At

this meeting, a few participants expressed concern that

conditions in certain U.S. financial markets were becoming too buoyant, pointing to the elevated issuance

of bonds by lower-credit-quality firms or of bonds with

fewer restrictions on collateral and payment terms (socalled covenant-lite bonds). One participant cautioned

that the emergence of financial imbalances could prove

difficult for regulators to identify and address, and that

it would be appropriate to adjust monetary policy to

help guard against risks to financial stability.

In discussing the effects of the Committee’s asset purchases, several participants pointed to the improvement

in interest-sensitive sectors, such as consumer durables

and housing, over the recent period as evidence that

the purchases were having positive results for the

economy. The effects on a range of asset prices of the

Bank of Japan’s recent announcement were cited as

added evidence that large-scale asset purchases were

effective in easing financial conditions and thereby

helping stimulate economic activity. In evaluating the

prospects for benefits from asset purchases, however,

one participant viewed uncertainty about U.S. fiscal and

regulatory policies as interfering with the transmission

of monetary policy and as preventing asset purchases

from having a meaningful effect on the real economy.

Participants also touched on the conditions under

which it might be appropriate to change the pace of

asset purchases. Most observed that the outlook for

the labor market had shown progress since the program was started in September, but many of these participants indicated that continued progress, more confidence in the outlook, or diminished downside risks

would be required before slowing the pace of purchases would become appropriate. A number of participants expressed willingness to adjust the flow of purchases downward as early as the June meeting if the

economic information received by that time showed

evidence of sufficiently strong and sustained growth;

however, views differed about what evidence would be

necessary and the likelihood of that outcome. One

participant preferred to begin decreasing the rate of

purchases immediately, while another participant preferred to add more monetary accommodation at the

current meeting and mentioned that the Committee

had several other tools it could potentially use to do so.

Most participants emphasized that it was important for

the Committee to be prepared to adjust the pace of its

purchases up or down as needed to align the degree of

policy accommodation with changes in the outlook for

the labor market and inflation as well as the extent of

progress toward the Committee’s economic objectives.

Regarding the composition of purchases, one participant expressed the view that, in light of the substantial

improvement in the housing market and to avoid further credit allocation across sectors of the economy,

the Committee should start to shift any asset purchases

away from MBS and toward Treasury securities.

Committee Policy Action

Committee members saw the information received

over the intermeeting period as suggesting that economic activity had been expanding at a moderate pace.

Labor market conditions had shown some improvement in recent months, on balance, but the unemployment rate remained elevated. Household spending and

business fixed investment advanced, and the housing

sector had strengthened further, but fiscal policy was

restraining economic growth. The Committee expected that, with appropriate monetary policy accommodation, economic growth would proceed at a moderate pace and result in a gradual decline in the unemployment rate toward levels that the Committee judged

consistent with its dual mandate. Members generally

continued to anticipate that, with longer-term inflation

expectations stable and persisting slack in resource utilization, inflation over the medium term would likely

run at or below the Committee’s 2 percent objective.

In their discussion of monetary policy for the period

ahead, all but one member judged that a 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 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. 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 inflation expectations.

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A few members expressed concerns that investor expectations of the cumulative size of the asset purchase

program appeared to have increased somewhat since it

was launched last September despite a notable decline

in the unemployment rate and other improvements in

the labor market since then. In contrast, a few other

members focused on evidence that market expectations

about the total size of the program had changed little,

on net, since the program was launched or had responded appropriately to incoming information.

Members generally agreed on the need for the Committee to communicate clearly that the pace and ultimate

size of its asset purchases would depend on the Committee’s continued assessment of the outlook for the

labor market and inflation in addition to its judgments

regarding the efficacy and costs of additional purchases

and the extent of progress toward its economic objectives. To highlight its willingness to adjust the flow of

purchases in light of incoming information, the Committee included language in the statement to be released

following the meeting that said the Committee was

prepared to increase or reduce the pace of its purchases

to maintain appropriate policy accommodation as the

outlook for the labor market or inflation changes.

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

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

mortgage-backed securities 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 2:00 p.m.:

“Information received since the Federal

Open Market Committee met in March

suggests that economic activity has been

expanding at a moderate pace. Labor market conditions have shown some improvement in recent months, on balance, but the

unemployment rate remains elevated.

Household spending and business fixed investment advanced, and the housing sector

has strengthened further, but fiscal policy is

restraining economic growth. 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. 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 decided to continue purchasing additional agency mortgagebacked securities at a pace of $40 billion per

month and longer-term Treasury securities

at a pace of $45 billion per month. The

Minutes of the Meeting of April 30–May 1, 2013

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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. The

Committee will continue its purchases of

Treasury and agency mortgage-backed securities, and employ its other policy tools as

appropriate, until the outlook for the labor

market has improved substantially in a context of price stability. The Committee is

prepared to increase or reduce the pace of

its purchases to maintain appropriate policy

accommodation as the outlook for the labor

market or inflation changes. In determining

the size, pace, and composition of its asset

purchases, the Committee will continue to

take appropriate account of the likely efficacy and costs of such purchases as well as the

extent of progress toward its economic objectives.

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 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 because she continued to view

monetary policy as overly accommodative and therefore as posing risks to the long-term sustainable growth

of the economy. She expressed concern that the stance

of policy might be fostering imbalances and excessive

risk-taking in some financial markets and institutions,

and she cited the potential for the Committee’s ongoing asset purchases to complicate the future conduct of

policy, raise uncertainty, and affect future inflation expectations. Accordingly, Ms. George preferred to signal a near-term tapering of asset purchases, which

would begin to move policy toward a more appropriate

stance.

Review of Exit Strategy Principles

After the policy vote, participants began a review of the

exit strategy principles that were published in the

minutes of the Committee’s June 2011 meeting. Those

principles, which the Committee issued to clarify how it

intended to normalize the stance and conduct of monetary policy when doing so eventually became appropriate, included broad principles along with some details

about the timing and sequence of specific steps the

Committee expected to take. The participants’ discussion touched on various aspects of the exit strategy

principles and policy normalization more generally,

including the size and composition of the SOMA portfolio in the longer run, the use of a range of reservedraining tools, the approach to sales of securities, the

eventual framework for policy implementation, and the

relationship between the principles and the economic

thresholds in the Committee’s forward guidance on the

federal funds rate. The broad principles adopted almost two years ago appeared generally still valid, but

developments since then—including the change in the

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Federal Open Market Committee

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size and composition of SOMA asset holdings—

suggested a need for greater flexibility regarding the

details of implementing policy normalization, particularly because those details would appropriately depend

at least in part upon future economic and financial developments. Also, because normalization still appeared

to be well in the future, the Committee might wish to

wait and acquire additional experience to inform its

plans. In particular, the process of normalizing policy

could yield information about the most effective

framework for implementing monetary policy in the

longer run, and thus about the appropriate size of the

SOMA portfolio and level of reserve balances. In addition, several participants raised the possibility that the

federal funds rate might not, in the future, be the best

indicator of the general level of short-term interest

rates, and supported further staff study of potential

alternative approaches to implementing monetary policy in the longer term and of possible new tools to improve control over short-term interest rates.

Views differed regarding whether the best course at this

point would be to simply acknowledge that certain

components of the June 2011 principles had been overtaken by events or rather to formally revise the principles. Acknowledging that the principles need to be

updated would help avoid possible confusion regarding

the Committee’s intentions; waiting to update the principles would allow the Committee to obtain additional

information before revising them. It was also mentioned that the public’s understanding of the likely exit

process might not be improved if the Committee issued only a set of broad principles without providing

detailed information on the steps anticipated for nor

malization. However, issuing revised principles relatively soon could give the public additional confidence

that the Committee had the tools and a plan for eventually normalizing the conduct of policy. Moreover,

one participant stressed that the Committee’s ability to

provide forward guidance about the normalization process was a key monetary policy tool, and revised principles would permit use of that tool to help adjust the

stance of policy. Participants emphasized that their

review of the June 2011 exit strategy principles did not

suggest any change in their views about the economic

conditions that would eventually warrant beginning the

process of normalizing the stance of monetary policy.

At the conclusion of the discussion, the Chairman directed the staff to undertake additional preparatory

work on this issue for Committee consideration in the

future.

It was agreed that the next meeting of the Committee

would be held on Tuesday–Wednesday, June 18–19,

2013. The meeting adjourned at 1:05 p.m. on May 1,

2013.

Notation Vote

By notation vote completed on April 9, 2013, the

Committee unanimously approved the minutes of the

FOMC meeting held on March 19–20, 2013.

_____________________________

William B. English

Secretary