FOMC Minutes
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Minutes of the Federal Open Market Committee
June 18–19, 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, June 18, 2013, at 1:30 p.m. and continued on
Wednesday, June 19, 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, 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
Gregory L. Stefani, First Vice President, Federal Reserve Bank of Cleveland
William B. English, Secretary and Economist
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, Geoffrey Tootell, Christopher J.
Waller, and William Wascher, Associate Economists
Simon Potter, Manager, System Open Market Account
Nellie Liang, Director, Office of Financial Stability Policy and Research, Board of Governors
James A. Clouse and William Nelson, Deputy Directors, Division of Monetary Affairs, Board of Governors; Matthew J. Eichner, Deputy Director, Division of Research and Statistics, Board of Governors; Maryann F. Hunter, Deputy Director, Division of Banking Supervision and Regulation, 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
Ellen E. Meade and Joyce K. Zickler, Senior Advisers,
Division of Monetary Affairs, Board of Governors
Daniel M. Covitz, Eric M. Engen, and Thomas Laubach, Associate Directors, Division of Research
and Statistics, Board of Governors
Sean D. Campbell and Joshua Gallin, Deputy Associate
Directors, Division of Research and Statistics,
Board of Governors; Jane E. Ihrig and David
López-Salido, Deputy Associate Directors, Division of Monetary Affairs, Board of Governors
Joseph W. Gruber, Assistant Director, Division of International Finance, 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
Deborah J. Lindner, Group Manager, Division of Research and Statistics, Board of Governors
Patrice Robitaille, Senior Economist, Division of International Finance, Board of Governors
Seung J. Lee, Economist, Division of Monetary Affairs,
Board of Governors
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Peter M. Garavuso, Records Management Analyst, Division of Monetary Affairs, Board of Governors
James M. Lyon, First Vice President, Federal Reserve
Bank of Minneapolis
David Altig and Loretta J. Mester, Executive Vice Presidents, Federal Reserve Banks of Atlanta and Philadelphia, respectively
Lorie K. Logan, David Marshall, Mark E. Schweitzer,
and Kei-Mu Yi, Senior Vice Presidents, Federal
Reserve Banks of New York, Chicago, Cleveland,
and Minneapolis, respectively
Evan F. Koenig, Vice President, Federal Reserve Bank
of Dallas
Andreas L. Hornstein, Senior Advisor, Federal Reserve
Bank of Richmond
John Fernald, Senior Research Adviser, Federal Reserve Bank of San Francisco
Discussion of Guidelines for Policy Normalization
In light of the changes in the System Open Market Account (SOMA) portfolio over the past two years, the
Committee again discussed its strategy for the eventual
normalization of the stance of monetary policy and the
size and composition of the Federal Reserve’s balance
sheet that was released in the minutes of the Committee’s June 2011 meeting. Although most participants
saw this review as prudent longer-range planning, some
felt that the discussion was premature. Meeting participants, in general, continued to view the broad principles set out in 2011 as still applicable. Nonetheless,
they agreed that many of the details of the eventual
normalization process would likely differ from those
specified two years ago, that the appropriate details
would depend in part on economic and financial developments between now and the time when it becomes
appropriate to begin normalizing monetary policy, and
that the Committee would need to provide additional
information about its intentions as that time approaches. Participants continued to think that the Federal
Reserve should, in the long run, hold predominantly
Treasury securities. Most, however, now anticipated
that the Committee would not sell agency mortgagebacked securities (MBS) as part of the normalization
process, although some indicated that limited sales
might be warranted in the longer run to reduce or elim-
inate residual holdings. A couple of participants stated
that they preferred that the Committee make no decision about sales of MBS until closer to the start of the
normalization process. Participants agreed that the
Committee’s focus continued to be on providing appropriate monetary accommodation to promote a
stronger recovery in the context of price stability and
so judged that additional discussion regarding policy
normalization should be deferred.
Developments in Financial Markets and the Federal Reserve’s Balance Sheet
The Manager of the 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
April 30–May 1, 2013. The review included a report
that the System’s purchases of longer-term assets did
not appear to have had an adverse effect on the functioning of the markets for Treasury securities or agency
MBS, and that the Open Market Desk’s operations in
both sectors had proceeded smoothly. By unanimous
vote, the Committee ratified the Desk’s domestic transactions over the intermeeting period. There were no
intervention operations in foreign currencies for the
System’s account over the intermeeting period.
Staff Review of the Economic Situation
The information reviewed for the June 18–19 meeting
suggested that economic activity continued to increase
at a moderate rate in the second quarter. Private-sector
employment expanded further in recent months, and
the unemployment rate in April and May was below its
first-quarter average, although it continued to be elevated. Consumer price inflation was subdued, partly
reflecting transitory influences. However, measures of
longer-run inflation expectations remained stable.
Private nonfarm employment rose moderately in April
and May, while total government employment continued to decline somewhat. The unemployment rate was
7.6 percent in May, little changed from its level in April.
The labor force participation rate edged up in May, but
was still slightly below its first-quarter average, and the
employment-to-population ratio increased a bit in recent months. The rate of long-duration unemployment
declined slightly, while the share of workers employed
part time for economic reasons was little changed; both
of these measures remained well above their prerecession levels. Forward-looking indicators of nearterm labor market activity were mixed but generally
pointed to some further improvement in labor market
conditions in the coming months: Household expecta-
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tions of the labor market situation improved; initial
claims for unemployment insurance were little changed,
on net, over the intermeeting period; and firms’ hiring
plans edged up. However, measures of job openings
and the rate of gross private-sector hiring were about
flat, on balance, in recent months and remained near
their levels of a year ago.
Manufacturing production increased slightly in May
after declining in the previous two months, and the rate
of manufacturing capacity utilization in May was lower
than in the first quarter. Automakers’ schedules indicated that the pace of motor vehicle assemblies would
hold roughly steady in the coming months, and broader
indicators of manufacturing production, such as the
readings on new orders from national and regional
manufacturing surveys, were generally at subdued levels
that pointed to only modest increases in factory output
in the near term.
Real personal consumption expenditures (PCE) rose in
April. In May, nominal retail sales, excluding those at
motor vehicle and parts outlets, increased briskly, while
light motor vehicle sales moved up solidly. Some key
factors that tend to support growth in household
spending were positive in recent months. After decreasing in the first quarter when payroll and income
taxes increased, households’ real disposable income
rose in April, in part reflecting a small decline in consumer prices. Households’ net worth likely increased in
recent months, as equity values and home prices rose
further. Moreover, consumer sentiment in the Thomson Reuters/University of Michigan Surveys of Consumers improved notably, on balance, in May and early
June and was at its most upbeat level since the onset of
the recession.
Conditions in the housing sector generally improved
further, but construction activity was still at a relatively
low level, and demand continued to be restrained by
tight credit standards for mortgage loans. Starts of new
single-family homes declined, on net, in April and May,
but permits rose, suggesting gains in construction in the
coming months. Starts of new multifamily units decreased in April but increased in May. Home prices
continued to rise rapidly through April, while sales of
both new and existing homes advanced.
Real business expenditures on equipment and software
appeared to slow somewhat going into the second
quarter after expanding modestly earlier in the year.
Nominal shipments of nondefense capital goods excluding aircraft decreased in April, but nominal new
orders for these capital goods increased and were
slightly above 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 continue to
rise at only a modest pace in the coming months.
Nominal business spending for nonresidential construction increased in April after it had declined in the
first quarter. Business inventories in most industries
appeared to be broadly aligned with sales in recent
months.
Real federal government purchases appeared to be declining less rapidly going into the second quarter than
they had during the first quarter, as decreases in defense spending slowed, on balance, in April and May.
The ongoing declines in real state and local government
purchases appeared to moderate over recent months;
the payrolls of these governments expanded in April
and May, but state and local construction expenditures
continued to decline noticeably.
The U.S. international trade deficit narrowed in March
but widened in April, leaving the level of the trade deficit in April similar to its average in the first quarter.
Both imports and exports fell in March but largely recovered in April, although oil imports remained below
their first-quarter average. Exports of consumer goods
and automotive products reached new highs in April,
but exports of agricultural products declined.
Overall U.S. consumer prices, as measured by the PCE
price index, edged down in April, while the consumer
price index (CPI) rose somewhat in May. Both the CPI
and the PCE price index increased at a subdued rate
over the most recent 12-month period for each series.
After declining in the previous two months, consumer
energy prices rose a little in May, and retail gasoline
prices, measured on a seasonally adjusted basis, were up
further in the first couple of weeks in June. Consumer
food prices edged down in May after rising modestly in
April. Partly reflecting some transitory factors, such as
a one-time reduction in Medicare prices associated with
the federal government spending sequestration, consumer prices excluding food and energy only edged up
in April but rose slightly more in May. Near-term inflation expectations from the Michigan survey were little
changed in May and early June; longer-term inflation
expectations in the survey also were essentially flat and
remained within the narrow range that they have occupied for a number of years.
Measures of labor compensation indicated that gains in
nominal wages remained modest. Compensation per
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hour in the nonfarm business sector increased moderately over the year ending in the first quarter, and, with
a small rise in productivity, unit labor costs advanced
only a little. Gains in average hourly earnings for all
employees were muted, on balance, in April and May.
Foreign economic growth remained sluggish so far this
year. A slower pace of expansion in many emerging
market economies (EMEs), including China, since the
beginning of the year offset an increase in the average
rate of economic growth in the advanced foreign economies. In Japan, where recent policy measures appeared to have boosted household confidence, economic growth picked up noticeably early in the year.
Recent indicators of Canadian economic activity also
strengthened. However, indicators for the euro-area
economies remained weak. A decline in commodity
prices and continued lackluster economic growth contributed to a decline in foreign inflation.
Staff Review of the Financial Situation
Financial markets were volatile during the intermeeting
period as investors reacted to incoming economic data
and Federal Reserve communications. Information
about the U.S. economy was somewhat better, on balance, than investors had anticipated, apparently giving
them greater confidence in the economic outlook.
Federal Reserve communications over the period reportedly were interpreted by market participants as
pointing to a less accommodative stance of future
monetary policy than they previously had expected.
Market-based indicators suggested that investors revised up their expectations about the path of the federal funds rate in coming years. Forward rates two to
three years ahead derived from overnight index swaps
shifted up 25 to 40 basis points over the intermeeting
period, likely reflecting both an increase in the expected
path for the federal funds rate and an increase in term
premiums. In contrast to the readings from financial
market quotes, which suggested that investors had
come to expect the FOMC to increase its target for the
federal funds rate sooner than they previously had anticipated, the results from the Desk’s survey of primary
dealers conducted prior to the June meeting showed
little material change, on balance, in the dealers’ expectations of the most likely timing of the first increase in
the federal funds rate target.
Nominal yields on Treasury securities rose sharply over
the intermeeting period amid some better-thanexpected U.S. economic data and Federal Reserve
communications that were interpreted by market participants as signaling a possible earlier-than-expected
reduction in the pace of purchases under the FOMC’s
flow-based asset purchase program. Nominal yields on
5- to 30-year Treasury securities increased about 35 to
55 basis points. Yields on agency MBS rose more than
those on comparable-maturity Treasury securities, leaving option-adjusted spreads to Treasury securities notably wider. The rise in longer-term Treasury yields
appeared to reflect both an increase in term premiums
and a rise in expected future short-term rates. The rise
in term premiums, in turn, likely reflected in part a reassessment of the pace and ultimate size of the Federal
Reserve’s asset purchase program, as well as increased
uncertainty about the future path of monetary policy.
Measures of inflation compensation derived from
yields on nominal and inflation-protected Treasury securities fell notably but ended the intermeeting period
within their ranges over the past few years. Investor
perceptions of a somewhat less accommodative tone of
Federal Reserve communications, as well as the softerthan-expected reading for the April CPI, likely contributed to the decline in inflation compensation.
Conditions in domestic and offshore dollar funding
markets were generally little changed, on balance, over
the intermeeting period. In secured funding markets,
rates on Treasury general collateral repurchase agreements decreased, on net, in large part because of the
seasonal decline in the supply of Treasury securities.
Market sentiment toward large domestic banking organizations appeared to improve somewhat over the
intermeeting period, likely related in part to further reductions in nonperforming loans and growing confidence in the economic outlook. Equity prices for large
domestic banks outperformed broad equity indexes
over the intermeeting period, as did the equity prices
for most other types of financial institutions. In contrast, equity prices for agency mortgage real estate investment trusts declined, reflecting the rise in longerterm interest rates, the underperformance of agency
MBS, and weaker-than-expected earnings reports.
Responses to the June Senior Credit Officer Opinion
Survey on Dealer Financing Terms generally suggested
little change over the past three months in the credit
terms applicable to important classes of counterparties
and in the use of financial leverage by most classes of
counterparties covered by the survey. However, about
one-fourth of dealers reported an increase in the use of
leverage by hedge funds.
Corporate bond yields rose significantly over the
intermeeting period, and their spreads relative to
Minutes of the Meeting of June 18–19, 2013
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comparable-maturity Treasury yields edged higher on
net. Credit flows to nonfinancial businesses remained
strong in May, especially through bond issuance. Gross
issuance of speculative-grade corporate bonds was particularly elevated early in the intermeeting period, but
such issuance slowed after mid-May in response to the
rise in interest rates and in market volatility. Meanwhile, the issuance of syndicated leveraged loans remained robust in April and May, supported by strong
investor demand for floating-rate corporate debt instruments.
House prices continued to rise in recent months, with
national home price indexes up between 5 and 12 percent over the 12-month period ending in April. As a
result, the number of mortgages with negative equity
was estimated to have decreased substantially. Primary
mortgage rates increased with yields on MBS over the
intermeeting period, and the spread between primary
mortgage rates and MBS yields remained near the low
end of its range over recent years. Consumer credit
continued to expand at a solid pace because of the ongoing expansion in auto and student loans; credit card
debt remained about flat. Issuance of consumer assetbacked securities increased strongly again in May.
Growth in total bank credit moderated in April and
May compared with the first quarter, as core loans
slowed and securities declined slightly. Growth in
commercial and industrial loans at large banks decreased noticeably in recent months, reportedly reflecting both increased paydowns and reduced originations.
In contrast, increases in commercial real estate loans
picked up, especially at large banks.
The M2 monetary aggregate expanded at an annual rate
of about 5 percent from April through mid-June. The
monetary base grew at an annual rate exceeding 40 percent over the same period, driven mainly by the increase in reserve balances that resulted from the Federal Reserve’s asset purchases.
Over the intermeeting period, yields on 10-year sovereign debt of the advanced foreign economies followed
the yields on comparable-maturity U.S. Treasury securities higher, and volatility in sovereign bond markets
rose, particularly in Japan. Japanese equity markets also
displayed substantial volatility; equity prices fell sharply
late in the period and erased the gains that had been
registered since early April, when the Bank of Japan
announced that it would expand its asset purchases in
order to nearly double the size of its balance sheet.
European equity indexes were little changed, on net,
over the period, and euro-area financial conditions re-
mained relatively stable. Spreads of yields on Italian
and Spanish government debt over yields on German
bunds increased only a few basis points, while comparable spreads for Greek sovereign debt declined notably. The foreign exchange value of the dollar was little
changed, on average, relative to the currencies of the
advanced foreign economies, but appreciated against
EME currencies amid weak incoming data on economic activity and monetary policy easing in some EMEs,
along with rising U.S. Treasury yields. Emerging market mutual funds experienced sharp outflows in recent
weeks, while EME stock prices declined and EME
credit spreads widened on net.
The staff reported on potential risks to financial stability, including the stability of banking firms, nonbank
financial intermediaries, and asset markets. Most
market-based measures of the health of the banking
sector—such as banks’ stock prices, credit default swap
spreads, and equity correlations—pointed to an improvement in the stability of the banking sector, in part
because of rising levels of liquidity and capital as well as
diminished concerns about downside risks. However, a
number of indicators pointed to a modest increase in
risk-taking and leverage that was largely being intermediated through the shadow banking system. Signs of
upward pressures on the valuations of some risky assets
were also noted. Overall, the risks to financial stability
were viewed as roughly unchanged since March.
Staff Economic Outlook
In the economic forecast prepared by the staff for the
June FOMC meeting, the projection for near-term
growth of real gross domestic product (GDP) was little
changed from the one prepared for the previous meeting. However, the staff’s medium-term projection for
real GDP was revised up somewhat. The staff raised
its projected paths for equity and home prices, which
pushed up expected consumer spending over the medium term, and boosted its outlook for domestic oil
production, which reduced oil imports in the forecast.
These positive factors were partly offset in the staff’s
medium-term GDP projection by higher projected
paths for both longer-term interest rates and the foreign exchange value of the dollar. Nevertheless, with
fiscal policy expected to restrain economic growth this
year, the staff still anticipated that the pace of expansion in real GDP would only moderately exceed the
growth rate of potential output. The staff also continued to forecast that real GDP would accelerate gradually in 2014 and 2015, supported by accommodative
monetary policy, an eventual easing in the effects of
fiscal policy restraint on economic growth, increases in
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consumer and business sentiment, and further improvements in credit availability and financial conditions. 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. In
addition, although the staff did not change its view of
the longer-run level of the natural rate of unemployment, it judged that the natural rate was on a more
pronounced downward trajectory back toward its
longer-run level than previously assumed; as a result,
the staff’s projection for the unemployment rate over
the next two years was revised down a little, relative to
its previous forecast.
The staff’s forecast for inflation in the near term was
also revised down a little from the projection prepared
for the previous FOMC meeting, reflecting in part
some of the recent softer-than-expected readings on
consumer prices. Nonetheless, the staff expected that
much of the recent softness in inflation would be transitory, and thus did not materially change its mediumterm projection. The staff projected that inflation
would pick up in the second half of this year, but given
the assumption of stable longer-run inflation expectations and only modest changes in commodity and import prices as well as forecasts of gradually diminishing
resource slack over the projection period, inflation was
projected to still be relatively subdued through 2015.
The staff viewed the uncertainty around the forecast
for economic activity as normal relative to the experience of the past 20 years. However, the risks were still
viewed as skewed to the downside, in part because of
concerns about the situation in Europe and the ability
of the U.S. economy to weather potential adverse
shocks. 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 conjunction with this FOMC meeting, meeting participants—the 7 members of the Board of Governors
and the presidents of the 12 Federal Reserve Banks, all
of whom participate in the deliberations of the
FOMC—submitted their assessments of real output
growth, the unemployment rate, inflation, and the target federal funds rate for each year from 2013 through
2015 and over the longer run, under each participant’s
judgment of appropriate monetary policy.1 The longerrun projections represent each participant’s assessment
of the rate to which each variable would be expected to
converge, over time, under appropriate monetary policy
and in the absence of further shocks to the economy.
These economic projections and policy assessments are
described in the Summary of Economic Projections,
which is attached as an addendum to these minutes.
In their discussion of the economic situation, meeting
participants generally indicated that the information
received during the intermeeting period continued to
suggest that the economy was expanding at a moderate
pace. A number of participants mentioned that they
were encouraged by the apparent resilience of private
spending so far this year despite considerable downward pressure from lower government spending and
higher taxes. In particular, consumer spending rose at
a moderate rate, and the housing sector continued to
strengthen. Business investment advanced, although
only modestly, and slower economic activity abroad
restrained domestic production. Overall conditions in
the labor market improved further in recent months,
although the unemployment rate remained elevated.
Inflation continued to run below the Committee’s
longer-run objective, but longer-term inflation expectations remained stable.
Most participants anticipated that growth of real GDP
would pick up somewhat in the second half of 2013.
Growth of economic activity was projected to
strengthen further during 2014 and 2015, supported by
accommodative monetary policy; waning fiscal restraint; and ongoing improvements in household and
business balance sheets, credit availability, and labor
market conditions. Accordingly, the unemployment
rate was projected to gradually decline toward levels
consistent with the Committee’s dual mandate. Many
participants saw the downside risks to the medium-run
outlook for the economy and the labor market as having diminished somewhat in recent months, or expressed greater confidence that stronger economic activity was in train. However, some participants noted
that they remained uncertain about the projected
pickup in growth of economic activity in coming quarters, and thus about the prospects for further improvement in labor market conditions, given that, in
Although President Pianalto was unable to attend the June
18–19, 2013, FOMC meeting, she submitted economic projections. First Vice President Gregory L. Stefani represented
the Federal Reserve Bank of Cleveland at the meeting.
1
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recent years, forecasts of a sustained pickup in growth
had not been realized.
Participants noted that consumer spending continued
to increase at a moderate rate in recent months despite
tax increases and only modest gains in wages. Among
the factors viewed as supporting consumption were
improvements in household balance sheets and in the
job market, as well as low interest rates. In addition,
consumer sentiment improved over the intermeeting
period, which some participants attributed to rising
house prices and gains in the stock market. It was noted that the mutually reinforcing dynamic of rising confidence, declining risk premiums, improving credit
availability, increasing spending, and greater hiring was
an important factor in the projected pickup in economic activity but also that this favorable dynamic could be
vulnerable to an adverse shock. A few participants expressed some concern about the outlook for consumer
spending, citing the weakness in labor income and
households’ cautious attitudes toward using debt.
Housing markets continued to strengthen, with participants variously reporting increases in house prices,
sales, and building permits; low inventories of homes
on the market; and rising demand for construction
supplies. The improvement in the housing sector was
seen as supporting the broader economy through related spending and employment, with rising real estate
values boosting household wealth, confidence, and access to credit. Participants generally were optimistic
that the recovery in housing activity would be sustained, although a couple of participants were concerned that the run-up in mortgage rates in recent
weeks might begin to crimp demand. However, the
recent increase in mortgage purchase applications was
seen as suggesting that the demand for housing was
being driven by factors beyond low mortgage rates.
Reports on business spending were mixed. A number
of participants continued to hear that businesses were
limiting their capital spending to projects intended to
enhance productivity and that they remained reluctant
to invest to expand capacity, or to step up hiring. Uncertainties about regulatory issues and fiscal policies as
well as weak economic activity abroad were cited as
factors weighing on business decisionmaking. Some
businesses, particularly smaller firms, were again reported to be concerned about the implications of new
health-care regulations for their labor costs. Nonetheless, a few participants reported that their business contacts expressed somewhat greater confidence in the
economic outlook or reported plans to expand capaci-
ty. A pickup in bank lending to small businesses was
also reported. Although the manufacturing sector
slowed considerably during the spring, contacts in several Districts reported that activity turned up more recently. Reports on activity in the airline, trucking, and
warehousing industries were uneven. Agriculture remained robust, supported in part by strong demand
from emerging market economies. However, prospects
for farm income were less positive as a result of the wet
weather in the Midwest and expectations of lower prices for corn. The outlook for the energy sector remained positive.
While the federal sequestration and the tax increases
that became effective earlier in the year were expected
to be a substantial drag on economic activity this year,
the magnitude and timing of the effects remained unclear. Several participants commented that the direct
effects of the cutbacks in federal spending, to date, did
not appear as great as had been expected, but that they
anticipated that fiscal policy would continue to restrain
economic growth in coming quarters. In particular,
one pointed out that the furloughs scheduled for the
second half of the year were likely to reduce household
income and spending. A report on the favorable fiscal
condition of one state was indicative of the improvement in the budget situation at state and local governments.
Participants generally agreed that labor market conditions had continued to improve, on balance, in recent
months; many saw the cumulative decline in the unemployment rate and gains in nonfarm payrolls over the
past nine months as considerable. Reflecting these developments, participants’ forecasts for the unemployment rate at this meeting were lower than those prepared for the September 2012 meeting. Among the
encouraging aspects of labor market developments
since then were the step-up in average monthly gains in
private employment, the breadth of job gains across
industries, the decline in layoffs, and a rise in voluntary
quits in some industries. However, some participants
discussed a number of indicators that suggested that
the improvement in broad labor market conditions was
less than might be implied by the decline in the unemployment rate alone. Some pointed out that the rate of
hiring still fell short of the pace that they saw as consistent with more-noticeable progress in labor market
conditions, that a portion of the improvement in payroll employment since the September meeting was due
to data revisions, or that there were no signs of an increase in wage pressures. Others expressed concern
about the still-elevated level of long-duration jobless-
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ness and the weakness in labor force participation.
Most participants still saw slack remaining in the labor
market, although they differed on the extent to which
the progress to date had reduced that slack and how
confident they were about future labor market improvement.
Inflation was low in the months prior to the meeting,
with the trends in all broad measures remaining below
the Committee’s 2 percent longer-run objective. Several transitory factors, including a one-time reduction in
Medicare costs, contributed to the recent very low inflation readings. In addition, energy prices declined,
and nonfuel commodity prices were soft. Over the
past year, both core and overall consumer price inflation trended lower; participants cited various alternative
measures of consumer price inflation, including the
trimmed mean PCE and CPI as well as the sticky price
CPI, that suggested that the slowing was broad based.
Market-based measures of inflation expectations decreased over the intermeeting period but remained
within their ranges over the past few years. Most participants expected inflation to begin to move up over
the coming year as economic activity strengthened, but
many anticipated that it would remain below the
Committee’s 2 percent objective for some time. One
participant expressed concern about the risk of a more
rapid rise in inflation over the medium term, given the
highly accommodative stance of monetary policy. In
contrast, many others worried about the low level of
inflation, and a number indicated that they would be
watching closely for signs that the shift down in inflation might persist or that inflation expectations were
persistently moving lower.
In their discussion of financial market developments
over the intermeeting period, participants weighed the
extent to which the rise in market interest rates and
increase in volatility reflected a reassessment of market
participants’ expectations for monetary policy and the
extent to which it reflected growing confidence about
the economic outlook. It was noted that corporate
credit spreads had not widened substantially and that
the stock market had posted further gains, suggesting
that the higher rates reflected, at least in part, increasing
confidence that moderate economic growth would be
sustained. Several participants worried that higher
mortgage rates and bond yields could slow the recovery
in the housing market and restrain business expansion.
However, some others commented that any adverse
effects of the increase in rates on financial conditions
more broadly appeared to be limited.
A number of participants offered views on risks to financial stability. A couple of participants expressed
concerns that some financial institutions might not be
well positioned to weather a rapid run-up in interest
rates. Two others emphasized the importance of bolstering the resilience of money market funds against
disorderly outflows. And a few stated their view that a
prolonged period of low interest rates would encourage
investors to take on excessive credit or interest rate risk
and would distort some asset prices. However, others
suggested that the recent rise in rates might have reduced such incentives. While market volatility had increased of late, it was noted that the rise in measured
volatility, while noticeable, occurred from a low level,
and that a broad index of financial stress remained below average. One participant felt that the Committee
should explore ways to calibrate the magnitude of the
risks to financial stability so that those considerations
could be more fully incorporated into deliberations on
monetary policy.
Participants discussed how best to communicate the
Committee’s approach to decisions about its asset purchase program and how to reduce uncertainty about
how the Committee might adjust its purchases in response to economic developments. Importantly, participants wanted to emphasize that the pace, composition, and extent of asset purchases would continue to
be dependent on the Committee’s assessment of the
implications of incoming information for the economic
outlook, as well as the cumulative progress toward the
Committee’s economic objectives since the institution
of the program last September. The discussion centered on the possibility of providing a rough description of the path for asset purchases that the Committee
would anticipate implementing if economic conditions
evolved in a manner broadly consistent with the outcomes the Committee saw as most likely. Several participants pointed to the challenge of making it clear that
policymakers necessarily weigh a broad range of economic variables and longer-run economic trends in
assessing the outlook. As an alternative, some suggested providing forward guidance about asset purchases
based on numerical values for one or more economic
variables, broadly akin to the Committee’s guidance
regarding its target for the federal funds rate, arguing
that such guidance would be more effective in reducing
uncertainty and communicating the conditionality of
policy. However, participants also noted possible disadvantages of such an approach, including that such
forward guidance might inappropriately constrain the
Committee’s decisionmaking, or that it might prove
Minutes of the Meeting of June 18–19, 2013
Page 9
_____________________________________________________________________________________________
difficult to communicate to investors and the general
public.
it becomes appropriate to increase the target for the
federal funds rate.
Since the September meeting, some participants had
become more confident of sustained improvement in
the outlook for the labor market and so thought that a
downward adjustment in asset purchases had or would
likely soon become appropriate; they saw a need to
clearly communicate an intention to lower the pace of
purchases before long. However, to some other participants, this approach appeared likely to limit the Committee’s flexibility in adjusting asset purchases in response to changes in economic conditions, which they
viewed as a key element in the design of the purchase
program. Others were concerned that stating an intention to slow the pace of asset purchases, even if the
intention were conditional on the economy developing
about in line with the Committee’s expectations, might
be misinterpreted as signaling an end to the addition of
policy accommodation or even be seen as the initial
step toward exit from the Committee’s highly accommodative policy stance. It was suggested that any
statement about asset purchases make clear that decisions concerning the pace of purchases are distinct
from decisions concerning the federal funds rate.
Committee Policy Action
Committee members viewed the information received
over the intermeeting period as suggesting that economic activity had expanded at a moderate pace. Labor market conditions showed further improvement in
recent months, on balance, but the unemployment rate
remained elevated. Household spending and business
fixed investment advanced, and the housing sector
strengthened further, but fiscal policy was restraining
economic growth. The Committee expected that, with
appropriate policy accommodation, economic growth
would proceed at a moderate pace and result in a gradual decline in the unemployment rate toward levels
consistent with its dual mandate. With economic activity and employment continuing to grow at a moderate
pace despite tighter fiscal policy, and with global financial conditions less strained, members generally saw the
downside risks to the outlook for the economy and the
labor market as having diminished since the fall. Inflation was running below the Committee’s longer-run
objective, partly reflecting transitory influences, but
longer-run inflation expectations were stable, and the
Committee anticipated that inflation over the medium
term would move closer to its 2 percent objective.
Participants generally agreed that the Committee
should provide additional clarity about its asset purchase program relatively soon. A number thought that
the postmeeting statement might be the appropriate
vehicle for providing additional information on the
Committee’s thinking. However, some saw potential
difficulties in being able to convey succinctly the desired information in the postmeeting statement. Others noted the need to ensure that any new statement
language intended to provide more information about
the asset purchase program be clearly integrated with
communication about the Committee’s other policy
tools. At the conclusion of the discussion, most participants thought that the Chairman, during his postmeeting press conference, should describe a likely path for
asset purchases in coming quarters that was conditional
on economic outcomes broadly in line with the Committee’s expectations. In addition, he would make clear
that decisions about asset purchases and other policy
tools would continue to be dependent on the Committee’s ongoing assessment of the economic outlook. He
would also draw the distinction between the asset purchase program and the forward guidance regarding the
target for the federal funds rate, noting that the Committee anticipates that there will be a considerable time
between the end of asset purchases and the time when
In their discussion of monetary policy for the period
ahead, all members but one judged that the outlook for
economic activity and inflation warranted the continuation of the Committee’s current highly accommodative
stance of monetary policy in order to foster a stronger
economic recovery and sustained improvement in labor
market conditions in a context of price stability. In the
view of one member, the improvement in the outlook
for the labor market warranted a more deliberate
statement from the Committee that asset purchases
would be reduced in the very near future. At the conclusion of its discussion, the Committee decided to
continue adding policy accommodation by purchasing
additional MBS at a pace of $40 billion per month and
longer-term Treasury securities at a pace of $45 billion
per month and to maintain its existing reinvestment
policies. In addition, the Committee reaffirmed its intention to keep the target federal funds rate at 0 to
¼ percent and retained its forward guidance that it 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-
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term inflation expectations continue to be well anchored.
Regarding the outlook for policy, members agreed that
monetary policy in coming quarters would depend on
the evolution of the economic outlook and progress
toward the Committee’s longer-run objectives of maximum employment and inflation of 2 percent. While
recognizing the improvement in a number of indicators
of economic activity and labor market conditions since
the fall, many members indicated that further improvement in the outlook for the labor market would
be required before it would be appropriate to slow the
pace of asset purchases. Some added that they would,
as well, need to see more evidence that the projected
acceleration in economic activity would occur, before
reducing the pace of asset purchases. For one member,
such a decision would also depend importantly on evidence that inflation was moving back toward the
Committee’s 2 percent objective; that member urged
the Committee to modify its postmeeting statement to
say explicitly that the Committee will act to move inflation back toward its goal. A couple of other members
also worried that the downside risks to inflation had
increased, with one of them suggesting that the statement more explicitly reflect this increased risk. However, several members judged that a reduction in asset
purchases would likely soon be warranted, in light of
the cumulative decline in unemployment since the September meeting and ongoing increases in private payrolls, which had increased their confidence in the outlook for sustained improvement in labor market conditions. Two of these members also indicated that the
Committee should begin curtailing its purchases relatively soon in order to prevent the potential negative
consequences of the program from exceeding its anticipated benefits. Another member pointed out that if
the program were ended because of concerns about
such consequences, the Committee would need to explore other options for providing appropriate monetary
accommodation. Many members indicated that decisions about the pace and composition of asset purchases were distinct from decisions about the appropriate
level of the federal funds rate, which would continue to
be guided by the thresholds in the Committee’s statement. In general, members continued to anticipate that
maintaining the current exceptionally low level of the
federal funds rate was likely to remain appropriate for a
considerable period after asset purchases are concluded.
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 May suggests that economic activity has been expanding at a moderate pace. Labor market
conditions have shown further 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. Partly reflecting transitory influences, inflation has been
Minutes of the Meeting of June 18–19, 2013
Page 11
_____________________________________________________________________________________________
running below the Committee’s longer-run
objective, but 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 sees the
downside risks to the outlook for the economy and the labor market as having diminished since the fall. 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
Committee is maintaining its existing policy
of reinvesting principal payments from its
holdings of agency debt and agency mortgage-backed securities in agency mortgagebacked 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, 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: James Bullard and Esther
L. George.
Mr. Bullard dissented because he believed that, in light
of recent low readings on inflation, the Committee
should signal more strongly its willingness to defend its
goal of 2 percent inflation. He pointed out that inflation had trended down since the beginning of 2012 and
was now well below target. Going forward, he viewed
it as particularly important for the Committee to moni-
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Federal Open Market Committee
_____________________________________________________________________________________________
tor price developments closely and to adapt its policy in
response to incoming economic information.
2013. The meeting adjourned at 11:25 a.m. on June 19,
2013.
Ms. George dissented because she viewed the ongoing
improvement in labor market conditions and in the
outlook as warranting a deliberate statement from the
Committee at this meeting that the pace of its asset
purchases would be reduced in the very near future.
She continued to have concerns about maintaining aggressive monetary stimulus in the face of a growing
economy and pointed to the potential for financial imbalances to emerge as a result of the high level of monetary accommodation.
Notation Vote
By notation vote completed on May 21, 2013, the
Committee unanimously approved the minutes of the
FOMC meeting held on April 30–May 1, 2013.
It was agreed that the next meeting of the Committee
would be held on Tuesday–Wednesday, July 30–31,
_____________________________
William B. English
Secretary
Page 1
_____________________________________________________________________________________________
Summary of Economic Projections
In conjunction with the June 18–19, 2013, Federal
Open Market Committee (FOMC) meeting, meeting
participants—the 7 members of the Board of Governors and the 12 presidents of the Federal Reserve
Banks, all of whom participate in the deliberations of
the FOMC—submitted their assessments of real output growth, the unemployment rate, inflation, and the
target federal funds rate for each year from 2013
through 2015 and over the longer run.¹ Each participant’s assessment was based on information available
at the time of the meeting plus his or her judgment of
appropriate monetary policy and assumptions about the
factors likely to affect economic outcomes. The
longer-run projections represent each participant’s
judgment of the value to which each variable would be
expected to converge, over time, under appropriate
monetary policy and in the absence of further shocks
to the economy. “Appropriate monetary policy” is
defined as the future path of policy that each participant deems most likely to foster outcomes for economic activity and inflation that best satisfy his or her individual interpretation of the Federal Reserve’s objectives
of maximum employment and stable prices.
_______________________
¹ Although President Pianalto was unable to attend the
June 18–19, 2013, FOMC meeting, she submitted economic
projections.
Overall, FOMC participants projected that, under appropriate monetary policy, the pace of economic recovery would gradually pick up over the 2013–15 period, and inflation would move up from recent very low
readings but remain subdued (table 1 and figure 1).
Almost all of the participants projected that inflation,
as measured by the annual change in the price index for
personal consumption expenditures (PCE), would be
running at or a little below the Committee’s 2 percent
objective in 2015.
As shown in figure 2, most participants judged that
highly accommodative monetary policy was likely to be
warranted over the next few years to support continued
progress toward maximum employment and a gradual
return toward 2 percent inflation. Moreover, all participants but one judged that it would be appropriate to
continue purchasing both agency mortgage-backed securities (MBS) and longer-term Treasury securities at
least until later this year.
A majority of participants saw the uncertainty associated with their outlook for economic growth and the
unemployment rate as similar to that of the past
20 years. An equal number of participants also indicated that the risks to the outlook for real gross domestic
product (GDP) growth and the unemployment rate
were broadly balanced. Some participants, however,
continued to see downside risks to growth and upside
Table 1. Economic projections of Federal Reserve Board members and Federal Reserve Bank presidents, June 2013
Percent
Variable
Range2
Central tendency1
2013
2014
2015
Longer run
2013
2014
2015
Longer run
Change in real GDP . . . . .
March projection . . . . .
2.3 to 2.6
2.3 to 2.8
3.0 to 3.5
2.9 to 3.4
2.9 to 3.6
2.9 to 3.7
2.3 to 2.5
2.3 to 2.5
2.0 to 2.6
2.0 to 3.0
2.2 to 3.6
2.6 to 3.8
2.3 to 3.8
2.5 to 3.8
2.0 to 3.0
2.0 to 3.0
Unemployment rate . . . . .
March projection . . . . .
7.2 to 7.3
7.3 to 7.5
6.5 to 6.8
6.7 to 7.0
5.8 to 6.2
6.0 to 6.5
5.2 to 6.0
5.2 to 6.0
6.9 to 7.5
6.9 to 7.6
6.2 to 6.9
6.1 to 7.1
5.7 to 6.4
5.7 to 6.5
5.0 to 6.0
5.0 to 6.0
PCE inflation . . . . . . . . . . . 0.8 to 1.2
March projection . . . . . 1.3 to 1.7
1.4 to 2.0
1.5 to 2.0
1.6 to 2.0
1.7 to 2.0
2.0
2.0
0.8 to 1.5
1.3 to 2.0
1.4 to 2.0
1.4 to 2.1
1.6 to 2.3
1.6 to 2.6
2.0
2.0
Core PCE inflation3 . . . . .
March projection . . . . .
1.5 to 1.8
1.7 to 2.0
1.7 to 2.0
1.8 to 2.1
1.1 to 1.5
1.5 to 2.0
1.5 to 2.0
1.5 to 2.1
1.7 to 2.3
1.7 to 2.6
1.2 to 1.3
1.5 to 1.6
NOTE: Projections of change in real gross domestic product (GDP) and projections for both measures of inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated. PCE inflation and core PCE inflation are the percentage rates of change in, respectively, the price index
for personal consumption expenditures (PCE) and the price index for PCE excluding food and energy. Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated. Each participant’s projections are based on his or her assessment of appropriate
monetary policy. Longer-run projections represent each participant’s assessment of the rate to which each variable would be expected to converge under appropriate monetary policy and in the absence of further shocks to the economy. The March projections were made in conjunction with the meeting of the Federal Open Market Committee on March 19–20, 2013.
1. The central tendency excludes the three highest and three lowest projections for each variable in each year.
2. The range for a variable in a given year includes all participants’ projections, from lowest to highest, for that variable in that year.
3. Longer-run projections for core PCE inflation are not collected.
Page 2
Federal Open Market Committee
_____________________________________________________________________________________________
Figure 1. Central tendencies and ranges of economic projections, 2013–15 and over the longer run
Percent
Change in real GDP
5
Central tendency of projections
Range of projections
4
3
2
1
+
0
1
Actual
2
3
2008
2009
2010
2011
2012
2013
2014
2015
Longer
run
Percent
Unemployment rate
10
9
8
7
6
5
2008
2009
2010
2011
2012
2013
2014
2015
Longer
run
Percent
PCE inflation
3
2
1
2008
2009
2010
2011
2012
2013
2014
2015
Longer
run
Percent
Core PCE inflation
3
2
1
2008
2009
2010
2011
2012
2013
2014
2015
Longer
run
Note: Definitions of variables are in the general note to table 1. The data for the actual values of the variables are
annual.
Summary of Economic Projections of the Meeting of June 18–19, 2013
Page 3
_____________________________________________________________________________________________
Figure 2. Overview of FOMC participants’ assessments of appropriate monetary policy
Number of participants
Appropriate timing of policy firming
14
14
13
12
11
10
9
8
7
6
5
4
3
3
2
1
2013
1
2014
2015
1
2016
Appropriate pace of policy firming
Percent
Target federal funds rate at year-end
6
5
4
3
2
1
0
2013
2014
2015
Longer run
Note: In the upper panel, the height of each bar denotes the number of FOMC participants who judge that, under
appropriate monetary policy, the first increase in the target federal funds rate from its current range of 0 to 1/4 percent
will occur in the specified calendar year. In March 2013, the numbers of FOMC participants who judged that the first
increase in the target federal funds rate would occur in 2013, 2014, 2015, and 2016 were, respectively, 1, 4, 13, and 1.
In the lower panel, each shaded circle indicates the value (rounded to the nearest 1/4 percentage point) of an individual
participant’s judgment of the appropriate level of the target federal funds rate at the end of the specified calendar year
or over the longer run.
Page 4
Federal Open Market Committee
_____________________________________________________________________________________________
risks to unemployment. A majority of participants indicated that the uncertainty surrounding their projections for PCE inflation was similar to historical norms,
and nearly all considered the risks to inflation to be
either broadly balanced or weighted to the downside.
The Outlook for Economic Activity
Participants projected that, conditional on their individual assumptions about appropriate monetary policy,
the economy would grow at a faster pace in 2013 than
it had in 2012. They also generally judged that growth
would strengthen further in 2014 and 2015, in most
cases to a rate above their estimates of the longer-run
rate of output growth. Most participants noted that the
high degree of monetary policy accommodation assumed in their projections, continued improvement in
the housing sector and the accompanying rise in
household net worth, and the absence of further fiscal
tightening should result in a pickup in growth; however, they pointed to the foreign economic outlook as an
ongoing downside risk.
The central tendency of participants’ projections for
real GDP growth was 2.3 to 2.6 percent for 2013,
3.0 to 3.5 percent for 2014, and 2.9 to 3.6 percent for
2015. Most participants noted that their projections
were little changed since March, with the downward
revisions to growth in 2013 reflecting the somewhat
slower-than-anticipated growth in the first half. The
central tendency for the longer-run rate of growth of
real GDP was 2.3 to 2.5 percent, unchanged from
March.
Participants anticipated a gradual decline in the unemployment rate over the forecast period; a large majority
projected that the unemployment rate would not reach
their estimates of its longer-run level before 2016. The
central tendencies of participants’ forecasts for the unemployment rate were 7.2 to 7.3 percent at the end of
2013, 6.5 to 6.8 percent at the end of 2014, and 5.8 to
6.2 percent at the end of 2015. These projections were
slightly lower than in March, with participants reacting
to recent data indicating that the unemployment rate
had declined by a little more than they had previously
expected. The central tendency of participants’ estimates of the longer-run normal rate of unemployment
that would prevail under appropriate monetary policy
and in the absence of further shocks to the economy
was 5.2 to 6.0 percent, the same as in March. Most
participants projected that the unemployment rate
would converge to their estimates of its longer-run
normal rate in five or six years, while some judged that
less time would be needed.
As shown in figures 3.A and 3.B, the distributions of
participants’ views regarding the likely outcomes for
real GDP growth and the unemployment rate were
relatively narrow for 2013. Their projections for economic activity were more diverse for 2014 and 2015,
reflecting their individual assessments of appropriate
monetary policy and its economic effects, the likely rate
of improvement in the housing sector and households’
balance sheets, the domestic implications of foreign
economic developments, the prospective path for U.S.
fiscal policy, the extent of structural dislocations to the
labor market, and a number of other factors. The dispersion of participants’ projections for 2015 and for the
longer run was little changed relative to March; there
was some reduction in the upper ends of the distributions in 2013 and 2014 for both real GDP growth and
the unemployment rate.
The Outlook for Inflation
All participants marked down their projections for both
PCE and core PCE inflation in 2013, reflecting the low
readings on inflation so far this year. Participants generally judged that the recent slowing in inflation partly
reflected transitory factors, and their projections for
inflation under appropriate monetary policy over the
period 2014–15 were only a little lower than in March.
Participants projected that both headline and core inflation would move up but remain subdued, with nearly
all projecting that inflation would be equal to, or
somewhat below, the FOMC’s longer-run objective of
2 percent in each year. Specifically, the central tendency of participants’ projections for overall inflation, as
measured by the growth in the PCE price index, moved
down to 0.8 to 1.2 percent in 2013 and was 1.4 to
2.0 percent in 2014 and 1.6 to 2.0 percent in 2015. The
central tendency of the forecasts for core inflation
shifted down slightly in 2013 and 2014, to 1.2 to
1.3 percent and 1.5 to 1.8 percent, respectively; the central tendency in 2015 was little changed and broadly
similar to that of headline inflation. In discussing factors likely to return inflation to near the Committee’s
inflation objective of 2 percent, several participants
noted that the reversal of transitory factors currently
holding down inflation would cause inflation to move
up a little in the near term. In addition, many participants viewed the combination of stable inflation expectations and diminishing resource slack as likely to lead
to a gradual pickup in inflation toward the Committee’s
longer-run objective.
Figures 3.C and 3.D provide information on the diversity of participants’ views about the outlook for inflation. The range of participants’ projections for overall
Summary of Economic Projections of the Meeting of June 18–19, 2013
Page 5
_____________________________________________________________________________________________
Figure 3.A. Distribution of participants’ projections for the change in real GDP, 2013–15 and over the longer run
Number of participants
2013
20
18
16
14
12
10
8
6
4
2
June projections
March projections
2.0 2.1
2.2 2.3
2.4 2.5
2.6 2.7
2.8 2.9
3.0 3.1
3.2 3.3
3.4 3.5
3.6 3.7
3.8 3.9
Percent range
Number of participants
2014
2.0 2.1
20
18
16
14
12
10
8
6
4
2
2.2 2.3
2.4 2.5
2.6 2.7
2.8 2.9
3.0 3.1
3.2 3.3
3.4 3.5
3.6 3.7
3.8 3.9
Percent range
Number of participants
2015
2.0 2.1
20
18
16
14
12
10
8
6
4
2
2.2 2.3
2.4 2.5
2.6 2.7
2.8 2.9
3.0 3.1
3.2 3.3
3.4 3.5
3.6 3.7
3.8 3.9
Percent range
Number of participants
Longer run
2.0 2.1
20
18
16
14
12
10
8
6
4
2
2.2 2.3
2.4 2.5
2.6 2.7
2.8 2.9
3.0 3.1
Percent range
Note: Definitions of variables are in the general note to table 1.
3.2 3.3
3.4 3.5
3.6 3.7
3.8 3.9
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Figure 3.B. Distribution of participants’ projections for the unemployment rate, 2013–15 and over the longer run
Number of participants
2013
20
18
16
14
12
10
8
6
4
2
June projections
March projections
5.0 5.1
5.2 5.3
5.4 5.5
5.6 5.7
5.8 5.9
6.0 6.1
6.2 6.3
6.4 6.5
6.6 6.7
6.8 6.9
7.0 7.1
7.2 7.3
7.4 7.5
7.6 7.7
Percent range
Number of participants
2014
5.0 5.1
20
18
16
14
12
10
8
6
4
2
5.2 5.3
5.4 5.5
5.6 5.7
5.8 5.9
6.0 6.1
6.2 6.3
6.4 6.5
6.6 6.7
6.8 6.9
7.0 7.1
7.2 7.3
7.4 7.5
7.6 7.7
Percent range
Number of participants
2015
5.0 5.1
20
18
16
14
12
10
8
6
4
2
5.2 5.3
5.4 5.5
5.6 5.7
5.8 5.9
6.0 6.1
6.2 6.3
6.4 6.5
6.6 6.7
6.8 6.9
7.0 7.1
7.2 7.3
7.4 7.5
7.6 7.7
Percent range
Number of participants
Longer run
5.0 5.1
5.2 5.3
20
18
16
14
12
10
8
6
4
2
5.4 5.5
5.6 5.7
5.8 5.9
6.0 6.1
6.2 6.3
6.4 6.5
6.6 6.7
Percent range
Note: Definitions of variables are in the general note to table 1.
6.8 6.9
7.0 7.1
7.2 7.3
7.4 7.5
7.6 7.7
Summary of Economic Projections of the Meeting of June 18–19, 2013
Page 7
_____________________________________________________________________________________________
Figure 3.C. Distribution of participants’ projections for PCE inflation, 2013–15 and over the longer run
Number of participants
2013
20
18
16
14
12
10
8
6
4
2
June projections
March projections
0.7 0.8
0.9 1.0
1.1 1.2
1.3 1.4
1.5 1.6
1.7 1.8
1.9 2.0
2.1 2.2
2.3 2.4
2.5 2.6
Percent range
Number of participants
2014
0.7 0.8
20
18
16
14
12
10
8
6
4
2
0.9 1.0
1.1 1.2
1.3 1.4
1.5 1.6
1.7 1.8
1.9 2.0
2.1 2.2
2.3 2.4
2.5 2.6
Percent range
Number of participants
2015
0.7 0.8
20
18
16
14
12
10
8
6
4
2
0.9 1.0
1.1 1.2
1.3 1.4
1.5 1.6
1.7 1.8
1.9 2.0
2.1 2.2
2.3 2.4
2.5 2.6
Percent range
Number of participants
Longer run
0.7 0.8
20
18
16
14
12
10
8
6
4
2
0.9 1.0
1.1 1.2
1.3 1.4
1.5 1.6
1.7 1.8
Percent range
Note: Definitions of variables are in the general note to table 1.
1.9 2.0
2.1 2.2
2.3 2.4
2.5 2.6
Page 8
Federal Open Market Committee
_____________________________________________________________________________________________
Figure 3.D. Distribution of participants’ projections for core PCE inflation, 2013–15
Number of participants
2013
20
June projections
March projections
18
16
14
12
10
8
6
4
2
1.1 1.2
1.3 1.4
1.5 1.6
1.7 1.8
1.9 2.0
2.1 2.2
2.3 2.4
2.5 2.6
Percent range
Number of participants
2014
20
18
16
14
12
10
8
6
4
2
1.1 1.2
1.3 1.4
1.5 1.6
1.7 1.8
1.9 2.0
2.1 2.2
2.3 2.4
2.5 2.6
Percent range
Number of participants
2015
20
18
16
14
12
10
8
6
4
2
1.1 1.2
1.3 1.4
1.5 1.6
1.7 1.8
1.9 2.0
Percent range
Note: Definitions of variables are in the general note to table 1.
2.1 2.2
2.3 2.4
2.5 2.6
Summary of Economic Projections of the Meeting of June 18–19, 2013
Page 9
_____________________________________________________________________________________________
and core inflation in 2013 shifted down, while those
ranges narrowed in 2014–15. The distributions for
core and overall inflation in 2015 remained concentrated near the Committee’s longer-run objective, and all
participants continued to project that overall inflation
would converge to the FOMC’s 2 percent goal over the
longer run.
Appropriate Monetary Policy
As indicated in figure 2, most participants judged that
exceptionally low levels of the federal funds rate would
remain appropriate for a couple of years. In particular,
14 participants thought that the first increase in the
target federal funds rate would not be warranted until
sometime in 2015, and one judged that policy firming
would likely not be appropriate until 2016. Four participants judged that an increase in the federal funds rate
in 2013 or 2014 would be appropriate.
All of the participants who judged that raising the federal funds rate target would become appropriate in
2015 also projected that the unemployment rate would
decline below 6½ percent during that year and that
inflation would remain near or below 2 percent. In
addition, most of those participants also projected that
a sizable gap between the unemployment rate and the
longer-run normal level of the unemployment rate
would persist until 2015 or later. Three of the four
participants who judged that policy firming should
begin in 2013 or 2014 indicated that, in their judgment,
the Committee would need to act relatively soon in
order to keep inflation near the FOMC’s longer-run
objective of 2 percent and to keep longer-run inflation
expectations well anchored.
Figure 3.E provides the distribution of participants’
judgments regarding the appropriate level of the target
federal funds rate at the end of each calendar year from
2013 to 2015 and over the longer run. As previously
noted, most participants judged that economic conditions would warrant maintaining the current low level
of the federal funds rate at least until 2015. Among the
four participants who saw the federal funds rate leaving
the effective lower bound earlier, their projections for
the federal funds rate at the end of 2014 ranged from
1 to 1½ percent; however, the median for all participants remained at the effective lower bound. Views on
the appropriate level of the federal funds rate at the end
of 2015 varied, with the range of participants’ projections a bit narrower than in the March Summary of
Economic Projections and the median value unchanged
at 1 percent.
All participants saw the appropriate target for the federal funds rate at the end of 2015 as still well below
their assessments of its expected longer-run value. Estimates of the longer-run target federal funds rate
ranged from 3¼ to 4½ percent, reflecting the Committee’s inflation objective of 2 percent and participants’
individual judgments about the appropriate longer-run
level of the real federal funds rate in the absence of
further shocks to the economy.
Participants also described their views regarding the
appropriate path of the Federal Reserve’s balance sheet.
Given their respective economic outlooks, all participants but one judged that it would be appropriate to
continue purchasing both agency MBS and longer-term
Treasury securities. About half of these participants
indicated that it likely would be appropriate to end asset purchases late this year. Many other participants
anticipated that it likely would be appropriate to continue purchases into 2014. Several participants emphasized that the asset purchase program was effective in
supporting the economic expansion, that the benefits
continued to exceed the costs, or that continuing purchases would be necessary to achieve a substantial improvement in the outlook for the labor market. A few
participants, however, indicated that the Committee
could best foster its dual objectives and limit the potential costs of the program by slowing, or stopping, its
purchases at the June meeting.
Key factors informing participants’ views of the appropriate path for monetary policy included their judgments regarding the values of the unemployment rate
and other labor market indicators that would be consistent with maximum employment; the extent to
which the economy fell short of maximum employment and the extent to which inflation was running
below the Committee’s longer-term objective of 2 percent; and the implications of alternative policy paths for
the likely extent of progress, over the medium-term, in
returning employment and inflation to mandateconsistent levels. A couple of participants noted that
persistent headwinds and somewhat slower productivity growth since the end of the recession made their
assessments of the longer-run normal level of the federal funds rate, and thus of the appropriate path for the
federal funds rate, lower than would otherwise be the
case.
Uncertainty and Risks
A majority of participants reported that they saw the
levels of uncertainty about their projections for real
GDP growth and unemployment as broadly similar to
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Federal Open Market Committee
_____________________________________________________________________________________________
Figure 3.E. Distribution of participants’ projections for the target federal funds rate, 2013–15 and over the longer run
Number of participants
2013
June projections
March projections
20
18
16
14
12
10
8
6
4
2
0.00 0.37
0.38 0.62
0.63 0.87
0.88 1.12
1.13 1.37
1.38 1.62
1.63 1.87
1.88 2.12
2.13 2.37
2.38 2.62
2.63 2.87
2.88 3.12
3.13 3.37
3.38 3.62
3.63 3.87
3.88 4.12
4.13 4.37
4.38 4.62
Percent range
Number of participants
2014
20
18
16
14
12
10
8
6
4
2
0.00 0.37
0.38 0.62
0.63 0.87
0.88 1.12
1.13 1.37
1.38 1.62
1.63 1.87
1.88 2.12
2.13 2.37
2.38 2.62
2.63 2.87
2.88 3.12
3.13 3.37
3.38 3.62
3.63 3.87
3.88 4.12
4.13 4.37
4.38 4.62
Percent range
Number of participants
2015
20
18
16
14
12
10
8
6
4
2
0.00 0.37
0.38 0.62
0.63 0.87
0.88 1.12
1.13 1.37
1.38 1.62
1.63 1.87
1.88 2.12
2.13 2.37
2.38 2.62
2.63 2.87
2.88 3.12
3.13 3.37
3.38 3.62
3.63 3.87
3.88 4.12
4.13 4.37
4.38 4.62
Percent range
Number of participants
Longer run
20
18
16
14
12
10
8
6
4
2
0.00 0.37
0.38 0.62
0.63 0.87
0.88 1.12
1.13 1.37
1.38 1.62
1.63 1.87
1.88 2.12
2.13 2.37
2.38 2.62
2.63 2.87
2.88 3.12
3.13 3.37
3.38 3.62
3.63 3.87
3.88 4.12
4.13 4.37
4.38 4.62
Percent range
Note: The target federal funds rate is measured as the level of the target rate at the end of the calendar year or
in the longer run.
Summary of Economic Projections of the Meeting of June 18–19, 2013
Page 11
_____________________________________________________________________________________________
the norm during the previous 20 years, with the remainder generally indicating that they saw higher uncertainty about these economic outcomes (figure 4).2 In
March, a similar number of participants had seen the
level of uncertainty about real GDP growth and the
unemployment rate as above average. A majority of
participants continued to judge that the risks to their
forecasts of real GDP growth and unemployment were
broadly balanced, with the remainder generally indicating that they saw the risks to their forecasts for real
GDP growth as weighted to the downside and for unemployment as weighted to the upside. The main factors cited as contributing to the uncertainty and balance
of risks about economic outcomes were the limits on
the ability of monetary policy to offset the effects of
adverse shocks when short-term interest rates are near
their effective lower bound, as well as challenges with
forecasting the path of fiscal policy and economic and
financial developments abroad.
Participants reported little change in their assessments
of the level of uncertainty and the balance of risks
around their forecasts for overall PCE inflation and
core inflation. Fourteen participants judged the levels
of uncertainty associated with their forecasts for those
inflation measures to be broadly similar to, or lower
than, historical norms; the same number saw the risks
to those projections as broadly balanced. A few participants highlighted the likely role played by the Committee’s adoption of a 2 percent inflation goal or its commitment to maintaining accommodative monetary policy as contributing to the recent stability of longer-term
Table 2 provides estimates of the forecast uncertainty for
the change in real GDP, the unemployment rate, and total
consumer price inflation over the period from 1993 through
2012. At the end of this summary, the box “Forecast Uncertainty” discusses the sources and interpretation of uncertainty in the economic forecasts and explains the approach used
to assess the uncertainty and risks attending the participants’
projections.
2
Table 2. Average historical projection error ranges
Percentage points
Variable
Change in real
2013
2014
2015
........
±1.0
±1.6
±1.8
.........
±0.4
±1.2
±1.8
±0.8
±1.0
±1.0
GDP1
Unemployment
rate1
Total consumer
prices2
.......
NOTE: Error ranges shown are measured as plus or minus the root
mean squared error of projections for 1993 through 2012 that were
released in the summer by various private and government forecasters.
As described in the box “Forecast Uncertainty,” under certain assumptions, there is about a 70 percent probability that actual outcomes for
real GDP, unemployment, and consumer prices will be in ranges implied
by the average size of projection errors made in the past. Further information is in David Reifschneider and Peter Tulip (2007), “Gauging the
Uncertainty of the Economic Outlook from Historical Forecasting
Errors,” Finance and Economics Discussion Series 2007-60 (Washington: Board of Governors of the Federal Reserve System, November).
1. Definitions of variables are in the general note to table 1.
2. Measure is the overall consumer price index, the price measure
that has been most widely used in government and private economic
forecasts. Projection is percent change, fourth quarter of the previous
year to the fourth quarter of the year indicated.
inflation expectations and, hence, the relatively low
level of uncertainty. Four participants saw the risks to
their inflation forecasts as tilted to the downside, reflecting, for example, risks of disinflation that could
arise from adverse shocks to the economy that policy
would have limited scope to offset in the current environment. Conversely, one participant saw the risks to
inflation as weighted to the upside, citing the present
highly accommodative stance of monetary policy and
concerns about the Committee’s ability to shift to a less
accommodative policy stance when it becomes appropriate to do so.
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Federal Open Market Committee
_____________________________________________________________________________________________
Figure 4. Uncertainty and risks in economic projections
Number of participants
Uncertainty about GDP growth
20
18
16
14
12
10
8
6
4
2
June projections
March projections
Lower
Broadly
similar
Higher
Number of participants
Risks to GDP growth
20
18
16
14
12
10
8
6
4
2
June projections
March projections
Weighted to
downside
Broadly
balanced
Number of participants
Uncertainty about the unemployment rate
Lower
Broadly
similar
20
18
16
14
12
10
8
6
4
2
Higher
Number of participants
Risks to the unemployment rate
Weighted to
downside
Broadly
balanced
Number of participants
Uncertainty about PCE inflation
Lower
Broadly
similar
20
18
16
14
12
10
8
6
4
2
Higher
Lower
Broadly
similar
Higher
Weighted to
upside
Risks to PCE inflation
Weighted to
downside
20
18
16
14
12
10
8
6
4
2
20
18
16
14
12
10
8
6
4
2
Number of participants
Broadly
balanced
Number of participants
Uncertainty about core PCE inflation
Weighted to
upside
20
18
16
14
12
10
8
6
4
2
Weighted to
upside
Number of participants
Risks to core PCE inflation
Weighted to
downside
Broadly
balanced
20
18
16
14
12
10
8
6
4
2
Weighted to
upside
Note: For definitions of uncertainty and risks in economic projections, see the box “Forecast Uncertainty.” Definitions of variables are in the general note to table 1.
Summary of Economic Projections of the Meeting of June 18–19, 2013
Page 13
_____________________________________________________________________________________________
Forecast Uncertainty
The economic projections provided by
the members of the Board of Governors and
the presidents of the Federal Reserve Banks
inform discussions of monetary policy among
policymakers and can aid public understanding of the basis for policy actions. Considerable uncertainty attends these projections,
however. The economic and statistical models
and relationships used to help produce economic forecasts are necessarily imperfect descriptions of the real world, and the future
path of the economy can be affected by myriad unforeseen developments and events.
Thus, in setting the stance of monetary policy,
participants consider not only what appears to
be the most likely economic outcome as embodied in their projections, but also the range
of alternative possibilities, the likelihood of
their occurring, and the potential costs to the
economy should they occur.
Table 2 summarizes the average historical
accuracy of a range of forecasts, including
those reported in past Monetary Policy Reports
and those prepared by the Federal Reserve
Board’s staff in advance of meetings of the
Federal Open Market Committee. The projection error ranges shown in the table illustrate the considerable uncertainty associated with economic forecasts. For example,
suppose a participant projects that real gross
domestic product (GDP) and total consumer
prices will rise steadily at annual rates of, respectively, 3 percent and 2 percent. If the
uncertainty attending those projections is similar to that experienced in the past and the risks
around the projections are broadly balanced,
the numbers reported in table 2 would imply a
probability of about 70 percent that actual
GDP would expand within a range of 2.0 to
4.0 percent in the current year, 1.4 to 4.6 percent in the second year, and 1.2 to 4.8 percent
in the third year. The corresponding 70 percent
confidence intervals for overall inflation would
be 1.2 to 2.8 percent in the current year and
1.0 to 3.0 percent in the second and third years.
Because current conditions may differ
from those that prevailed, on average, over history, participants provide judgments as to
whether the uncertainty attached to their projections of each variable is greater than, smaller
than, or broadly similar to typical levels of
forecast uncertainty in the past, as shown in
table 2. Participants also provide judgments as
to whether the risks to their projections are
weighted to the upside, are weighted to the
downside, or are broadly balanced. That is,
participants judge whether each variable is
more likely to be above or below their projections of the most likely outcome. These judgments about the uncertainty and the risks attending each participant’s projections are distinct from the diversity of participants’ views
about the most likely outcomes. Forecast uncertainty is concerned with the risks associated
with a particular projection rather than with
divergences across a number of different projections.
As with real activity and inflation, the outlook for the future path of the federal funds
rate is subject to considerable uncertainty. This
uncertainty arises primarily because each participant’s assessment of the appropriate stance of
monetary policy depends importantly on the
evolution of real activity and inflation over
time. If economic conditions evolve in an unexpected manner, then assessments of the appropriate setting of the federal funds rate
would change from that point forward.
Cite this document
Federal Reserve (2013, June 18). FOMC Minutes. Fomc Minutes, Federal Reserve. https://whenthefedspeaks.com/doc/fomc_minutes_20130619
@misc{wtfs_fomc_minutes_20130619,
author = {Federal Reserve},
title = {FOMC Minutes},
year = {2013},
month = {Jun},
howpublished = {Fomc Minutes, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/fomc_minutes_20130619},
note = {Retrieved via When the Fed Speaks corpus}
}