FOMC Minutes
Minutes of the Federal Open Market Committee
October 29–30, 2013
A meeting of the Federal Open Market Committee was
held in the offices of the Board of Governors of the
Federal Reserve System in Washington, D.C., on Tuesday, October 29, 2013, at 1:00 p.m. and continued on
Wednesday, October 30, 2013, at 9:00 a.m.
Jon W. Faust, Special Adviser to the Board, Office of
Board Members, Board of Governors
PRESENT:
Ben Bernanke, Chairman
William C. Dudley, Vice Chairman
James Bullard
Charles L. Evans
Esther L. George
Jerome H. Powell
Eric Rosengren
Jeremy C. Stein
Daniel K. Tarullo
Janet L. Yellen
Trevor A. Reeve, Senior Associate Director, Division
of International Finance, Board of Governors
Richard W. Fisher, Narayana Kocherlakota, Sandra
Pianalto, and Charles I. Plosser, Alternate Members of the Federal Open Market Committee
Jeffrey M. Lacker, Dennis P. Lockhart, and John C.
Williams, Presidents of the Federal Reserve Banks
of Richmond, Atlanta, and San Francisco, respectively
William B. English, Secretary and Economist
Deborah J. Danker, Deputy Secretary
Matthew M. Luecke, Assistant Secretary
David W. Skidmore, Assistant Secretary
Michelle A. Smith, Assistant Secretary
Scott G. Alvarez, General Counsel
Thomas C. Baxter, Deputy General Counsel
Steven B. Kamin, Economist
David W. Wilcox, Economist
Thomas A. Connors, Michael P. Leahy, Stephen A.
Meyer, Daniel G. Sullivan, Christopher J. Waller,
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, Deputy Director, Division of Monetary Affairs, 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
Eric M. Engen, Michael T. Kiley, Thomas Laubach,
and David E. Lebow, Associate Directors, Division
of Research and Statistics, Board of Governors
Marnie Gillis DeBoer, Deputy Associate Director, Division of Monetary Affairs, Board of Governors
Rochelle M. Edge, Assistant Director, Office of Financial Stability Policy and Research, Board of Governors
Eric Engstrom, Section Chief, Division of Research
and Statistics, Board of Governors
David H. Small, Project Manager, Division of Monetary Affairs, Board of Governors
Mark A. Carlson, Senior Economist, Division of Monetary Affairs, Board of Governors; Robert J. Tetlow,
Senior Economist, Division of Research and Statistics, Board of Governors
Blake Prichard, First Vice President, Federal Reserve
Bank of Philadelphia
David Altig, Glenn D. Rudebusch, and Mark S.
Sniderman, Executive Vice Presidents, Federal Reserve Banks of Atlanta, San Francisco, and Cleveland, respectively
Craig S. Hakkio, Evan F. Koenig, Lorie K. Logan, and
Kei-Mu Yi, Senior Vice Presidents, Federal Reserve
Banks of Kansas City, Dallas, New York, and Minneapolis, respectively
Anna Nordstrom and Giovanni Olivei, Vice Presidents,
Federal Reserve Banks of New York and Boston,
respectively
Argia M. Sbordone, Assistant Vice President, Federal
Reserve Bank of New York
Andreas L. Hornstein, Senior Advisor, Federal Reserve
Bank of Richmond
Satyajit Chatterjee, Senior Economic Advisor, Federal
Reserve Bank of Philadelphia
Developments in Financial Markets and the Federal Reserve’s Balance Sheet
The Manager of the System Open Market Account
reported on developments in domestic and foreign financial markets as well as System open market operations, including the progress of the overnight reverse
repurchase agreement operational exercise, during the
period since the Federal Open Market Committee
(FOMC) met on September 17–18, 2013. 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.
The Committee considered a proposal to convert the
existing temporary central bank liquidity swap arrangements to standing arrangements with no preset
expiration dates. The Manager described the proposed
arrangements, noting that the Committee would still be
asked to review participation in the arrangements annually. A couple of participants expressed reservations
about the proposal, citing opposition to swap lines with
foreign central banks in general or questioning the governance implications of these standing arrangements in
particular. Following the discussion, the Committee
unanimously approved the following resolution:
“The Federal Open Market Committee directs the Federal Reserve Bank of New York
to convert the existing temporary dollar liquidity swap arrangements with the Bank of
Canada, the Bank of England, the Bank of
Japan, the European Central Bank, and the
Swiss National Bank to standing facilities,
with the modifications approved by the
Committee. In addition, the Federal Open
Market Committee directs the Federal Reserve Bank of New York to convert the existing temporary foreign currency liquidity
swap arrangements with the Bank of Canada,
the Bank of England, the Bank of Japan, the
European Central Bank, and the Swiss National Bank to standing facilities, also with
the modifications approved by the Committee.
Drawings on the dollar and foreign currency
liquidity swap lines will be approved by the
Chairman in consultation with the Foreign
Currency Subcommittee. The Foreign Currency Subcommittee will consult with the
Federal Open Market Committee prior to
the initial drawing on the dollar or foreign
currency liquidity swap lines if possible under
the circumstances then prevailing; authority
to approve subsequent drawings of a more
routine character for either the dollar or foreign currency liquidity swap lines may be delegated to the Manager, in consultation with
the Chairman.
The Chairman may change the rates and fees
on the swap arrangements by mutual agreement with the foreign central banks and in
consultation with the Foreign Currency Subcommittee. The Chairman shall keep the
Federal Open Market Committee informed
of any changes in rates or fees, and the rates
and fees shall be consistent with principles
discussed with and guidance provided by the
Committee.”
Staff Review of the Economic Situation
In general, the data available at the time of the October
29–30 meeting suggested that economic activity continued to rise at a moderate pace; the set of information
reviewed for this meeting, however, was reduced
somewhat by delays in selected statistical releases associated with the partial shutdown of the federal government earlier in the month. In the labor market, total
payroll employment increased further in September,
but the unemployment rate was still high. Consumer
price inflation continued to be modest, and measures
of longer-run inflation expectations remained stable.
Private nonfarm employment rose in September but at
a slower pace than in the previous month, while total
government employment increased at a solid rate. The
unemployment rate edged down to 7.2 percent in September; both the labor force participation rate and the
employment-to-population ratio were unchanged.
Other recent indicators of labor market activity were
mixed. Measures of firms’ hiring plans improved, the
rate of job openings increased slightly, and the rate of
long-duration unemployment declined a little. However, household expectations of the labor market situation deteriorated somewhat, the rate of gross privatesector hiring remained flat, and the share of workers
employed part time for economic reasons was essentially unchanged and continued to be elevated. In addition, initial claims for unemployment insurance rose in
the first few weeks of October, likely reflecting, in part,
some spillover effects from the government shutdown.
Manufacturing production expanded modestly in September, but output was flat outside of the motor vehicle sector and the rate of total manufacturing capacity
utilization was unchanged. Automakers’ schedules indicated that the pace of light motor vehicle assemblies
would be slightly lower in the coming months, but
broader indicators of manufacturing production, such
as the readings on new orders from the national and
regional manufacturing surveys, pointed to further
gains in factory output in the near term.
Real personal consumption expenditures (PCE) rose
moderately in August. In September, nominal retail
sales, excluding those at motor vehicle and parts outlets, increased significantly, while sales of light motor
vehicles declined. Recent readings on key factors that
influence consumer spending were somewhat mixed:
Households’ net worth likely expanded further as both
equity values and home prices rose in recent months,
and real disposable incomes increased solidly in August, but measures of consumer sentiment declined in
September and October.
The recovery in the housing sector appeared to continue, although recent data in this sector were limited.
Starts and permits of new single-family homes increased in August, but starts and permits of multifamily
units declined. After falling significantly in July, sales
of new homes increased in August, but existing home
sales decreased, on balance, in August and September,
and pending home sales also contracted.
Growth in real private expenditures for business
equipment and intellectual property products appeared
to be tepid in the third quarter. Nominal shipments of
nondefense capital goods excluding aircraft rose modestly, on balance, in August and September after declining in July. However, nominal new orders for these
capital goods continued to be above the level of shipments, pointing to increases in shipments in subsequent months, and other forward-looking indicators,
such as surveys of business conditions, were consistent
with some gains in business equipment spending in the
near term. Nominal business expenditures for nonresidential construction were essentially unchanged in August. Recent book-value data for inventory-to-sales
ratios, along with readings on inventories from national
and regional manufacturing surveys, did not point to
notable inventory imbalances.
Real federal government purchases likely declined as
federal employment edged down further in September
and many federal employees were temporarily furloughed during the partial government shutdown in
October. Real state and local government purchases,
however, appeared to increase; the payrolls of these
governments expanded briskly in September, and nominal state and local construction expenditures rose in
August.
The U.S. international trade deficit remained about unchanged in August, as both exports and imports were
flat.
Available measures of total U.S. consumer prices—the
PCE price index for August and the consumer price
index for September—increased modestly, as did the
core measures, which exclude prices of food and energy. Both near- and longer-term inflation expectations
from the Thomson Reuters/University of Michigan
Surveys of Consumers were little changed, on balance,
in September and October. Nominal average hourly
earnings for all employees increased slowly in September.
Foreign economic growth appeared to improve in the
third quarter following a sluggish first half, largely reflecting stronger growth estimated for China and a rebound in Mexico from contraction in the previous
quarter. Growth also picked up in the third quarter in
the United Kingdom, and available indicators suggested
an increase in growth in Canada and continued mild
recovery in the euro area. Economic activity in Japan
appeared to have decelerated somewhat from its firsthalf pace but continued to expand, and inflation measured on a 12-month basis turned positive in the middle
of this year. Inflation elsewhere generally remained
subdued. Monetary policy stayed highly accommodative in advanced foreign economies. In addition, the
Bank of Mexico continued to ease monetary policy,
citing concerns about the strength of the economy, but
central banks in certain other emerging market economies, including Brazil and India, tightened policy and
intervened in currency markets in response to concerns
about the potential effect of currency depreciation on
inflation.
Staff Review of the Financial Situation
On balance over the intermeeting period, longer-term
interest rates declined and equity prices rose, largely in
response to expectations for more-accommodative
monetary policy. In addition, financial markets were
affected for a time by uncertainties about raising the
federal debt limit and resolving the government shutdown.
(C&I) loans at banks continued to advance, on balance,
in the third quarter at about the pace posted in the previous quarter, and commercial real estate (CRE) loans
at banks rose moderately. In response to the October
Senior Loan Officer Opinion Survey on Bank Lending
Practices (SLOOS), banks generally indicated that they
had eased standards on C&I and CRE loans over the
past three months.
Financial market views about the outlook for monetary
policy shifted notably following the September FOMC
meeting, as the outcome and communications from
that meeting were seen as more accommodative than
expected. Investors pushed out their anticipated timing
of both the first reduction in the pace of FOMC asset
purchases and the first hike in the target federal funds
rate. The path of the federal funds rate implied by financial market quotes shifted down over the period, as
did the path based on the results from the Desk’s survey of primary dealers. The Desk’s survey also indicated that the dealers had revised up their expectations of
the total size of the Committee’s asset purchase program. Concerns about the fiscal situation and somewhat weaker-than-expected economic data releases also
contributed to the change in expectations about the
timing of monetary policy actions.
Developments affecting financing for the household
sector were generally favorable. House prices posted
further gains in August. Mortgage rates declined over
the intermeeting period, although they were still above
their early-May lows. Mortgage refinancing applications were down dramatically compared with May, but
purchase applications were only a bit below their earlier
level. Some large banks responding to the October
SLOOS reported having eased standards on homepurchase loans to prime borrowers on net. In nonmortgage credit, automobile loans and student loans
continued to expand at a robust pace, while balances
on revolving consumer credit were again about flat.
Five- and 10-year yields on both nominal and inflationprotected Treasury securities declined 30 basis points
or more over the intermeeting period. The reduction
in longer-term Treasury yields was also reflected in
other longer-term rates, such as those on agency
mortgage-backed securities (MBS) and corporate securities.
Short-term funding markets were adversely affected for
a time by concerns about potential delays in raising the
federal debt limit. The Treasury bill market was particularly affected as yields on bills maturing between midOctober and early November rose sharply and some
bill auctions saw reduced demand. Conditions in other
short-term markets, such as the market for repurchase
agreements, were also strained. However, these effects
eased quickly after an agreement to raise the debt limit
was reached in mid-October.
Credit flows to nonfinancial businesses appeared to
slow somewhat during the fiscal standoff amid increased market volatility; however, access to credit generally remained ample for large firms. Gross issuance
of nonfinancial corporate bonds and commercial paper,
which had been particularly strong in September,
slowed a bit in October. In September, leveraged loan
issuance was also robust. Commercial and industrial
In the municipal bond market, issuance of bonds for
new capital projects remained solid. Yields on 20-year
general obligation municipal bonds decreased about in
line with other longer-term market rates over the intermeeting period.
Bank credit declined slightly during the third quarter.
Growth of core loans slowed, primarily because of a
sizable decline in outstanding balances of residential
mortgages on banks’ books. Third-quarter earnings
reports for large banks generally met or exceeded analysts’ modest expectations.
M2 grew moderately in September. Preliminary data
indicated that growth in M2 picked up temporarily in
early October amid uncertainty about the passage of
debt limit legislation; deposits increased sharply as institutional investors appeared to shift from money fund
shares to bank deposits, and as money funds increased
their bank deposits in anticipation of possible redemptions. These inflows to deposits were estimated to
have reversed shortly after the debt limit agreement
was reached.
Foreign stock prices rose, foreign yields and yield
spreads declined, and the dollar depreciated against
most other currencies. A large portion of these asset
price changes occurred immediately following the September FOMC announcement. In addition, yields and
the value of the dollar fell further after the debt ceiling
agreement was reached and in response to the U.S. la-
bor market report. Mutual fund flows to emerging
markets stabilized, following large outflows earlier this
year.
Staff Economic Outlook
In the economic projection prepared by the staff for
the October FOMC meeting, the forecast for growth in
real gross domestic product (GDP) in the near term
was revised down somewhat from the one prepared for
the previous meeting, primarily reflecting the effects of
the federal government shutdown and some data on
consumer spending that were softer than anticipated.
In contrast, the staff’s medium-term forecast for real
GDP was revised up slightly, mostly reflecting lower
projected paths for the foreign exchange value of the
dollar and longer-term interest rates, along with somewhat higher projected paths for equity prices and home
values. The staff anticipated that the pace of expansion
in real GDP this year would be about the same as the
growth rate of potential output but continued to project that real GDP would accelerate in 2014 and 2015,
supported by an 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. Real GDP growth was projected
to begin to slow a little in 2016 but to remain above
potential output growth. The expansion in economic
activity was anticipated to slowly reduce resource slack
over the projection period, and the unemployment rate
was expected to decline gradually.
The staff’s forecast for inflation was little changed from
the projection prepared for the previous FOMC meeting. The staff continued to expect that inflation would
be modest in the second half of this year, but higher
than its level in the first half. Over the medium term,
with longer-run inflation expectations assumed to remain stable, changes in commodity and import prices
expected to be relatively small, and slack in labor and
product markets persisting over most of the projection
period, inflation was projected to run somewhat below
the FOMC’s longer-run inflation objective of 2 percent
through 2016.
The staff continued to see a number of risks around
the forecast. The downside risks to economic activity
included the uncertain effects and future course of fiscal policy, concerns about the outlook for consumer
spending growth, and the potential effects on residential construction of the increase in mortgage rates since
the spring. With regard to inflation, the staff saw risks
both to the downside, that the low rates of core con-
sumer price inflation posted earlier this year could be
more persistent than anticipated, and to the upside, that
unanticipated increases in energy or other commodity
prices could emerge.
Participants’ Views on Current Conditions and the
Economic Outlook
In their discussion of the economic situation and the
outlook, meeting participants generally indicated that
the broad contours of their medium-term economic
projections had not changed materially since the September meeting. Although the incoming data suggested that growth in the second half of 2013 might prove
somewhat weaker than many of them had previously
anticipated, participants broadly continued to project
the pace of economic activity to pick up. The acceleration over the medium term was expected to be bolstered by the gradual abatement of headwinds that have
been slowing the pace of economic recovery—such as
household-sector deleveraging, tight credit conditions
for some households and businesses, and fiscal restraint—as well as improved prospects for global
growth. While downside risks to the outlook for the
economy and the labor market were generally viewed as
having diminished, on balance, since last fall, several
significant risks remained, including the uncertain effects of ongoing fiscal drag and of the continuing fiscal
debate.
Consumer spending appeared to have slowed somewhat in the third quarter. A number of participants
noted that their outlook for stronger economic activity
was contingent on a pickup in growth of consumer
spending and reviewed the factors that might contribute to such a development, including low interest rates,
easing of debt burdens, continued gains in employment, lower gasoline prices, higher real incomes, and
higher household wealth boosted by rising home prices
and equity values. Nonetheless, consumer sentiment
remained unusually low, posing a downside risk to the
forecast, and uncertainty surrounding prospective fiscal
deliberations could weigh further on consumer confidence. A few participants commented that a pickup in
the growth rates of economic activity or real disposable
income could require improvements in productivity
growth. However, it was noted that slower growth in
productivity might have become the norm.
Business contacts generally reported continued moderate growth in sales, but remained cautious about expanding payrolls and capital expenditures. Manufacturing activity in parts of the country was reported to have
picked up, and auto sales remained strong. Reports
from several Districts indicated that commercial real
estate and housing-related business activity continued
to advance. In the agricultural sector, crop yields were
healthy, farmland values were up, and lower crop prices
were increasing the affordability of livestock feed.
Wage and cost pressures remained limited, but business
contacts in some Districts mentioned that selected labor markets were tight or expressed concerns about a
shortage of skilled workers. Reports from the retail
sector were mixed, with remarks about higher luxury
sales and expectations for reduced hiring of seasonal
workers over the upcoming holiday season. Uncertainty about future fiscal policy and the regulatory environment, including changes in health care, were mentioned as weighing on business planning.
Participants generally saw the direct economic effects
of the partial shutdown of the federal government as
temporary and limited, but a number of them expressed concern about the possible economic effects of
repeated fiscal impasses on business and consumer
confidence. More broadly, fiscal policy, which has
been exerting significant restraint on economic growth,
was expected to become somewhat less restrictive over
the forecast period. Nonetheless, it was noted that the
stance of fiscal policy was likely to remain one of the
most important headwinds restraining growth over the
medium term.
Although a number of participants indicated that the
September employment report was somewhat disappointing, they judged that the labor market continued
to improve, albeit slowly. The limited pace of gains in
wages and payrolls, as well as the number of employees
working part time for economic reasons, were mentioned as evidence of substantial remaining slack in the
labor market. The drop in the unemployment rate over
the past year, while welcome and significant, could
overstate the degree of improvement in labor market
conditions, in part because of the decline in the labor
force participation rate. However, a few participants
offered reasons why recent readings on the unemployment rate might provide an accurate assessment, on
balance, of the extent of improvement in the labor
market. For instance, if the decline in labor force participation reflected decisions to retire, it was unlikely to
be reversed, because retirees were unlikely to return to
the labor force. Furthermore, a secular decline in labor
market dynamism, or turnover, might have contributed
to a reduction in the size of normal monthly payroll
gains. Finally, revised data showed that the historical
relationship between real GDP growth and changes in
the unemployment rate had remained broadly in place
in recent years, suggesting that the unemployment rate
continued to provide a reasonably accurate signal about
the strength of the labor market and the degree of slack
in the economy.
Available information suggested that inflation remained
subdued and below the Committee’s longer-run objective of 2 percent. Similarly, longer-run inflation expectations remained stable and, by some measures, below
2 percent.
Financial conditions eased notably over the intermeeting period, with declines in longer-term interest rates
and increases in equity values. Financial quotes suggested that markets moved out the date at which they
expected to see the Committee first increase the federal
funds rate target. It was noted that interest rate volatility was substantially lower than at the time of the September meeting, and a couple of participants pointed to
signs suggesting that reaching-for-yield behavior might
be increasing again. Nevertheless, term premiums appeared to only partially retrace their rise of earlier in the
year, and longer-term interest rates remained well
above their levels in the spring. A few participants expressed concerns about the eventual economic impact
of the change in financial conditions since the spring; in
particular, increases in mortgage rates and home prices
had reduced the affordability of housing, and the higher rates were at least partly responsible for some slowing in that sector. One participant stated that the extended period of near-zero interest rates continued to
create challenges for the banking industry, as net interest margins remained under pressure.
Policy Planning
After an introductory briefing by the staff, meeting participants had a wide-ranging discussion of topics related
to the path of monetary policy over the medium term,
including strategic and communication issues associated with the Committee’s asset purchase program as
well as possibilities for clarifying or strengthening its
forward guidance for the federal funds rate. In this
context, participants discussed the financial market response to the Committee’s decisions at its June and
September meetings and, more generally, the complexities associated with communications about the Committee’s current policy tools. A number of participants
noted that recent movements in interest rates and other
indicators suggested that financial markets viewed the
Committee’s tools—asset purchases and forward guidance regarding the federal funds rate—as closely linked.
One possible explanation for this view was an inference
on the part of investors that a change in asset purchas-
es reflected a change in the Committee’s outlook for
the economy, which would be associated with adjustments in both the purchase program and the expected
path of policy rates; another was a perspective that a
change in asset purchases would be read as providing
information about the willingness of the Committee to
pursue its economic objectives with both tools. A
couple of participants observed that the decision at the
September FOMC meeting might have strengthened
the credibility of monetary policy, as suggested by the
downward shift in the expected path of short-term interest rates that had brought the path more closely into
alignment with the Committee’s forward guidance.
Participants broadly endorsed making the Committee’s
communications as simple, clear, and consistent as possible, and discussed ways of doing so. With regard to
the asset purchase program, one suggestion was to repeat a set of principles in public communications; for
example, participants could emphasize that the program was data dependent, that any reduction in the
pace of purchases would depend on both the cumulative progress in labor markets since the start of the
program as well as the outlook for future gains, and
that a continuing assessment of the efficacy and costs
of asset purchases might lead the Committee to decide
at some point to change the mix of its policy tools
while maintaining a high degree of accommodation.
Another suggestion for enhancing communications was
to use the Summary of Economic Projections to provide more information about participants’ views.
During this general discussion of policy strategy and
tactics, participants reviewed issues specific to the
Committee’s asset purchase program. They generally
expected that the data would prove consistent with the
Committee’s outlook for ongoing improvement in labor market conditions and would thus warrant trimming the pace of purchases in coming months. However, participants also considered scenarios under
which it might, at some stage, be appropriate to begin
to wind down the program before an unambiguous
further improvement in the outlook was apparent. A
couple of participants thought it premature to focus on
this latter eventuality, observing that the purchase program had been effective and that more time was needed to assess the outlook for the labor market and inflation; moreover, international comparisons suggested
that the Federal Reserve’s balance sheet retained ample
capacity relative to the scale of the U.S. economy.
Nonetheless, some participants noted that, if the
Committee were going to contemplate cutting purchases in the future based on criteria other than improve-
ment in the labor market outlook, such as concerns
about the efficacy or costs of further asset purchases, it
would need to communicate effectively about those
other criteria. In those circumstances, it might well be
appropriate to offset the effects of reduced purchases
by undertaking alternative actions to provide accommodation at the same time.
Participants generally expressed reservations about the
possibility of introducing a simple mechanical rule that
would adjust the pace of asset purchases automatically
based on a single variable such as the unemployment
rate or payroll employment. While some were open to
considering such a rule, others viewed that approach as
unlikely to reliably produce appropriate policy outcomes. As an alternative, some participants mentioned
that it might be preferable to adopt an even simpler
plan and announce a total size of remaining purchases
or a timetable for winding down the program. A
calendar-based step-down would run counter to the
data-dependent, state-contingent nature of the current
asset purchase program, but it would be easier to
communicate and might help the public separate the
Committee’s purchase program from its policy for the
federal funds rate and the overall stance of policy.
With regard to future reductions in asset purchases,
participants discussed how those might be split across
asset classes. A number of participants believed that
making roughly equal adjustments to purchases of
Treasury securities and MBS would be appropriate and
relatively straightforward to communicate to the public.
However, some others indicated that they could back
trimming the pace of Treasury purchases more rapidly
than those of MBS, perhaps to signal an intention to
support mortgage markets, and one participant thought
that trimming MBS first would reduce the potential for
distortions in credit allocation.
As part of the planning discussion, participants also
examined several possibilities for clarifying or strengthening the forward guidance for the federal funds rate,
including by providing additional information about the
likely path of the rate either after one of the economic
thresholds in the current guidance was reached or after
the funds rate target was eventually raised from its current, exceptionally low level. A couple of participants
favored simply reducing the 6½ percent unemployment
rate threshold, but others noted that such a change
might raise concerns about the durability of the Committee’s commitment to the thresholds. Participants
also weighed the merits of stating that, even after the
unemployment rate dropped below 6½ percent, the
target for the federal funds rate would not be raised so
long as the inflation rate was projected to run below a
given level. In general, the benefits of adding this kind
of quantitative floor for inflation were viewed as uncertain and likely to be rather modest, and communicating
it could present challenges, but a few participants remained favorably inclined toward it. Several participants concluded that providing additional qualitative
information on the Committee’s intentions regarding
the federal funds rate after the unemployment threshold was reached could be more helpful. Such guidance
could indicate the range of information that the Committee would consider in evaluating when it would be
appropriate to raise the federal funds rate. Alternatively, the policy statement could indicate that even after
the first increase in the federal funds rate target, the
Committee anticipated keeping the rate below its
longer-run equilibrium value for some time, as economic headwinds were likely to diminish only slowly.
Other factors besides those headwinds were also mentioned as possibly providing a rationale for maintaining
a low trajectory for the federal funds rate, including
following through on a commitment to support the
economy by maintaining more-accommodative policy
for longer. These or other modifications to the forward guidance for the federal funds rate could be implemented in the future, either to improve clarity or to
add to policy accommodation, perhaps in conjunction
with a reduction in the pace of asset purchases as part
of a rebalancing of the Committee’s tools.
Participants also discussed a range of possible actions
that could be considered if the Committee wished to
signal its intention to keep short-term rates low or reinforce the forward guidance on the federal funds rate.
For example, most participants thought that a reduction by the Board of Governors in the interest rate paid
on excess reserves could be worth considering at some
stage, although the benefits of such a step were generally seen as likely to be small except possibly as a signal
of policy intentions. By contrast, participants expressed a range of concerns about using open market
operations aimed at affecting the expected path of
short-term interest rates, such as a standing purchase
facility for shorter-term Treasury securities or the provision of term funding through repurchase agreements.
Among the concerns voiced was that such operations
would inhibit price discovery and remove valuable
sources of market information; in addition, such operations might be difficult to explain to the public, complicate the Committee’s communications, and appear
inconsistent with the economic thresholds for the federal funds rate. Nevertheless, a number of participants
noted that such operations were worthy of further
study or saw them as potentially helpful in some circumstances.
At the end of the discussion, participants agreed that it
would be helpful to continue reviewing these issues of
longer-run policy strategy at upcoming meetings. No
decisions on the substance were taken, and participants
generally noted the usefulness of planning for various
contingencies.
Committee Policy Action
Committee members saw the information received
over the intermeeting period as suggesting that economic activity was continuing to expand at a moderate
pace. Although indicators of labor market conditions
had shown some further improvement, the unemployment rate remained elevated. Household spending and
business fixed investment advanced, but the recovery
in the housing sector slowed somewhat in recent
months, and fiscal policy was restraining economic
growth. The Committee expected that, with appropriate policy accommodation, economic growth would
pick up from its recent pace, resulting in a gradual decline in the unemployment rate toward levels consistent
with the Committee’s dual mandate. Members generally continued to see the downside risks to the outlook
for the economy and the labor market as having diminished, on net, since last fall. Inflation was running below the Committee’s longer-run objective, but longerterm inflation expectations were stable, and the Committee anticipated that inflation would move back toward its objective over the medium term. Members
recognized, however, that inflation persistently below
the Committee’s 2 percent objective could pose risks to
economic performance.
In their discussion of monetary policy for the period
ahead, members generally noted that there had been
little change in the economic outlook since the September meeting, and all members but one again judged
that it would be appropriate for the Committee to await
more evidence that progress toward its economic objectives would be sustained before adjusting the pace of
asset purchases. In the view of one member, the cumulative improvement in the economy indicated that
the continued easing of monetary policy at the current
pace was no longer necessary. Many members stressed
the data-dependent nature of the current asset purchase
program, and some pointed out that, if economic conditions warranted, the Committee could decide to slow
the pace of purchases at one of its next few meetings.
A couple of members also commented that it would be
important to continue laying the groundwork for such
a reduction in pace through public statements and
speeches, while emphasizing that the overall stance of
monetary policy would remain highly accommodative
as needed to meet the Committee’s objectives.
At the conclusion of the 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 longerterm inflation expectations continue to be well anchored.
Members also discussed the wording of the policy
statement to be issued following the meeting. In addition to updating its description of the state of the
economy, the Committee considered whether to note
that the effects of the temporary government shutdown
had made economic conditions more difficult to assess,
but judged that this might overemphasize the role of
the shutdown in the Committee’s policy deliberations.
Members noted the improvement in financial conditions since the time of the September meeting and
agreed that it was appropriate to drop the reference,
which was included in the September statement, to the
tightening of financial conditions seen over the summer. Members also discussed whether to add to the
forward guidance in the policy statement an indication
that the headwinds restraining the economic recovery
were likely to abate only gradually, with the federal
funds rate target anticipated to remain below its longerrun normal value for a considerable time. While there
was some support for adding this language at some
stage, a range of concerns were expressed about including it at this meeting. In particular, given its complexity, many members felt that it would be difficult to
communicate this point succinctly in the statement. In
addition, there was not complete consensus within the
Committee that headwinds were the only explanation
for the low expected future path of policy rates.
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 mortgagebacked 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 September
generally suggests that economic activity has
continued to expand at a moderate pace. Indicators of labor market conditions have
shown some further improvement, but the
unemployment rate remains elevated. Available data suggest that household spending
and business fixed investment advanced,
while the recovery in the housing sector
slowed somewhat in recent months. Fiscal
policy is restraining economic growth. Apart
from fluctuations due to changes in energy
prices, inflation has been 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 pick up
from its recent 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, on net,
since last fall. The Committee recognizes
that inflation persistently below its 2 percent
objective could pose risks to economic performance, but it anticipates that inflation will
move back toward its objective over the medium term.
Taking into account the extent of federal fiscal retrenchment over the past year, the
Committee sees the improvement in economic activity and labor market conditions
since it began its asset purchase program as
consistent with growing underlying strength
in the broader economy. However, the
Committee decided to await more evidence
that progress will be sustained before adjusting the pace of its purchases. Accordingly,
the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and
longer-term Treasury securities at a pace of
$45 billion per month. The Committee is
maintaining its existing policy of reinvesting
principal payments from its holdings of
agency debt and agency mortgage-backed securities in agency mortgage-backed securities
and of rolling over maturing Treasury securities at auction. Taken together, these actions
should maintain downward pressure on
longer-term interest rates, support mortgage
markets, and help to make broader financial
conditions more accommodative, which in
turn should promote a stronger economic
recovery and help to ensure that inflation,
over time, is at the rate most consistent with
the Committee’s dual mandate.
The Committee will closely monitor incoming information on economic and financial
developments in coming months and 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. In
judging when to moderate the pace of asset
purchases, the Committee will, at its coming
meetings, assess whether incoming information continues to support the Committee’s expectation of ongoing improvement in
labor market conditions and inflation moving
back toward its longer-run objective. Asset
purchases are not on a preset course, and the
Committee’s decisions about their pace will
remain contingent on the Committee’s economic outlook as well as its assessment of
the likely efficacy and costs of such purchases.
To support continued progress toward maximum employment and price stability, the
Committee today reaffirmed its view 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, Charles L. Evans, Jerome H.
Powell, Eric Rosengren, Jeremy C. Stein, Daniel K.
Tarullo, and Janet L. Yellen.
Voting against this action: Esther L. George.
Ms. George dissented because she did not see the continued aggressive easing of monetary policy as warranted in the face of both actual and forecasted improvements in the economy. In her view, the cumulative
progress in labor markets justified taking steps toward
slowing the pace of the Committee’s asset purchases. Moreover, market expectations for the size of the
purchase program had continued to escalate despite
that progress, increasing her concerns about communications challenges and the potential costs associated
with asset purchases.
It was agreed that the next meeting of the Committee
would be held on Tuesday–Wednesday, December 17–
18, 2013. The meeting adjourned at 12:05 p.m. on October 30, 2013.
Notation Vote
By notation vote completed on October 8, 2013, the
Committee unanimously approved the minutes of the
FOMC meeting held on September 17–18, 2013.
Videoconference meeting of October 16
On October 16, 2013, the Committee met by videoconference to discuss issues associated with contingencies in the event that the Treasury was temporarily unable to meet its obligations because the statutory federal debt limit was not raised. The meeting covered issues similar to those discussed at the Committee’s videoconference meeting of August 1, 2011. The staff
provided an update on legislative developments bearing
on the debt ceiling and the funding of the federal government, recent conditions in financial markets, technical aspects of the processing of federal payments,
potential implications for bank supervision and regulatory policies, and possible actions that the Federal Reserve could take if disruptions to market functioning
posed a threat to the Federal Reserve’s economic objectives. Meeting participants saw no legal or operational need in the event of delayed payments on Treasury securities to make changes to the conduct or procedures employed in currently authorized Desk operations, such as open market operations, large-scale asset
purchases, or securities lending, or to the operation of
the discount window. They also generally agreed that
the Federal Reserve would continue to employ prevailing market values of securities in all its transactions and
operations, under the usual terms. With respect to potential additional actions, participants noted that the
appropriate responses would depend importantly on
the actual conditions observed in financial markets.
Under certain circumstances, the Desk might act to
facilitate the smooth transmission of monetary policy
through money markets and to address disruptions in
market functioning and liquidity. Supervisory policy
would take into account and make appropriate allowance for unusual market conditions. The need to maintain the traditional separation of the Federal Reserve’s
actions from the Treasury’s debt management decisions
was noted. Participants agreed that while the Federal
Reserve should take whatever steps it could, the risks
posed to the financial system and to the broader economy by a delay in payments on Treasury securities
would be potentially catastrophic, and thus such a situation should be avoided at all costs.
_____________________________
William B. English
Secretary
Cite this document
Federal Reserve (2013, October 15). FOMC Minutes. Fomc Minutes, Federal Reserve. https://whenthefedspeaks.com/doc/fomc_minutes_20131016
@misc{wtfs_fomc_minutes_20131016,
author = {Federal Reserve},
title = {FOMC Minutes},
year = {2013},
month = {Oct},
howpublished = {Fomc Minutes, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/fomc_minutes_20131016},
note = {Retrieved via When the Fed Speaks corpus}
}