FOMC Minutes
Page 1
_____________________________________________________________________________________________
Minutes of the Federal Open Market Committee
January 28–29, 2014
A meeting of the Federal Open Market Committee was
held in the offices of the Board of Governors of the
Federal Reserve System in Washington, D.C., on
Tuesday, January 28, 2014, at 2:00 p.m. and continued
on Wednesday, January 29, 2014, at 9:00 a.m.
PRESENT:
Ben Bernanke, Chairman
William C. Dudley, Vice Chairman
Richard W. Fisher
Narayana Kocherlakota
Sandra Pianalto
Charles I. Plosser
Jerome H. Powell
Jeremy C. Stein
Daniel K. Tarullo
Janet L. Yellen
Christine Cumming, Charles L. Evans, Jeffrey M. Lacker, Dennis P. Lockhart, and John C. Williams, Alternate Members of the Federal Open Market
Committee
James Bullard, Esther L. George, and Eric Rosengren,
Presidents of the Federal Reserve Banks of St.
Louis, Kansas City, and Boston, respectively
Nellie Liang, Director, Office of Financial Stability Policy and Research, Board of Governors
Stephen A. Meyer and William Nelson, Deputy Directors, Division of Monetary Affairs, Board of Governors
Jon W. Faust, Special Adviser to the Board, Office of
Board Members, Board of Governors
Linda Robertson and David W. Skidmore, Assistants to
the Board, Office of Board Members, Board of
Governors
Trevor A. Reeve, Senior Associate Director, Division
of International Finance, Board of Governors
Joyce K. Zickler, Senior Adviser, Division of Monetary
Affairs, Board of Governors
Daniel M. Covitz and Michael T. Kiley, Associate Directors, Division of Research and Statistics, Board
of Governors
Jane E. Ihrig, Deputy Associate Director, Division of
Monetary Affairs, Board of Governors
William B. English, Secretary and Economist
Matthew M. Luecke, Deputy 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
Edward Nelson, Assistant Director, Division of Monetary Affairs, Board of Governors; John J. Stevens,
Assistant Director, Division of Research and Statistics, Board of Governors
James A. Clouse, Thomas A. Connors, Evan F.
Koenig, Thomas Laubach, Michael P. Leahy,
Loretta J. Mester, Paolo A. Pesenti, Samuel
Schulhofer-Wohl, Mark E. Schweitzer, and William
Wascher, Associate Economists
Dana L. Burnett, Section Chief, Division of Monetary
Affairs, Board of Governors
Simon Potter, Manager, System Open Market Account
David H. Small, Project Manager, Division of Monetary Affairs, Board of Governors
Lorie K. Logan, Deputy Manager, System Open Market Account
Michael S. Gibson, Director, Division of Banking Supervision and Regulation, Board of Governors
Jeremy B. Rudd, Adviser, Division of Research and
Statistics, Board of Governors
Burcu Duygan-Bump, Senior Project Manager, Division of Monetary Affairs, Board of Governors
Andrew Figura, Group Manager, Division of Research
and Statistics, Board of Governors
Page 2
Federal Open Market Committee
_____________________________________________________________________________________________
Michele Cavallo, Senior Economist, Division of International Finance, Board of Governors
Yuriy Kitsul, Economist, Division of Monetary Affairs,
Board of Governors
Randall A. Williams, Records Project Manager, Division of Monetary Affairs, Board of Governors
Kenneth C. Montgomery, First Vice President, Federal
Reserve Bank of Boston
David Altig, Glenn D. Rudebusch, and Daniel G. Sullivan, Executive Vice Presidents, Federal Reserve
Banks of Atlanta, San Francisco, and Chicago, respectively
Troy Davig, Geoffrey Tootell, and Christopher J. Waller, Senior Vice Presidents, Federal Reserve Banks
of Kansas City, Boston, and St. Louis, respectively
Robert L. Hetzel, Senior Economist, Federal Reserve
Bank of Richmond
Annual Organizational Matters¹
In the agenda for this meeting, it was reported that advices of the election of the following members and alternate members of the Federal Open Market Committee (the “Committee”) for a term beginning January 28,
2014, had been received and that these individuals had
executed their oaths of office.
The elected members and alternate members were as
follows:
William C. Dudley, President of the Federal Reserve
Bank of New York, with Christine Cumming, First
Vice President of the Federal Reserve Bank of New
York, as alternate
Charles I. Plosser, President of the Federal Reserve
Bank of Philadelphia, with Jeffrey M. Lacker, President
of the Federal Reserve Bank of Richmond, as alternate
Sandra Pianalto, President of the Federal Reserve Bank
of Cleveland, with Charles L. Evans, President of the
Federal Reserve Bank of Chicago, as alternate
____________________
¹ Versions of the current Committee documents are
available at www.federalreserve.gov/monetarypolicy/ru
les_authorizations.htm.
Richard W. Fisher, President of the Federal Reserve
Bank of Dallas, with Dennis P. Lockhart, President of
the Federal Reserve Bank of Atlanta, as alternate
Narayana Kocherlakota, President of the Federal Reserve Bank of Minneapolis, with John C. Williams,
President of the Federal Reserve Bank of San Francisco, as alternate
By unanimous vote, the Committee selected Ben
Bernanke to serve as Chairman through January 31,
2014, and Janet L. Yellen to serve as Chairman, effective February 1, 2014, until the selection of her successor at the first regularly scheduled meeting of the
Committee in 2015.
By unanimous vote, the following officers of the
Committee were selected to serve until the selection of
their successors at the first regularly scheduled meeting
of the Committee in 2015:
William C. Dudley
William B. English
Matthew M. Luecke
Michelle A. Smith
Scott G. Alvarez
Thomas C. Baxter
Richard M. Ashton
Steven B. Kamin
David W. Wilcox
Vice Chairman
Secretary and Economist
Deputy Secretary
Assistant Secretary
General Counsel
Deputy General Counsel
Assistant General Counsel
Economist
Economist
James A. Clouse
Thomas A. Connors
Evan F. Koenig
Thomas Laubach
Michael P. Leahy
Loretta J. Mester
Paolo A. Pesenti
Samuel Schulhofer-Wohl
Mark E. Schweitzer
William Wascher
Associate Economists
By unanimous vote, the Federal Reserve Bank of New
York was selected to execute transactions for the System Open Market Account.
By unanimous vote, the Authorization for Domestic
Open Market Operations was approved with an
amendment that makes the structure of paragraphs 1.A
and 1.B more similar. The Guidelines for the Conduct
of System Open Market Operations in Federal-Agency
Issues remained suspended.
Minutes of the Meeting of January 28–29, 2014
Page 3
_____________________________________________________________________________________________
AUTHORIZATION FOR DOMESTIC OPEN
MARKET OPERATIONS
(As amended effective January 28, 2014)
1. The Federal Open Market Committee authorizes
and directs the Federal Reserve Bank of New York, to
the extent necessary to carry out the most recent domestic policy directive adopted at a meeting of the
Committee:
A. To buy or sell in the open market U.S. government securities, including securities of the Federal
Financing Bank, and securities that are direct obligations of, or fully guaranteed as to principal and interest by, any agency of the United States, from or to
securities dealers and foreign and international accounts maintained at the Federal Reserve Bank of
New York, on a cash, regular, or deferred delivery
basis, for the System Open Market Account at market prices, and, for such Account, to exchange maturing U.S. government and federal agency securities
with the Treasury or the individual agencies or to allow them to mature without replacement; and
B. To buy or sell in the open market U.S. government securities, and securities that are direct obligations of, or fully guaranteed as to principal and interest by, any agency of the United States, for the System Open Market Account under agreements to resell or repurchase such securities or obligations (including such transactions as are commonly referred
to as repo and reverse repo transactions) in 65 business days or less, at rates that, unless otherwise expressly authorized by the Committee, shall be determined by competitive bidding, after applying reasonable limitations on the volume of agreements with
individual counterparties.
2. The Federal Open Market Committee authorizes
the Federal Reserve Bank of New York to undertake
transactions of the type described in paragraphs 1.A
and 1.B from time to time for the purpose of testing
operational readiness. The aggregate par value of such
transactions of the type described in paragraph 1.A
shall not exceed $5 billion per calendar year. The outstanding amount of such transactions of the type described in paragraph 1.B shall not exceed $5 billion at
any given time. These transactions shall be conducted
with prior notice to the Committee.
3. In order to ensure the effective conduct of open
market operations, the Federal Open Market Committee authorizes the Federal Reserve Bank of New York
to use agents in agency MBS-related transactions.
4. In order to ensure the effective conduct of open
market operations, the Federal Open Market Committee authorizes the Federal Reserve Bank of New York
to lend on an overnight basis U.S. government securities and securities that are direct obligations of any
agency of the United States, held in the System Open
Market Account, to dealers at rates that shall be determined by competitive bidding. The Federal Reserve
Bank of New York shall set a minimum lending fee
consistent with the objectives of the program and apply
reasonable limitations on the total amount of a specific
issue that may be auctioned and on the amount of securities that each dealer may borrow. The Federal Reserve Bank of New York may reject bids that could
facilitate a dealer’s ability to control a single issue as
determined solely by the Federal Reserve Bank of New
York. The Federal Reserve Bank of New York may
lend securities on longer than an overnight basis to accommodate weekend, holiday, and similar trading conventions.
5. In order to ensure the effective conduct of open
market operations, while assisting in the provision of
short-term investments or other authorized services for
foreign and international accounts maintained at the
Federal Reserve Bank of New York and accounts
maintained at the Federal Reserve Bank of New York
as fiscal agent of the United States pursuant to section
15 of the Federal Reserve Act, the Federal Open Market Committee authorizes and directs the Federal Reserve Bank of New York:
A. For the System Open Market Account, to sell
U.S. government securities and securities that are direct obligations of, or fully guaranteed as to principal
and interest by, any agency of the United States to
such accounts on the bases set forth in paragraph 1.A
under agreements providing for the resale by such
accounts of those securities in 65 business days or
less on terms comparable to those available on such
transactions in the market;
B. For the New York Bank account, when appropriate, to undertake with dealers, subject to the conditions imposed on purchases and sales of securities
in paragraph l.B, repurchase agreements in U.S. government securities and securities that are direct obligations of, or fully guaranteed as to principal and interest by, any agency of the United States, and to arrange corresponding sale and repurchase agreements
between its own account and such foreign, international, and fiscal agency accounts maintained at the
Federal Reserve Bank; and
C. For the New York Bank account, when appropriate, to buy U.S. government securities and obligations that are direct obligations of, or fully guaranteed as to principal and interest by, any agency of the
United States from such foreign and international accounts maintained at the Federal Reserve Bank under
Page 4
Federal Open Market Committee
_____________________________________________________________________________________________
agreements providing for the repurchase by such accounts of those securities on the same business day.
Transactions undertaken with such accounts under the
provisions of this paragraph may provide for a service
fee when appropriate.
6. In the execution of the Committee’s decision regarding policy during any intermeeting period, the
Committee authorizes and directs the Federal Reserve
Bank of New York, upon the instruction of the Chairman of the Committee, to (i) adjust somewhat in exceptional circumstances the degree of pressure on reserve positions and hence the intended federal funds
rate and to take actions that result in material changes
in the composition and size of the assets in the System
Open Market Account other than those anticipated by
the Committee at its most recent meeting or (ii) undertake transactions of the type described in paragraphs
1.A and 1.B in order to appropriately address temporary disruptions of an operational or highly unusual
nature in U.S. dollar funding markets. Any such adjustment as described in clause (i) shall be made in the
context of the Committee’s discussion and decision at
its most recent meeting and the Committee’s long-run
objectives to foster maximum employment and price
stability, and shall be based on economic, financial, and
monetary developments during the intermeeting period. Consistent with Committee practice, the Chairman, if feasible, will consult with the Committee before
making any instruction under this paragraph.
The Committee voted unanimously to amend the Authorization for Foreign Currency Operations, the Foreign Currency Directive, and the Procedural Instructions with Respect to Foreign Currency Operations in
the form shown below. The approval of these documents included approval of the System’s warehousing
agreement with the U.S. Treasury. These documents
were modified to incorporate the dollar and foreign
currency liquidity swap arrangements authorized by a
resolution on October 29, 2013. Changes were made
to the Authorization for Foreign Currency Operations
and the Procedural Instructions with Respect to Foreign Currency Operations to align the treatment of the
liquidity swap arrangements and that of the reciprocal
currency arrangements that have been in place with the
central banks of Mexico and Canada since 1994 as part
of the North American Framework Agreement. The
Authorization for Foreign Currency Operations was
amended to remove language regarding the transmission of pertinent information on System foreign currency operations to appropriate officials of the Treasury Department because this language duplicated lan-
guage in the Program for Security of FOMC Information.
AUTHORIZATION FOR FOREIGN CURRENCY
OPERATIONS
(As amended effective January 28, 2014)
1. The Federal Open Market Committee authorizes
and directs the Federal Reserve Bank of New York, for
the System Open Market Account, to the extent necessary to carry out the Committee’s foreign currency directive and express authorizations by the Committee
pursuant thereto, and in conformity with such procedural instructions as the Committee may issue from
time to time:
A. To purchase and sell the following foreign currencies in the form of cable transfers through spot or
forward transactions on the open market at home
and abroad, including transactions with the U.S.
Treasury, with the U.S. Exchange Stabilization Fund
established by section 10 of the Gold Reserve Act of
1934, with foreign monetary authorities, with the
Bank for International Settlements, and with other
international financial institutions:
Australian dollars
Brazilian reais
Canadian dollars
Danish kroner
euro
Japanese yen
Korean won
Mexican pesos
New Zealand dollars
Norwegian kroner
Pounds sterling
Singapore dollars
Swedish kronor
Swiss francs
B. To hold balances of, and to have outstanding
forward contracts to receive or to deliver, the foreign
currencies listed in paragraph A above.
C. To draw foreign currencies and to permit foreign banks to draw dollars under the arrangements
listed in paragraph 2 below, in accordance with the
Procedural Instructions with Respect to Foreign Currency Operations.
D. To maintain an overall open position in all foreign currencies not exceeding $25.0 billion. For this
purpose, the overall open position in all foreign currencies is defined as the sum (disregarding signs) of
net positions in individual currencies, excluding
Minutes of the Meeting of January 28–29, 2014
Page 5
_____________________________________________________________________________________________
changes in dollar value due to foreign exchange rate
movements and interest accruals. The net position in
a single foreign currency is defined as holdings of
balances in that currency, plus outstanding contracts
for future receipt, minus outstanding contracts for
future delivery of that currency, i.e., as the sum of
these elements with due regard to sign.
2. The Federal Open Market Committee directs the
Federal Reserve Bank of New York to maintain for the
System Open Market Account (subject to the requirements of section 214.5 of Regulation N, Relations with
Foreign Banks and Bankers):
A. Reciprocal currency arrangements with the following foreign banks:
Foreign bank
Amount of arrangement
(millions of dollars equivalent)
Bank of Canada
Bank of Mexico
2,000
3,000
B. Standing dollar liquidity swap arrangements
with the following foreign banks:
Bank of Canada
Bank of England
Bank of Japan
European Central Bank
Swiss National Bank
C. Standing foreign currency liquidity swap arrangements with the following foreign banks:
Bank of Canada
Bank of England
Bank of Japan
European Central Bank
Swiss National Bank
Dollar and foreign currency liquidity swap arrangements have no pre-set size limits. Any new swap arrangements shall be referred for review and approval
to the Committee. All swap arrangements are subject
to annual review and approval by the Committee.
3. All transactions in foreign currencies undertaken
under paragraph 1.A above shall, unless otherwise expressly authorized by the Committee, be at prevailing
market rates. For the purpose of providing an investment return on System holdings of foreign currencies
or for the purpose of adjusting interest rates paid or
received in connection with swap drawings, transactions with foreign central banks may be undertaken at
non-market exchange rates.
4. It shall be the normal practice to arrange with foreign central banks for the coordination of foreign currency transactions. In making operating arrangements
with foreign central banks on System holdings of foreign currencies, the Federal Reserve Bank of New York
shall not commit itself to maintain any specific balance,
unless authorized by the Federal Open Market Committee. Any agreements or understandings concerning
the administration of the accounts maintained by the
Federal Reserve Bank of New York with the foreign
banks designated by the Board of Governors under
section 214.5 of Regulation N shall be referred for review and approval to the Committee.
5. Foreign currency holdings shall be invested to
ensure that adequate liquidity is maintained to meet
anticipated needs and so that each currency portfolio
shall generally have an average duration of no more
than 18 months (calculated as Macaulay duration).
Such investments may include buying or selling outright obligations of, or fully guaranteed as to principal
and interest by, a foreign government or agency thereof; buying such securities under agreements for repurchase of such securities; selling such securities under
agreements for the resale of such securities; and holding various time and other deposit accounts at foreign
institutions. In addition, when appropriate in connection with arrangements to provide investment facilities
for foreign currency holdings, U.S. government securities may be purchased from foreign central banks under
agreements for repurchase of such securities within 30
calendar days.
6. All operations undertaken pursuant to the preceding paragraphs shall be reported promptly to the Foreign Currency Subcommittee and the Committee. The
Foreign Currency Subcommittee consists of the
Chairman and Vice Chairman of the Committee, the
Vice Chairman of the Board of Governors, and such
other member of the Board as the Chairman may designate (or in the absence of members of the Board
serving on the Subcommittee, other Board members
designated by the Chairman as alternates, and in the
absence of the Vice Chairman of the Committee, the
Vice Chairman’s alternate). Meetings of the Subcommittee shall be called at the request of any member, or
at the request of the manager, System Open Market
Account (“manager”), for the purposes of reviewing
recent or contemplated operations and of consulting
with the manager on other matters relating to the manager’s responsibilities. At the request of any member
of the Subcommittee, questions arising from such reviews and consultations shall be referred for determination to the Federal Open Market Committee.
7. The Chairman is authorized:
Page 6
Federal Open Market Committee
_____________________________________________________________________________________________
A. With the approval of the Committee, to enter
into any needed agreement or understanding with the
Secretary of the Treasury about the division of responsibility for foreign currency operations between
the System and the Treasury;
B. To keep the Secretary of the Treasury fully advised concerning System foreign currency operations,
and to consult with the Secretary on policy matters
relating to foreign currency operations;
C. From time to time, to transmit appropriate reports and information to the National Advisory
Council on International Monetary and Financial
Policies.
8. All Federal Reserve Banks shall participate in the
foreign currency operations for System Account in accordance with paragraph 3G(1) of the Board of Governors’ Statement of Procedure with Respect to Foreign Relationships of Federal Reserve Banks dated January 1, 1944.
9. The Federal Open Market Committee authorizes
the Federal Reserve Bank of New York to undertake
transactions of the type described in paragraphs 1, 2,
and 5, and foreign exchange and investment transactions that it may be otherwise authorized to undertake
from time to time for the purpose of testing operational readiness. The aggregate amount of such transactions shall not exceed $2.5 billion per calendar year.
These transactions shall be conducted with prior notice
to the Committee.
FOREIGN CURRENCY DIRECTIVE
(As amended effective January 28, 2014)
1. System operations in foreign currencies shall generally be directed at countering disorderly market conditions, provided that market exchange rates for the
U.S. dollar reflect actions and behavior consistent with
IMF Article IV, Section 1.
2. To achieve this end the System shall:
A. Undertake spot and forward purchases and sales
of foreign exchange.
B. Maintain reciprocal currency arrangements with
foreign central banks in accordance with the Authorization for Foreign Currency Operations.
C. Maintain standing dollar liquidity swap arrangements with foreign banks in accordance with
the Authorization for Foreign Currency Operations.
D. Maintain standing foreign currency liquidity
swap arrangements with foreign banks in accordance
with the Authorization for Foreign Currency Operations.
E. Cooperate in other respects with central banks
of other countries and with international monetary
institutions.
3. Transactions may also be undertaken:
A. To adjust System balances in light of probable
future needs for currencies.
B. To provide means for meeting System and
Treasury commitments in particular currencies, and
to facilitate operations of the Exchange Stabilization
Fund.
C. For such other purposes as may be expressly
authorized by the Committee.
4. System foreign currency operations shall be conducted:
A. In close and continuous consultation and cooperation with the United States Treasury;
B. In cooperation, as appropriate, with foreign
monetary authorities; and
C. In a manner consistent with the obligations of
the United States in the International Monetary Fund
regarding exchange arrangements under IMF Article
IV.
PROCEDURAL INSTRUCTIONS WITH RESPECT
TO FOREIGN CURRENCY OPERATIONS
(As amended effective January 28, 2014)
In conducting operations pursuant to the authorization
and direction of the Federal Open Market Committee
(the “Committee”) as set forth in the Authorization for
Foreign Currency Operations and the Foreign Currency Directive, the Federal Reserve Bank of New York,
through the manager, System Open Market Account
(“manager”), shall be guided by the following procedural understandings with respect to consultations and
clearances with the Committee, the Foreign Currency
Subcommittee (the “Subcommittee”), and the Chairman of the Committee, unless otherwise directed by
the Committee. All operations undertaken pursuant to
such clearances shall be reported promptly to the
Committee.
1. For the reciprocal currency arrangements authorized in paragraphs 2.A of the Authorization for Foreign
Currency Operations:
A. Drawings must be approved by the Subcommittee (or by the Chairman, if the Chairman believes
that consultation with the Subcommittee is not feasible in the time available) if the swap drawing proposed by a foreign bank does not exceed the larger of
(i) $200 million or (ii) 15 percent of the size of the
swap arrangement.
Minutes of the Meeting of January 28–29, 2014
Page 7
_____________________________________________________________________________________________
B. Drawings must be approved by the Committee
(or by the Subcommittee, if the Subcommittee believes that consultation with the full Committee is
not feasible in the time available, or by the Chairman,
if the Chairman believes that consultation with the
Subcommittee is not feasible in the time available) if
the swap drawing proposed by a foreign bank exceeds the larger of (i) $200 million or (ii) 15 percent
of the size of the swap arrangement.
C. The manager shall also consult with the Subcommittee or the Chairman about proposed swap
drawings by the System.
D. Any changes in the terms of existing swap arrangements shall be referred for review and approval
to the Chairman. The Chairman shall keep the
Committee informed of any changes in terms, and
the terms shall be consistent with principles discussed with and guidance provided by the Committee.
2. For the dollar and foreign currency liquidity swap
arrangements authorized in paragraphs 2.B and 2.C of
the Authorization for Foreign Currency Operations:
A. Drawings must be approved by the Chairman in
consultation with the Subcommittee. The Chairman
or the Subcommittee will consult with the 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 for either the dollar or
foreign currency liquidity swap lines may be delegated to the manager by the Chairman.
B. Any changes in the terms of existing swap arrangements shall be referred for review and approval
to the Chairman. The Chairman shall keep the
Committee informed of any changes in terms, and
the terms shall be consistent with principles discussed with and guidance provided by the Committee.
3. Any operation must be approved by:
A. The Subcommittee (or by the Chairman, if the
Chairman believes that consultation with the Subcommittee is not feasible in the time available) if it:
i.
Would result in a change in the System’s
overall open position in foreign currencies exceeding $300 million on any day or $600 million since
the most recent regular meeting of the Committee.
ii. Would result in a change on any day in the
System’s net position in a single foreign currency
exceeding $150 million, or $300 million when the
operation is associated with repayment of swap
drawings.
iii. Might generate a substantial volume of trading in a particular currency by the System, even
though the change in the System’s net position in
that currency (as defined in paragraph 1.D of the
Authorization for Foreign Currency Operations)
might be less than the limits specified in 3.A.ii.
B. The Committee (or by the Subcommittee, if the
Subcommittee believes that consultation with the full
Committee is not feasible in the time available, or by
the Chairman, if the Chairman believes that consultation with the Subcommittee is not feasible in the time
available) if it would result in a change in the System’s overall open position in foreign currencies exceeding $1.5 billion since the most recent regular
meeting of the Committee.
4. The Committee authorizes the Federal Reserve
Bank of New York to undertake transactions of the
type described in paragraphs 1, 2, and 5 of the Authorization for Foreign Currency Operations and foreign
exchange and investment transactions that it may be
otherwise authorized to undertake from time to time
for the purpose of testing operational readiness. The
aggregate amount of such transactions shall not exceed
$2.5 billion per calendar year. These transactions shall
be conducted with prior notice to the Committee.
In its annual reconsideration of the Statement on
Longer-Run Goals and Monetary Policy Strategy, participants generally agreed that only minor updates were
required at this meeting. It was noted, however, that
because this was the third year in which the statement
was being issued, the coming year would be an appropriate time to consider whether the statement could be
enhanced in any way. For example, some participants
advocated an explicit indication that inflation persistently below the Committee’s 2 percent longer-run objective and inflation persistently above that objective
would be equally undesirable. Some others suggested
that the statement could more clearly describe how the
mandated goals of maximum employment and price
stability are linked with the objective of financial stability. Following the discussion, the Committee voted to
approve minor wording changes to the statement and
to update the statement’s reference to participants’ estimates of the longer-run normal unemployment rate.
Mr. Tarullo abstained from the vote because he continued to think that the statement had not advanced the
cause of communicating or achieving greater consensus
in the policy views of the Committee.
Page 8
Federal Open Market Committee
_____________________________________________________________________________________________
STATEMENT ON LONGER-RUN GOALS AND
MONETARY POLICY STRATEGY
(As amended effective January 28, 2014)
“The Federal Open Market Committee (FOMC) is
firmly committed to fulfilling its statutory mandate
from the Congress of promoting maximum employment, stable prices, and moderate long-term interest
rates. The Committee seeks to explain its monetary
policy decisions to the public as clearly as possible.
Such clarity facilitates well-informed decisionmaking by
households and businesses, reduces economic and financial uncertainty, increases the effectiveness of monetary policy, and enhances transparency and accountability, which are essential in a democratic society.
Inflation, employment, and long-term interest rates
fluctuate over time in response to economic and financial disturbances. Moreover, monetary policy actions
tend to influence economic activity and prices with a
lag. Therefore, the Committee’s policy decisions reflect
its longer-run goals, its medium-term outlook, and its
assessments of the balance of risks, including risks to
the financial system that could impede the attainment
of the Committee’s goals.
The inflation rate over the longer run is primarily determined by monetary policy, and hence the Committee
has the ability to specify a longer-run goal for inflation.
The Committee reaffirms its judgment that inflation at
the rate of 2 percent, as measured by the annual change
in the price index for personal consumption expenditures, is most consistent over the longer run with the
Federal Reserve’s statutory mandate. Communicating
this inflation goal clearly to the public helps keep longer-term inflation expectations firmly anchored, thereby
fostering price stability and moderate long-term interest
rates and enhancing the Committee’s ability to promote
maximum employment in the face of significant economic disturbances.
The maximum level of employment is largely determined by nonmonetary factors that affect the structure
and dynamics of the labor market. These factors may
change over time and may not be directly measurable.
Consequently, it would not be appropriate to specify a
fixed goal for employment; rather, the Committee’s
policy decisions must be informed by assessments of
the maximum level of employment, recognizing that
such assessments are necessarily uncertain and subject
to revision. The Committee considers a wide range of
indicators in making these assessments. Information
about Committee participants’ estimates of the longerrun normal rates of output growth and unemployment
is published four times per year in the FOMC’s Summary of Economic Projections. For example, in the
most recent projections, FOMC participants’ estimates
of the longer-run normal rate of unemployment had a
central tendency of 5.2 percent to 5.8 percent.
In setting monetary policy, the Committee seeks to
mitigate deviations of inflation from its longer-run goal
and deviations of employment from the Committee’s
assessments of its maximum level. These objectives are
generally complementary. However, under circumstances in which the Committee judges that the objectives are not complementary, it follows a balanced approach in promoting them, taking into account the
magnitude of the deviations and the potentially different time horizons over which employment and inflation are projected to return to levels judged consistent
with its mandate.
The Committee intends to reaffirm these principles
and to make adjustments as appropriate at its annual
organizational meeting each January.”
By unanimous vote, the Committee amended its Rules
of Organization to add the position of deputy manager
of the System Open Market Account.
By unanimous vote, the Committee amended its Program for Security of FOMC Information with minor
changes to the review and reporting process for
breaches in the information security rules and with several other minor updates and clarifications.
By unanimous vote, the Committee selected Simon
Potter and Lorie K. Logan to serve at the pleasure of
the Committee as manager and deputy manager of the
System Open Market Account, respectively, on the understanding that their selection was subject to their being satisfactory to the Federal Reserve Bank of New
York.
Secretary’s note: Advice subsequently was
received that the manager and deputy manager selections indicated above were satisfactory to the Federal Reserve Bank of New
York.
Developments in Financial Markets and the Federal Reserve’s Balance Sheet
The manager of the System Open Market Account
(SOMA) reported on developments in domestic and
foreign financial markets as well as System open market
operations during the period since the Federal Open
Market Committee met on December 17–18, 2013.
The manager also presented an update on the ongoing
overnight reverse repurchase agreement (ON RRP)
exercise.
All operations to date had proceeded
Minutes of the Meeting of January 28–29, 2014
Page 9
_____________________________________________________________________________________________
smoothly. The number of participating counterparties
and total allotment in the daily operations increased in
late December, in part reflecting the fact that overnight
secured rates were low compared with the fixed rate
offered in the operations as well as the increase in the
cap on individual counterparty bids to $3 billion from
$1 billion that was implemented on December 23,
2013. Counterparties’ year-end balance sheet adjustments also boosted participation for a time; the ON
RRP operations reportedly helped limit downward
pressure on money market rates around year-end.
Following the manager’s report, meeting participants
discussed a proposal to extend the Desk’s authority to
conduct the ON RRP exercise for 12 months and to
lift the per-counterparty bid limit. Under the terms of
the proposal, the interest rate on ON RRPs would remain between 0 and 5 basis points. The Chair of the
FOMC would authorize any changes in the offered rate
or per-counterparty bid limit. Adjustments to the bid
limit would be made in gradual steps, and the Committee would be consulted before the exercise would move
to full allotment. The proposed changes were intended
to allow the Committee to obtain additional information about the potential usefulness of ON RRP operations for affecting market interest rates when that
step becomes appropriate. Most meeting participants
supported the proposal, with a couple emphasizing that
the period for which the exercise would be extended
was likely sufficiently long that counterparties would be
willing to adjust their current money market practices,
thereby providing better information on the possible
market effects of such operations. It was remarked
that the additional insights obtained from the exercise
could be useful in the context of the Committee’s future discussions about monetary policy implementation
over the medium and longer term. A number of participants, however, indicated a preference for retaining a
cap on the per-counterparty bid limit until the Committee has discussed possible approaches to medium-term
policy implementation, and a few of these participants
preferred to extend the exercise for a shorter period.
Following the discussion, the Committee approved the
following resolution:
“The Federal Open Market Committee
(FOMC) authorizes the Federal Reserve
Bank of New York to conduct a series of
fixed-rate, overnight reverse repurchase operations involving U.S. Government securities, and securities that are direct obligations
of, or fully guaranteed as to principal and interest by, any agency of the United States, for
the purpose of further assessing the potential
role for such operations in supporting the
implementation of monetary policy. The reverse repurchase operations authorized by
this resolution shall be offered at a fixed rate
that may vary from zero to five basis points,
and for an overnight term, or such longer
term as is warranted to accommodate weekend, holiday, and similar trading conventions.
Any change to the offered rate within the
range specified above or the percounterparty bid limits will require approval
of the Chairman. The System Open Market
Account manager will notify the FOMC in
advance about any changes to the terms of
operations. These operations shall be authorized through January 30, 2015.”
Messrs. Fisher and Plosser dissented because of their
preference for retaining a cap on the maximum size of
counterparties’ offers during the extension; Mr. Plosser
also preferred a shorter extension of the exercise.
By unanimous vote, the Committee ratified the Open
Market Desk’s domestic transactions over the intermeeting period. There were no intervention operations
in foreign currencies for the System’s account over the
intermeeting period.
Staff Review of the Economic Situation
The information reviewed for the January 28–29 meeting indicated that the rate of economic growth picked
up in the second half of 2013. Total payroll employment increased in December, but at a slower pace than
in previous months, and the unemployment rate declined but was still elevated. Consumer price inflation
continued to run below the Committee’s longer-run
objective, while measures of longer-term inflation expectations remained stable.
Overall, labor market indicators appeared consistent
with a gradual ongoing improvement in labor market
conditions. Total nonfarm payroll employment expanded by less in December than in the previous two
months, perhaps partly because of unusually bad
weather. The unemployment rate declined to 6.7 percent in December. The labor force participation rate
also decreased, and the employment-to-population ratio was little changed. The rate of long-duration unemployment declined, but the share of workers employed part time for economic reasons was little
changed, and both measures remained elevated.
Among other indicators of labor market conditions, the
rate of job openings edged up in recent months, and
the share of small businesses reporting that they had
Page 10
Federal Open Market Committee
_____________________________________________________________________________________________
hard-to-fill positions trended up. Measures of firms’
hiring plans were higher than a year earlier, but the rate
of gross private-sector hiring was still low. Initial
claims for unemployment insurance moved down, on
balance, over the intermeeting period, and household
expectations of the labor market situation improved,
on net, in December and early January.
Manufacturing production increased at a robust pace in
the fourth quarter, with broad-based gains across industries. Indicators of manufacturing production, such
as the readings on new orders from national and regional manufacturing surveys, were consistent with a
further expansion in factory output early this year, but
automakers’ production schedules indicated that the
pace of light motor vehicle assemblies would decline in
the first quarter.
Real personal consumption expenditures (PCE) rose at
a faster pace in October and November than in the
third quarter. In December, the components of the
nominal retail sales data used by the Bureau of Economic Analysis to construct its estimate of PCE increased strongly, although sales of light motor vehicles
declined after posting a large gain in November. Recent information on several important factors that influence household spending was somewhat mixed.
Households’ real disposable income was little changed
in October and November, and the expiration of the
emergency unemployment compensation program at
the end of 2013 was expected to reduce aggregate income growth early this year. However, households’ net
worth likely continued to expand in recent months as a
result of rising equity prices and home values. Consumer sentiment in the Thomson Reuters/University
of Michigan Surveys of Consumers improved, on balance, in December and early January after a decline in
the fall of 2013.
December and November’s increase was revised down,
the level of orders remained above that of shipments,
pointing to further increases in shipments in subsequent months. Other forward-looking indicators, such
as surveys of business conditions and capital spending
plans, were also generally consistent with near-term
gains in business equipment spending. Nominal expenditures for nonresidential construction, which had
been flat in October, moved higher in November. Data on book-value inventories suggested little change in
the pace of nonfarm inventory investment in the fourth
quarter, and the available information did not point to
significant inventory imbalances in most industries.
Real federal government purchases likely fell sharply in
the fourth quarter because of continued declines in
defense spending and the temporary partial shutdown
of the federal government in October. Increases in real
state and local government purchases appeared to have
moderated in the fourth quarter. The payrolls of these
governments were about unchanged during the fourth
quarter, and nominal state and local construction expenditures for October and November increased at a
slower pace, on net, than in the third quarter.
The U.S. international trade deficit narrowed substantially in November, as exports increased and imports
fell. The higher value of exports stemmed in large part
from an increase in sales of petroleum products, while
the fall in imports was primarily due to a decline in
purchases of crude oil.
The pace of activity in the housing sector showed some
tentative signs of stabilizing, as the effects of the past
year’s rise in mortgage rates appeared to wane. Singlefamily housing starts increased in November and only
partly reversed that gain in December, while permits
for new construction rose a little, on balance, in the
fourth quarter. New home sales declined in November
and December but were nonetheless higher than in the
third quarter, and existing home sales flattened out in
December after decreasing for several months.
Total U.S. consumer price inflation, as measured by the
PCE price index, was a little under 1 percent over the
12 months ending in November, well below the Committee’s 2 percent longer-term objective. Over that
period, consumer energy prices declined, consumer
food prices rose modestly, and core PCE prices—
which exclude consumer food and energy prices—
increased slightly more than 1 percent. In December,
the consumer price index (CPI) rose somewhat faster
than in recent months, primarily reflecting an upturn in
consumer energy prices; core CPI inflation remained
low. Both near-term and longer-term inflation expectations from the Michigan survey were little changed, on
net, in December and early January. Over the 12
months ending in December, nominal average hourly
earnings for all employees increased slightly faster than
consumer price inflation.
Real private expenditures for business equipment and
intellectual property products appeared to strengthen in
the fourth quarter, as nominal shipments of nondefense capital goods rose at a solid pace. Although
nominal new orders for these capital goods declined in
Foreign economic activity continued to improve, with
economic growth in the third quarter of 2013 higher
than in the first half of the year and more recent indicators suggesting further gains. The pickup was widespread, as the euro area registered a second consecutive
Minutes of the Meeting of January 28–29, 2014
Page 11
_____________________________________________________________________________________________
quarter of positive economic growth, the Mexican
economy bounced back from a second-quarter contraction, and stronger external demand boosted growth in
emerging market economies more generally. At the
same time, inflation continued to run below central
bank targets in several advanced economies, and monetary policy remained expansionary in these economies.
Inflation in emerging market economies remained
moderate on average, although Brazil, India, and Turkey again tightened monetary policy during the intermeeting period in response to concerns about inflation
and currency depreciation. The policy tightening in
Turkey was particularly sharp and followed several days
of heightened financial market pressures toward the
end of the intermeeting period. Similar pressures were
evident in some other emerging market economies as
well.
Staff Review of the Financial Situation
Financial market conditions over the intermeeting period were importantly influenced by Federal Reserve
communications, somewhat better-than-expected economic data releases, and developments in emerging
market economies. On net, financial conditions in the
United States remained supportive of growth in economic activity and employment: Equity prices increased a bit, longer-term interest rates declined, and
the dollar appreciated against most other currencies.
While investors were somewhat surprised by the
FOMC’s decision at its December meeting to reduce
the pace of its asset purchases, the policy action and
associated communications appeared to have only a
limited effect on market participants’ outlook for the
Federal Reserve’s balance sheet. Indeed, the Committee’s decision to cut the pace of purchases and its rationale for doing so seemed to increase investors’ confidence in the economic outlook, a shift that was further supported by subsequent U.S. economic data releases. However, those effects were reversed late in the
period when investors appeared to pull back from riskier assets in reaction to rising concern about developments in some emerging market economies and their
possible implications for global economic growth.
Results from the Desk’s survey of primary dealers conducted prior to the January meeting indicated that dealers anticipated only minor changes to the Committee’s
postmeeting statement. In addition, the median dealer
expected a $10 billion reduction in the monthly pace of
asset purchases to be announced at each meeting in the
first three quarters of 2014, with the purchase program
ending with a final $15 billion reduction at the October
2014 meeting.
On balance, 10-and 30-year nominal Treasury yields
declined about 10 basis points and 20 basis points, respectively, over the intermeeting period, in part because
of an increase in safe-haven demands toward the end
of the period. The December policy action and subsequent muted market reaction led to decreased uncertainty about future longer-term interest rates, perhaps
contributing to the decline in longer-term rates. The
measure of 5-year inflation compensation based on
Treasury inflation-protected securities increased a little,
while inflation compensation 5 to 10 years ahead decreased somewhat.
Conditions in short-term dollar funding markets generally remained stable. Year-end funding pressures were
modest, and overnight money market rates declined
about in line with their typical behavior in past years.
Repo rates were quite low at the end of the year and
remained low through most of January, leading to increased participation in the Federal Reserve’s ON RRP
operations, with a substantial temporary increase in
take-up at year-end. Primarily reflecting the increased
participation in the exercise, reserve balances expanded
more slowly and the rate of increase in the monetary
base slowed in December. M2 continued to expand
moderately.
Reflecting the improved outlook for economic activity
and despite mixed fourth-quarter earnings results, the
stock prices of bank holding companies rose notably
and spreads on credit default swaps for the largest bank
holding companies narrowed somewhat. According to
the January Senior Loan Officer Opinion Survey on
Bank Lending Practices, domestic banks continued to
ease their lending standards and some loan terms on
balance; they also experienced an increase in demand,
on net, in most major loan categories in the fourth
quarter.
Broad U.S. equity price indexes edged higher, on net,
over the intermeeting period, and equity issuance by
nonfinancial corporations increased. Credit remained
widely available to large nonfinancial corporations.
Corporate bond spreads continued to narrow over the
intermeeting period, with investment-grade bond
spreads reaching their lowest levels in several years and
those on speculative-grade corporate bonds approaching pre-crisis levels. Bond issuance by domestic corporations generally stayed strong, commercial and industrial loans on banks’ books increased by a notable
amount late in the fourth quarter, and issuance of leveraged loans and collateralized loan obligations generally continued apace.
Page 12
Federal Open Market Committee
_____________________________________________________________________________________________
Conditions in the commercial real estate sector recovered further in the fourth quarter, with rising property
prices and fewer distressed sales. In the market for
commercial mortgage-backed securities, investor demand remained strong and spreads continued to be
tight despite high issuance near year-end. Commercial
real estate loans on banks’ books expanded moderately.
Credit conditions in municipal bond markets generally
remained stable, although a few issuers continued to
experience substantial strain. Available data suggest
that, for the first time in several years, the ratings agency Moody’s Investors Service made more upgrades
than downgrades to municipal debt in the fourth quarter. However, Moody’s put Puerto Rico on watch for a
downgrade.
Households continued to face mixed credit conditions
in the fourth quarter. Consumer credit expanded again
in November, boosted by further gains in auto and student loans, and bank credit data indicate that this expansion likely continued through December. In contrast, credit card balances were little changed, on net,
through November, as underwriting appeared to remain quite tight. The volume of mortgage applications
for home purchases held about steady since the previous FOMC meeting while refinance applications remained at very low levels. Mortgage rates declined
slightly, in line with modestly lower yields on agency
mortgage-backed securities. Despite tight mortgage
availability and subdued borrowing, house prices continued to increase in November, although not as quickly as earlier in 2013.
Financial market conditions in the advanced foreign
economies over the intermeeting period generally became more supportive of growth. Long-term government bond yields declined and headline equity indexes
increased, on net, in most of these countries, with bank
stock prices in the euro area rising more than broader
indexes. In addition, debt issuance by both governments and banks in the European periphery picked up,
and sovereign yield spreads in those countries were flat
to down, on balance, over the period. In contrast,
amid a ratcheting-up of financial market strains in some
emerging market economies, headline stock price indexes in most emerging market economies declined,
outflows from emerging market mutual funds continued, and yield spreads on dollar-denominated emerging
market bonds increased. Local-currency yields rose in
some emerging market economies, such as Brazil,
South Africa, and Turkey, and short-term interbank
rates in China were volatile and trended higher over the
period. The foreign exchange value of the dollar ap-
preciated against most other currencies over the period,
with particularly large increases against the Argentine
peso and the Turkish lira.
Staff Economic Outlook
In the economic projection prepared by the staff for
the January FOMC meeting, growth of real gross domestic product (GDP) in the second half of 2013 was
estimated to have been stronger than the staff had expected, though some of the strength in inventory investment and net exports was possibly transitory. The
staff’s medium-term forecast for real GDP growth was
little revised, on balance, as the momentum implied by
faster GDP growth in the second half of 2013 was
largely offset by a higher projected path for the foreign
exchange value of the dollar. In addition, the staff revised downward its view of the pace at which potential
output had increased over recent years and would increase this year and next. The staff continued to project that real GDP would expand more quickly over the
next few years than in 2013 and that real GDP would
rise faster than potential output. This acceleration in
economic activity was expected to be supported by
still-accommodative monetary policy and an easing in
the effects of fiscal policy restraint on economic
growth, as well as by increases in consumer and business confidence, further improvements in credit availability and financial conditions, and continued gains in
foreign economic growth. The expansion in economic
activity was anticipated to lead to a slow reduction in
resource slack over the projection period, and the unemployment rate was expected to decline gradually,
reaching the staff’s estimate of its longer-run natural
rate in 2016.
The staff’s forecast for inflation was little changed from
the projection prepared for the previous FOMC meeting, although the near-term forecast was revised down
a little to reflect recent declines in energy prices. The
staff continued to forecast that inflation would run well
below the Committee’s 2 percent objective early this
year but above the low level observed over much of
2013. Over the medium term, with longer-run inflation
expectations assumed to remain stable, changes in
commodity and import prices expected to be muted,
and slack in labor and product markets receding gradually, inflation was projected to move back slowly toward the Committee’s objective.
In considering recent events in emerging market economies, the staff judged that the effects of recent financial market volatility had not been large enough to have
a material effect on the overall outlook for those economies and, similarly, that the spillover effects on the
Minutes of the Meeting of January 28–29, 2014
Page 13
_____________________________________________________________________________________________
United States of developments to date were likely to be
modest. Because conditions were in flux, however,
these markets would require careful monitoring.
The staff continued to see a number of risks around its
outlook. The downside risks to the forecast for real
GDP growth were thought to have diminished, but the
risks were still seen as tilted a little to the downside because, with the target federal funds rate at its effective
lower bound, the economy was not well positioned to
withstand future adverse shocks. At the same time, the
staff viewed the risks around its outlook for the unemployment rate and for inflation as roughly balanced.
Participants’ Views on Current Conditions and the
Economic Outlook
In their discussion of the economic situation and the
outlook, participants generally noted that economic
activity had strengthened more in the second half of
2013 than they had expected at the time of the December meeting. In particular, consumer spending had
strengthened, and business investment appeared to be
on a more solid uptrend. Although the government
shutdown likely damped economic growth somewhat,
the extent of restraint on growth from fiscal policy diminished late in the year. However, several participants
observed that temporary factors had helped boost real
GDP during the second half, pointing specifically to
the substantial contributions from net exports and increased inventory investment. As a result, participants
generally did not expect the recent pace of economic
growth to be sustained, but they nonetheless anticipated that the economy would expand at a moderate pace
in coming quarters. That expansion was expected to be
supported by highly accommodative monetary policy, a
further easing of fiscal restraint, and a modest additional pickup in global economic growth, as well as continued improvement in credit conditions and the ongoing
strengthening in household balance sheets. A number
of participants noted that recent economic news had
reinforced their confidence in their projection of moderate economic growth over the medium run. It was
also noted that recent developments in several emerging market economies, if they continued, could pose
downside risks to the outlook. Overall, most participants still viewed the risks to the outlook for the economy and the labor market as having become more
nearly balanced in recent months.
Consumer spending had advanced strongly in late 2013,
contributing importantly to the pickup in growth of
economic activity. This picture was reinforced by survey data that suggested that consumers had become
more optimistic about future income gains. While not-
ing that households remained cautious, participants
cited a number of factors that were likely to continue to
underpin gains in household spending, including rising
house prices, growing confidence in the sustainability
of the economic expansion, increasing payrolls, and the
high ratio of household wealth to disposable income.
Although the recovery in the housing sector had
slowed somewhat in recent months, a number of participants reported solid activity in their Districts.
Moreover, various factors were seen as likely to support stronger growth in the sector going forward, including favorable housing affordability, which was in
turn partly due to still-low mortgage rates, and demographic trends. However, there were also reasons for
being cautious about the prospects for housing construction, such as recent disappointing news on permits
for new construction and the possibility that investors’
interest in purchasing properties for the rental market
would recede.
Business contacts in many parts of the country reported that they were guardedly optimistic about prospects
for 2014. While inventory investment would likely
come down from its recent unusually high level, participants heard more reports that the business sector was
willing to increase spending on capital projects. A
number of factors were cited as likely to support such
an increase, including the high level of profits, the low
level of interest rates, a reduction in policy uncertainty,
the easing of lending standards, and large holdings of
liquid assets by corporations.
In discussing financial developments over the intermeeting period, several participants noted that the
Committee’s December decision to make a modest
reduction in the monthly pace of asset purchases had
not resulted in an adverse market reaction. Several participants observed that current market expectations for
asset purchases and the future course of the federal
funds rate were reasonably well aligned with participants’ own expectations of the path for policy. However, one participant expressed concern that longerterm interest rates could rise sharply if market participants’ expectations of future monetary policy came to
deviate from those of policymakers, as appeared to
have happened last summer, while a couple of others
argued that the current highly accommodative stance of
monetary policy could lead investors to take on excessive risk and so undermine longer-term financial stability. Recent volatility in emerging markets appeared to
have had only a limited effect to date on U.S. financial
markets. Nevertheless, participants agreed that a number of developments in financial markets needed to be
Page 14
Federal Open Market Committee
_____________________________________________________________________________________________
watched carefully, including the financing situation of
the Puerto Rican government and particularly the unfolding events in emerging markets.
In their discussion of recent labor market developments, many participants commented on the relatively
small increase in payrolls in December and the further
decline in the unemployment rate. A number of participants indicated that the December payrolls figure may
have been an anomaly, perhaps importantly reflecting
bad weather, and it was noted that the initial readings
on payrolls in recent years had subsequently tended to
be revised up. In addition, some participants reported
that their business contacts had become more positive
about hiring in the year ahead. Participants continued
to debate the reliability of the unemployment rate as an
indicator of overall labor market conditions, taking into
account the further decline in labor force participation
in recent quarters, still-elevated levels of underemployment and long-term unemployment, and the apparent absence of wage pressures. Much of the downward trend in the labor force participation rate since
the start of the recession was seen as the result of shifts
in the demographic composition of the workforce and
the retirement of older workers; the extent of the cyclical portion of the decline was viewed by some as difficult to gauge at present. A few participants judged that
the decline in participation for younger and prime-age
workers likely reflected the slow recovery in jobs and
wages and so might be reversed as labor market conditions strengthened. In addition, several others pointed
out that broader concepts of the unemployment rate,
such as those that include nonparticipants who report
that they want a job and those working part time who
want full-time work, remained well above the official
unemployment rate, suggesting that considerable labor
market slack remained despite the reduction in the unemployment rate. A few participants noted worker
shortages in specific regions and occupations, with one
District reporting widespread shortages of skilled labor
leading to emerging labor cost pressures. However, a
number of participants saw the low rates of increase in
most measures of wages as consistent with continued
labor market slack.
Inflation remained below the Committee’s longer-run
objective over the intermeeting period. Participants
still anticipated that, with longer-run inflation expectations stable, transitory factors that had been damping
inflation likely to recede, and economic activity picking
up, inflation would move back toward the Committee’s
2 percent objective over the medium run. However,
several factors that cast doubt on this outcome were
also mentioned, including slow growth in labor costs,
the lack of pricing power reported by business contacts
in various parts of the country, the low level of inflation in other advanced economies, and the danger that
inflation expectations at short and medium horizons
might not be as well anchored as longer-run inflation
expectations. Participants noted that inflation persistently below the Committee’s objective would pose
risks to economic performance and that inflation developments would need to be monitored carefully.
In their discussion of the path for monetary policy,
most participants judged that the incoming information
about the economy was broadly in line with their expectations and that a further modest step down in the
pace of purchases was appropriate. A couple of participants observed that continued low readings on inflation and considerable slack in the labor market raised
questions about the desirability of reducing the pace of
purchases; these participants judged, however, that a
pause in the reduction of purchases was not justified at
this stage, especially in light of the strength of the
economy in the second half of 2013. Several participants argued that, in the absence of an appreciable
change in the economic outlook, there should be a
clear presumption in favor of continuing to reduce the
pace of purchases by a total of $10 billion at each
FOMC meeting. That said, a number of participants
noted that if the economy deviated substantially from
its expected path, the Committee should be prepared to
respond with an appropriate adjustment to the trajectory of its purchases.
Participants agreed that, with the unemployment rate
approaching 6½ percent, it would soon be appropriate
for the Committee to change its forward guidance in
order to provide information about its decisions regarding the federal funds rate after that threshold was
crossed. A range of views was expressed about the
form that such forward guidance might take. Some
participants favored quantitative guidance along the
lines of the existing thresholds, while others preferred a
qualitative approach that would provide additional information regarding the factors that would guide the
Committee’s policy decisions. Several participants suggested that risks to financial stability should appear
more explicitly in the list of factors that would guide
decisions about the federal funds rate once the unemployment rate threshold is crossed, and several participants argued that the forward guidance should give
greater emphasis to the Committee’s willingness to
keep rates low if inflation were to remain persistently
below the Committee’s 2 percent longer-run objective.
Additional proposals included relying to a greater extent on the Summary of Economic Projections as a
Minutes of the Meeting of January 28–29, 2014
Page 15
_____________________________________________________________________________________________
communications device and including in the guidance
an indication of the Committee’s willingness to adjust
policy to lean against undesired changes in financial
conditions.
A few participants raised the possibility that it might be
appropriate to increase the federal funds rate relatively
soon. One participant cited evidence that the equilibrium real interest rate had moved higher, and a couple of
them noted that some standard policy rules tended to
suggest that the federal funds rate should be raised
above its effective lower bound before the middle of
this year. Other participants, however, suggested that
prescriptions from standard policy rules were not appropriate in current circumstances, either because the
target federal funds rate had been constrained by the
lower bound for some time or because the equilibrium
real rate of interest was likely still being held down by
various factors, including the lingering effects of the
financial crisis, and was significantly below the value of
the longer-run rate built into standard policy rules.
Committee Policy Action
Committee members saw the information received
over the intermeeting period as indicating that growth
in economic activity had picked up in recent quarters.
Labor market indicators were mixed but on balance
showed further improvement. The unemployment rate
had declined but remained elevated when judged
against members’ estimates of the longer-run normal
rate of unemployment. Household spending and business fixed investment had advanced more quickly in
recent months than earlier in 2013, while the recovery
in the housing sector had slowed somewhat. Fiscal
policy was restraining economic growth, although the
extent of the restraint had diminished. The Committee
expected that, with appropriate policy accommodation,
the economy would expand at a moderate pace and the
unemployment rate would gradually decline toward
levels consistent with the dual mandate. Moreover,
members continued to judge that the risks to the outlook for the economy and the labor market had become more nearly balanced. Inflation was running below the Committee’s longer-run objective, and this was
seen as posing possible risks to economic performance,
but members anticipated that stable inflation expectations and strengthening economic activity would, over
time, return inflation to the Committee’s 2 percent objective. However, in light of their concerns about the
persistence of low inflation, many members saw a need
for the Committee to monitor inflation developments
carefully for evidence that inflation was moving back
toward its longer-run objective.
In their discussion of monetary policy in the period
ahead, all members agreed that the cumulative improvement in labor market conditions and the likelihood of continuing improvement indicated that it
would be appropriate to make a further measured reduction in the pace of its asset purchases at this meeting. Members again judged that, if the economy continued to develop as anticipated, further reductions
would be undertaken in measured steps. Members also
underscored that the pace of asset purchases was not
on a preset course and would remain contingent on the
Committee’s outlook for the labor market and inflation
as well as its assessment of the efficacy and costs of
purchases. Accordingly, the Committee agreed that,
beginning in February, it would add to its holdings of
agency mortgage-backed securities at a pace of $30 billion per month rather than $35 billion per month, and
would add to its holdings of longer-term Treasury securities at a pace of $35 billion per month rather than
$40 billion per month. While making a further measured reduction in its pace of purchases, the Committee
emphasized that its holdings of longer-term securities
were sizable and would still be increasing, which would
promote a stronger economic recovery by maintaining
downward pressure on longer-term interest rates, supporting mortgage markets, and helping to make broader financial conditions more accommodative. The
Committee also reiterated that it would continue its
asset purchases, 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 considering forward guidance about the target federal funds rate, all members agreed to retain the thresholds-based language employed in recent statements. In
addition, the Committee decided to repeat the qualitative guidance, introduced in December, clarifying that a
range of labor market indicators would be used when
assessing the appropriate stance of policy once the unemployment rate threshold had been crossed. Members also agreed to reiterate language indicating the
Committee’s anticipation, based on its current assessment of additional measures of labor market conditions, indicators of inflation pressures and inflation
expectations, and readings on financial developments,
that it would be appropriate to maintain the current
target range for the federal funds rate well past the time
that the unemployment rate declines below 6½ percent,
especially if projected inflation continues to run below
the Committee’s longer-run objective.
Members also discussed other elements of the policy
statement to be issued following the meeting. Members agreed on updating the description of the state of
Page 16
Federal Open Market Committee
_____________________________________________________________________________________________
the economy to reflect the recent strength of household and business spending and to note that, although
the labor market showed further improvement on balance, the recent indicators were mixed. Members did
not see an appreciable change in the balance of risks
and so left the statement’s description of risks unchanged.
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 SOMA 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. Beginning in February, the Desk is directed to
purchase longer-term Treasury securities at a
pace of about $35 billion per month and to
purchase agency mortgage-backed securities
at a pace of about $30 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 December
indicates that growth in economic activity
picked up in recent quarters. Labor market
indicators were mixed but on balance
showed further improvement. The unemployment rate declined but remains elevated.
Household spending and business fixed investment advanced more quickly in recent
months, while the recovery in the housing
sector slowed somewhat. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has
been running below the Committee’s longerrun 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 activity will expand
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 risks to
the outlook for the economy and the labor
market as having become more nearly balanced. The Committee recognizes that inflation persistently below its 2 percent objective
could pose risks to economic performance,
and it is monitoring inflation developments
carefully for evidence that inflation will move
back toward its objective over the medium
term.
Taking into account the extent of federal fiscal retrenchment since the inception of its
current asset purchase program, the Committee continues to see the improvement in
economic activity and labor market conditions over that period as consistent with
growing underlying strength in the broader
economy. In light of the cumulative progress toward maximum employment and the
improvement in the outlook for labor market
conditions, the Committee decided to make a
further measured reduction in the pace of its
asset purchases. Beginning in February, the
Committee will add to its holdings of agency
mortgage-backed securities at a pace of
$30 billion per month rather than $35 billion
per month, and will add to its holdings of
longer-term Treasury securities at a pace of
$35 billion per month rather than $40 billion
per month. The Committee is maintaining
its existing policy of reinvesting principal
payments from its holdings of agency debt
Minutes of the Meeting of January 28–29, 2014
Page 17
_____________________________________________________________________________________________
and agency mortgage-backed securities in
agency mortgage-backed securities and of
rolling over maturing Treasury securities at
auction. The Committee’s sizable and stillincreasing holdings of longer-term securities
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. If
incoming information broadly supports the
Committee’s expectation of ongoing improvement in labor market conditions and
inflation moving back toward its longer-run
objective, the Committee will likely reduce
the pace of asset purchases in further measured steps at future meetings. However, asset purchases are not on a preset course, and
the Committee’s decisions about their pace
will remain contingent on the Committee’s
outlook for the labor market and inflation 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.
The Committee also reaffirmed its expectation that the current exceptionally low target
range for the federal funds rate of 0 to
¼ percent 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. The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal
funds rate well past the time that the unemployment rate declines below 6½ percent,
especially if projected inflation continues to
run below the Committee’s 2 percent longerrun goal. 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, Richard W. Fisher, Narayana Kocherlakota,
Sandra Pianalto, Charles I. Plosser, Jerome H. Powell,
Jeremy C. Stein, Daniel K. Tarullo, and Janet L. Yellen.
Voting against this action: None.
It was agreed that the next meeting of the Committee
would be held on Tuesday–Wednesday, March 18–19,
2014. The meeting adjourned at 10:55 a.m. on
January 29, 2014.
Notation Vote
By notation vote completed on January 7, 2014, the
Committee unanimously approved the minutes of the
Committee meeting held on December 17–18, 2013.
_____________________________
William B. English
Secretary
Cite this document
Federal Reserve (2014, January 28). FOMC Minutes. Fomc Minutes, Federal Reserve. https://whenthefedspeaks.com/doc/fomc_minutes_20140129
@misc{wtfs_fomc_minutes_20140129,
author = {Federal Reserve},
title = {FOMC Minutes},
year = {2014},
month = {Jan},
howpublished = {Fomc Minutes, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/fomc_minutes_20140129},
note = {Retrieved via When the Fed Speaks corpus}
}