FOMC Minutes
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Minutes of the Federal Open Market Committee
June 17–18, 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, June 17, 2014, at 10:00 a.m. and continued on
Wednesday, June 18, 2014, at 9:00 a.m.
Robert deV. Frierson,1 Secretary of the Board, Office
of the Secretary, Board of Governors
PRESENT:
Janet L. Yellen, Chair
William C. Dudley, Vice Chairman
Lael Brainard
Stanley Fischer
Richard W. Fisher
Narayana Kocherlakota
Loretta J. Mester
Charles I. Plosser
Jerome H. Powell
Daniel K. Tarullo
Stephen A. Meyer and William R. Nelson, Deputy
Directors, Division of Monetary Affairs, Board of
Governors
Christine Cumming, Charles L. Evans, Jeffrey M.
Lacker, Dennis P. Lockhart, and John C. Williams,
Alternate Members of the Federal Open Market
Committee
Trevor A. Reeve, Special Adviser to the Chair, Office
of Board Members, Board of Governors
James Bullard, Esther L. George, and Eric Rosengren,
Presidents of the Federal Reserve Banks of St.
Louis, Kansas City, and Boston, respectively
William B. English, Secretary and Economist
Matthew M. Luecke, Deputy Secretary
Michelle A. Smith, Assistant Secretary
Scott G. Alvarez, General Counsel
Steven B. Kamin, Economist
David W. Wilcox, Economist
James A. Clouse, Thomas A. Connors, Evan F.
Koenig, Thomas Laubach, Michael P. Leahy,
Samuel Schulhofer-Wohl, Mark E. Schweitzer, and
William Wascher, Associate Economists
Simon Potter, Manager, System Open Market Account
Lorie K. Logan, Deputy Manager, System Open
Market Account
________________
Attended the joint session of the Federal Open Market
Committee and the Board of Governors.
² Attended Tuesday’s session only.
1
Nellie Liang, Director, Office of Financial Stability
Policy and Research, Board of Governors
Mark E. Van Der Weide, Deputy Director, Division of
Banking Supervision and Regulation, Board of
Governors
Jon W. Faust and Stacey Tevlin, Special Advisers to the
Board, Office of Board Members, Board of
Governors
Linda Robertson, Assistant to the Board, Office of
Board Members, Board of Governors
Brian M. Doyle, Senior Adviser, Division of
International Finance, Board of Governors; Ellen
E. Meade and Joyce K. Zickler, Senior Advisers,
Division of Monetary Affairs, Board of Governors
Daniel M. Covitz, Eric M. Engen, Michael T. Kiley,
and David E. Lebow, Associate Directors, Division
of Research and Statistics, Board of Governors;
Fabio M. Natalucci1 and Gretchen C. Weinbach,1
Associate Directors, Division of Monetary Affairs,
Board of Governors; Beth Anne Wilson, Associate
Director, Division of International Finance, Board
of Governors
William F. Bassett and Jane E. Ihrig,1 Deputy Associate
Directors, Division of Monetary Affairs, Board of
Governors; Joshua Gallin, Deputy Associate
Director, Division of Research and Statistics,
Board of Governors
Min Wei,² Assistant Director, Division of Monetary
Affairs, Board of Governors
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Federal Open Market Committee
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Jeremy B. Rudd, Adviser, Division of Research and
Statistics, Board of Governors
Penelope A. Beattie,1 Assistant to the Secretary, Office
of the Secretary, Board of Governors
Laura Lipscomb,1 Section Chief, Division of Monetary
Affairs, Board of Governors
David H. Small, Project Manager, Division of
Monetary Affairs, Board of Governors
Katie Ross,1 Manager, Office of the Secretary, Board of
Governors
Wendy Dunn and Patrick McCabe,1 Senior
Economists, Division of Research and Statistics,
Board of Governors; Etienne Gagnon, Senior
Economist, Division of Monetary Affairs, Board of
Governors
Jonathan Rose, Economist, Division of Monetary
Affairs, Board of Governors
Achilles Sangster II, Records Management Analyst,
Division of Monetary Affairs, Board of Governors
Mark L. Mullinix, First Vice President, Federal Reserve
Bank of Richmond
David Altig and Daniel G. Sullivan, Executive Vice
Presidents, Federal Reserve Banks of Atlanta and
Chicago, respectively
Cletus C. Coughlin, Mary Daly, Troy Davig, Michael
Dotsey, Joshua L. Frost, and John A. Weinberg,
Senior Vice Presidents, Federal Reserve Banks of
St. Louis, San Francisco, Kansas City, Philadelphia,
New York, and Richmond, respectively
Deborah L. Leonard,1 Giovanni Olivei, and Douglas
Tillett, Vice Presidents, Federal Reserve Banks of
New York, Boston, and Chicago, respectively
Marc Giannoni, Research Officer, Federal Reserve
Bank of New York
________________
1
Attended the joint session of the Federal Open Market
Committee and the Board of Governors.
In the agenda for this meeting, it was reported that
Loretta J. Mester had been elected a member of the
Federal Open Market Committee and that she had
executed her oath of office.
Developments in Financial Markets and the Federal Reserve’s Balance Sheet
In a joint session of the Federal Open Market Committee (FOMC) and the Board of Governors of the Federal Reserve System, the deputy manager of the System
Open Market Account (SOMA) reported on developments in domestic and foreign financial markets. The
SOMA manager reported on the System open market
operations during the period since the Committee met
on April 29–30, 2014, outlined the testing of the Term
Deposit Facility, described the results from the fixedrate overnight reverse repurchase agreement (ON RRP)
operational exercise, and provided some possible options for adjusting the list of counterparties eligible to
participate in ON RRP operations. The manager also
noted the effects of recent foreign central bank policy
actions on the yields on the international portion of the
SOMA portfolio and discussed ongoing staff work on
improving data collections regarding bank funding
markets. 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.
Monetary Policy Normalization
Meeting participants continued their discussion of issues associated with the eventual normalization of the
stance and conduct of monetary policy. The Committee’s consideration of this topic was undertaken as part
of prudent planning and did not imply that normalization would necessarily begin sometime soon. A staff
presentation included some possible strategies for implementing and communicating monetary policy during
a period when the Federal Reserve will have a very
large balance sheet. In addition, the presentation outlined design features of a potential ON RRP facility
and discussed options for the Committee’s policy of
rolling over maturing Treasury securities at auction and
reinvesting principal payments on all agency debt and
agency mortgage-backed securities (MBS) in agency
MBS.
Most participants agreed that adjustments in the rate of
interest on excess reserves (IOER) should play a central role during the normalization process. It was generally agreed that an ON RRP facility with an interest
rate set below the IOER rate could play a useful sup-
Minutes of the Meeting of June 17–18, 2014
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porting role by helping to firm the floor under money
market interest rates. One participant thought that the
ON RRP rate would be the more effective policy tool
during normalization in light of the wider variety of
counterparties eligible to participate in ON RRP operations. The appropriate size of the spread between the
IOER and ON RRP rates was discussed, with many
participants judging that a relatively wide spread—
perhaps near or above the current level of 20 basis
points—would support trading in the federal funds
market and provide adequate control over market interest rates. Several participants noted that the spread
might be adjusted during the normalization process. A
couple of participants suggested that adequate control
of short-term rates might be accomplished with a very
wide spread or even without an ON RRP facility. A
few participants commented that the Committee
should also be prepared to use its other policy tools,
including term deposits and term reverse repurchase
agreements, if necessary. Most participants thought
that the federal funds rate should continue to play a
role in the Committee’s operating framework and
communications during normalization, with many of
them indicating a preference for continuing to announce a target range. However, a few participants
thought that, given the degree of uncertainty about the
effects of the Committee’s tools on market rates, it
might be preferable to focus on an administered rate in
communicating the stance of policy during the normalization period. In addition, participants examined possibilities for changing the calculation of the effective
federal funds rate in order to obtain a more robust
measure of overnight bank funding rates and to apply
lessons from international efforts to develop improved
standards for benchmark interest rates.
While generally agreeing that an ON RRP facility could
play an important role in the policy normalization process, participants discussed several potential unintended
consequences of using such a facility and design features that could help to mitigate these consequences.
Most participants expressed concerns that in times of
financial stress, the facility’s counterparties could shift
investments toward the facility and away from financial
and nonfinancial corporations, possibly causing disruptions in funding that could magnify the stress. In addition, a number of participants noted that a relatively
large ON RRP facility had the potential to expand the
Federal Reserve’s role in financial intermediation and
reshape the financial industry in ways that were difficult
to anticipate. Participants discussed design features
that could address these concerns, including constraints
on usage either in the aggregate or by counterparty and
a relatively wide spread between the ON RRP rate and
the IOER rate that would help limit the facility’s size.
Several participants emphasized that, although the ON
RRP rate would be useful in controlling short-term
interest rates during normalization, they did not anticipate that such a facility would be a permanent part of
the Committee’s longer-run operating framework. Finally, a number of participants expressed concern
about conducting monetary policy operations with
nontraditional counterparties.
Participants also discussed the appropriate time for
making a change to the Committee’s policy of rolling
over maturing Treasury securities at auction and reinvesting principal payments on all agency debt and
agency MBS in agency MBS. It was noted that, in the
staff’s models, making a change to the Committee’s
reinvestment policy prior to the liftoff of the federal
funds rate, at the time of liftoff, or sometime thereafter
would be expected to have only limited implications for
macroeconomic outcomes, the Committee’s statutory
objectives, or remittances to the Treasury. Many participants agreed that ending reinvestments at or after
the time of liftoff would be best, with most of these
participants preferring to end them after liftoff. These
participants thought that an earlier change to the reinvestment policy would involve risks to the economic
outlook if it was seen as suggesting that the Committee
was likely to tighten policy more rapidly than currently
anticipated or if it had unexpectedly large effects in
MBS markets; moreover, an early change could add
complexity to the Committee’s communications at a
time when it would be clearer to signal changes in policy through interest rates alone. However, some participants favored ending reinvestments prior to the first
firming in policy interest rates, as stated in the Committee’s exit strategy principles announced in June 2011.
Those participants thought that such an approach
would avoid weakening the credibility of the Committee’s communications regarding normalization, would
act to modestly reduce the size of the Federal Reserve’s
balance sheet, or would help prepare the public for the
eventual rise in short-term interest rates. Regardless of
whether they preferred to introduce a change to the
Committee’s reinvestment policy before or after the
initial tightening in short-term interest rates, a number
of participants thought that it might be best to follow a
graduated approach with respect to winding down reinvestments or to manage reinvestments in a manner
that would smooth the decline in the balance sheet.
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Some stressed that the details should depend on financial and economic conditions.
Overall, participants generally expressed a preference
for a simple and clear approach to normalization that
would facilitate communication to the public and enhance the credibility of monetary policy. It was observed that it would be useful for the Committee to
develop and communicate its plans to the public later
this year, well before the first steps in normalizing policy become appropriate. Most participants indicated
that they expected to learn more about the effects of
the Committee’s various policy tools as normalization
proceeds, and many favored maintaining flexibility
about the evolution of the normalization process as
well as the Committee’s longer-run operating framework. Participants requested additional analysis from
the staff on issues related to normalization and agreed
that it would be helpful to continue to review these
issues at upcoming meetings. The Board meeting concluded at the end of the discussion.
Staff Review of the Economic Situation
The information reviewed for the June 17–18 meeting
indicated that real gross domestic product (GDP) had
dropped significantly early in the year but that economic growth had bounced back in recent months. The
average pace of employment gains stepped up, and the
unemployment rate declined markedly in April and held
steady in May, although it was still elevated. Consumer
price inflation picked up in recent months, while
measures of longer-run inflation expectations remained
stable.
Most measures of labor market conditions improved in
recent months. Total nonfarm payroll employment
expanded in April and May at a faster rate than the average monthly pace during the previous two quarters.
The unemployment rate dropped to 6.3 percent in
April and remained at that level in May. However, the
labor force participation rate also declined in April and
then held steady in May, while the employment-topopulation ratio remained flat. Both the share of
workers employed part time for economic reasons and
the rate of long-duration unemployment edged down in
recent months, although both measures were still high.
Initial claims for unemployment insurance decreased
slightly, on net, over the intermeeting period, and the
rate of job openings stepped up in April; nevertheless,
the rate of hiring was unchanged and remained at a
modest level.
Industrial production increased, on balance, in April
and May, as manufacturing output and production in
the mining sector expanded and more than offset a
further decline in the output of utilities from the elevated levels recorded during the unusually cold winter
months. As a result, the rate of industrial capacity utilization rose in recent months. Automakers’ schedules
indicated that the pace of light motor vehicle assemblies would step up in the coming months, and broader
indicators of manufacturing production, such as the
readings on new orders from national manufacturing
surveys, were consistent with moderate increases in
factory output in the near term.
Real personal consumption expenditures (PCE) declined a little in April following strong gains in February and March. The component of the nominal retail
sales data used by the Bureau of Economic Analysis to
construct its estimate of PCE edged down in May, but
light motor vehicle sales moved up briskly. Recent information about key factors that influence household
spending mostly pointed to gains in PCE in the coming
months. Real disposable income continued to rise in
April, and households’ net worth likely increased as
equity prices and home values advanced further; however, consumer sentiment in the Thomson Reuters/University of Michigan Surveys of Consumers
moved down somewhat in May and early June.
The pace of activity in the housing sector remained
subdued. Starts of new single-family homes declined
slightly, on net, in April and May, although starts of
multifamily units increased. Permits for single-family
homes, which are usually a better indicator of the underlying pace of residential construction, increased only
a little on balance. Sales of new homes rose in April
but remained near their average monthly level last year.
Existing home sales only edged up in April and were
still below last year’s average level, while pending home
sales were little changed.
Real private expenditures for business equipment and
intellectual property products were estimated to have
increased slowly in the first quarter as a whole. In
April, nominal orders and shipments of nondefense
capital goods excluding aircraft decreased a little after
rising briskly in March. However, the level of new orders for these capital goods remained above the level of
shipments in April, pointing to increases in shipments
in subsequent months. Other forward-looking indicators, such as surveys of business conditions, were also
generally consistent with modest increases in business
equipment spending in the near term. Nominal business spending for nonresidential structures was essentially unchanged in April. Recent data on the book
Minutes of the Meeting of June 17–18, 2014
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value of inventories, along with readings on inventories
from national and regional manufacturing surveys, did
not point to significant inventory imbalances in most
industries except in the energy sector, where inventories appeared unusually low after having been drawn
down during the winter.
Federal spending data for April and May pointed toward only a small decline in real federal government
purchases in the second quarter, as the pace of decreases in defense expenditures seemed to ease. Real state
and local government purchases appeared to edge up
going into the second quarter. The payrolls of these
governments expanded in April and May, and nominal
state and local construction expenditures increased a
little in April.
The U.S. international trade deficit widened in March
and in April. Both imports and exports recovered from
weak readings in February, with imports of consumer
goods, automotive products, and capital goods rising
significantly and exports of capital goods and industrial
supplies showing particular strength.
U.S. consumer price inflation, as measured by the PCE
price index, was about 1½ percent over the 12 months
ending in April, below the Committee’s longer-run objective of 2 percent. Over the same 12-month period,
consumer energy prices rose faster than total consumer
prices, while consumer food prices climbed more slowly than overall prices; core PCE inflation—which excludes food and energy prices—was also around
1½ percent. In May, the consumer price index (CPI)
increased at a faster pace than in the preceding few
months; both food and energy prices rose more briskly,
and core CPI inflation also stepped up. Over the
12 months ending in May, both total and core CPI inflation were about 2 percent. Near-term inflation expectations from the Michigan survey declined slightly,
on balance, in May and early June, while longer-term
inflation expectations from the survey were little
changed.
Increases in measures of labor compensation remained
modest. Compensation per hour in the nonfarm business sector rose about 2¼ percent over the year ending
in the first quarter; with small gains in labor productivity, unit labor costs advanced more slowly than compensation per hour. Over the year ending in May, average hourly earnings for all employees increased
around 2 percent.
Foreign real GDP growth slowed in the first quarter,
especially in China and some other emerging market
economies. Real GDP also increased more slowly in
Canada, in part because of severe winter weather, and
the pace of economic activity remained weak in the
euro area. Economic growth continued to be strong in
the United Kingdom, and economic activity jumped in
Japan as household spending surged in advance of
April’s consumption tax hike. Indicators for the second quarter generally suggested that foreign economic
growth picked up from the first quarter. In some advanced foreign economies, inflation moved up recently
from earlier low readings. Inflation continued to be
low, however, in the euro area, and the European Central Bank (ECB) announced additional stimulus
measures.
Staff Review of the Financial Situation
On balance, financial conditions in the United States
remained supportive of growth in economic activity
and employment: The expected path of the federal
funds rate was slightly lower in the long run, yields on
longer-term Treasury securities moved down modestly,
equity prices rose, corporate bond spreads narrowed,
and the foreign exchange value of the dollar was little
changed.
Federal Reserve communications over the intermeeting
period had limited effects in financial markets. The
April FOMC statement and minutes appeared to be
generally in line with expectations, while the Chair’s
congressional testimony before the Joint Economic
Committee in early May and the subsequent questionand-answer session were viewed by market participants
as suggesting marginally more accommodative policy
than expected.
Results from the Desk’s June Survey of Primary Dealers indicated no change in the dealers’ consensus expectation about the most likely timing of the first increase in the federal funds rate target but showed a
lower median longer-run level of the federal funds rate
relative to the April survey. Expectations for Federal
Reserve asset purchases were largely unchanged. In
addition, although there was significant dispersion
among dealer responses, the median dealer expected
the FOMC to end its reinvestment of principal payments on Treasury securities, agency debt, and agency
MBS sometime after the first increase in the federal
funds rate target; in the April survey, the median dealer
had expected reinvestments to end before liftoff.
Yields on short- and medium-term nominal Treasury
securities increased slightly, on balance, over the intermeeting period. In contrast, yields at the long end of
the curve edged lower, continuing a downward trend
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evident over much of this year. Market participants
continued to discuss the decreases in long forward rates
since the beginning of the year and pointed to a variety
of domestic and global factors possibly contributing to
this trend, including lower expectations for potential
growth and policy rates in the longer run, a decline in
inflation risk premiums, purchases of longer-term securities by price-insensitive investors, unwinding of short
Treasury positions, and falling interest rate uncertainty.
Measures of longer-horizon inflation compensation
based on Treasury Inflation-Protected Securities remained about steady.
Conditions in unsecured short-term dollar funding
markets remained stable over the intermeeting period.
The Federal Reserve continued its ON RRP exercise.
Total take-up in the ON RRP exercise rose in April and
May before falling back in June. Much of the transitory
increase in take-up occurred in response to a large seasonal reduction in outstanding Treasury debt and an
associated drop in the rates on Treasury repurchase
agreements during the first half of the second quarter
that were reversed during the second half. In May, the
Federal Reserve began an eight-week series of test auctions of seven-day term deposits. The number of participants and the total amount awarded increased over
the course of the first five operations.
Broad stock price indexes rose over the intermeeting
period, apparently boosted by a more optimistic assessment of near-term economic prospects and likely
supported by continued low interest rates. Despite
generally lackluster results for first-quarter earnings,
corporate guidance for profits in coming quarters led to
upward revisions in analysts’ forecasts of year-ahead
earnings per share for S&P 500 firms. The VIX, an
index of option-implied volatility for one-month returns on the S&P 500 index, continued to decline and
ended the period near its historical lows. Measures of
uncertainty in other financial markets also declined;
results from the Desk’s primary dealer survey suggested
this development might have reflected low realized volatilities, generally favorable economic news, less uncertainty for the path of monetary policy, and complacency on the part of market participants about potential
risks.
Credit flows to nonfinancial corporations remained
strong. Amid low yields and reduced market volatility,
gross issuance of investment- and speculative-grade
bonds rebounded in May. Commercial and industrial
(C&I) loans on banks’ balance sheets increased and
issuance of leveraged loans remained strong. Respons-
es to the June Senior Credit Officer Opinion Survey on
Dealer Financing Terms indicated that investor demand for financing to fund purchases of collateralized
loan obligations rose somewhat since the beginning of
the year.
Commercial real estate loans continued to increase
amid some further easing of underwriting standards for
commercial mortgages. While issuance of commercial
mortgage-backed securities started the year a bit slow
relative to 2013, it has picked up recently. Bank and
insurance company originations of commercial mortgages expanded in the first quarter.
Mortgage credit conditions generally remained tight,
though further incremental signs of easing emerged
amid continued gains in house prices. Mortgage interest rates declined somewhat more than long-term
Treasury yields over the intermeeting period, while
option-adjusted spreads on production-coupon MBS
narrowed. Both mortgage applications for home purchases and refinancing applications remained at very
low levels.
Conditions in consumer credit markets were solid in
recent months. Credit card loan balances increased.
Growth in student loans moderated further but remained solid, and outstanding auto loans continued to
pick up. Issuance of auto and credit card asset-backed
securities was again robust.
The expected path of ECB policy rates implied by market quotes for short-term interest rates fell over the
intermeeting period, as investors anticipated the easing
of policy announced by the ECB at its June meeting.
By contrast, late in the period, market participants interpreted statements by Bank of England Governor
Carney as signaling an earlier tightening of policy than
had been anticipated, and near-term policy rate expectations moved higher in response. Benchmark sovereign bond yields declined modestly in most countries,
but U.K. gilt yields rose. The foreign exchange value
of the dollar was little changed, on balance, over the
period, as the dollar appreciated against the euro but
declined against the Canadian dollar and many emerging market currencies. Consistent with some improvement in investor sentiment toward risky assets,
foreign equity prices generally rose over the intermeeting period, and foreign sovereign and corporate bond
spreads narrowed. In addition, both bond and equity
emerging market mutual funds saw net inflows over the
period.
Minutes of the Meeting of June 17–18, 2014
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Staff Economic Outlook
In the economic forecast prepared by the staff for the
June FOMC meeting, real GDP growth in the first half
of this year as a whole was lower, on net, than in the
projection for the April meeting. In particular, the
available readings on exports, inventory investment,
outlays for health-care services, and construction
pointed to much weaker real GDP in the first quarter
than the staff had expected. However, the staff still
anticipated that real GDP growth would rebound briskly in the second quarter, consistent with recent indicators for consumer spending and business investment,
along with the expectation that exports and inventory
investment would return to more normal levels and
that economic activity that had been restrained by the
severe winter weather would bounce back. Primarily
because of the combination of recent downward surprises in the unemployment rate and weaker-thanexpected real GDP, the staff slightly lowered its assumed pace of potential output growth this year and
next and slightly decreased its assumption for the natural rate of unemployment over this same period. As a
result, the staff’s medium-term forecast for real GDP
growth was revised down a little on balance. Nevertheless, the staff continued to project that real GDP would
expand at a faster pace in the second half of this year
and over the next two years than it did last year and
that it would rise more quickly than potential output.
The faster pace of real GDP growth was expected to
be supported by diminishing drag on spending from
changes in fiscal policy, increases in consumer and
business confidence, further improvements in credit
availability, and a pickup in the rate of foreign economic 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 to the staff’s estimate of its
longer-run natural rate in the medium term. In the
longer-run outlook, the staff slightly lowered its assumptions for real GDP growth and the level of equilibrium real interest rates.
The staff’s forecast for inflation in the near term was
revised up a little as recent data showed somewhat faster increases in consumer prices than anticipated. However, the medium-term projection for inflation was revised down slightly, reflecting a reassessment by the
staff of the underlying trend in inflation. The staff continued to forecast that inflation would remain below
the Committee’s longer-run objective of 2 percent over
the next few years. With longer-run inflation expectations assumed to remain stable, changes in commodity
and import prices expected to be subdued, and slack in
labor and product markets anticipated to diminish
slowly, inflation was projected to rise gradually toward
the Committee’s objective. The staff continued to project that inflation would reach the Committee’s objective in the longer run.
The staff’s economic projections for the June meeting
were somewhat different from the forecasts presented
at the March meeting, when the FOMC last prepared a
Summary of Economic Projections (SEP). The staff’s
June projections for the unemployment rate, real GDP
growth, and inflation over the next few years were all a
little lower, on balance, than those in its March forecast.
The staff viewed the extent of uncertainty around its
June projections for real GDP growth and the unemployment rate as roughly in line with the average over
the past 20 years. Nonetheless, the risks to the forecast
for real GDP growth were viewed as tilted a little to the
downside, as neither monetary policy nor fiscal policy
was seen as being well positioned to help the economy
withstand 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 conjunction with this FOMC meeting, the meeting
participants submitted their assessments of real output
growth, the unemployment rate, inflation, and the target federal funds rate for each year from 2014 through
2016 and over the longer run, under each participant’s
judgment of appropriate monetary policy.3 The longerrun projections represent each participant’s assessment
of the rate to which each variable would be expected to
converge, over time, under appropriate monetary policy
and in the absence of further shocks to the economy.
These economic projections and policy assessments are
described in the SEP, which is attached as an addendum to these minutes.
In their discussion of the economic situation and the
outlook, meeting participants viewed the information
received over the intermeeting period as suggesting that
economic activity was rebounding in the second quar3
Four members of the Board of Governors and the presidents of the 12 Federal Reserve Banks submitted projections.
Governor Brainard took office on June 16, 2014, and participated in the June 17–18, 2014, meeting; she was not able to
submit economic projections.
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ter following a surprisingly large decline in real GDP in
the first quarter of the year. Labor market conditions
generally improved further. Although participants
marked down their expectations for average growth of
real GDP over the first half of 2014, their projections
beginning in the second half of 2014 changed little.
Over the next two and a half years, they continued to
expect economic activity to expand at a rate sufficient
to lead to a further decline in the unemployment rate to
levels close to their current assessments of its longerrun normal value. Among the factors anticipated to
support the sustained economic expansion were accommodative monetary policy, diminished drag from
fiscal restraint, further gains in household net worth,
improving credit conditions for households and businesses, and rising employment and wages. While inflation was still seen as running below the Committee’s
longer-run objective, longer-run inflation expectations
remained stable and the Committee anticipated that
inflation would move back toward its 2 percent objective over the forecast period. Most participants viewed
the risks to the outlook for the economy, the labor
market, and inflation as broadly balanced.
Household spending appeared to have risen moderately, on balance, in recent months, with sales of motor
vehicles, in particular, rising strongly. However, several
participants read the recent soft information on retail
sales and health-care spending as raising some concern
about the underlying strength in consumer spending.
A couple of participants noted that, to date, consumer
spending had been supported importantly by gains in
household net worth while income gains had been held
back by only modest increases in wages. In their view,
an important element in the economic outlook was a
pickup in income, from higher wages as well as ongoing employment gains, that would be expected to support a sustained rise in consumer spending.
The recovery in the housing sector was reported to
have remained slow in all but a few areas of the country. Many participants expressed concern about the
still-soft indicators of residential construction, and they
discussed a range of factors that might be contributing
to either a temporary delay in the housing recovery or a
persistently lower level of homebuilding than previously anticipated. Despite attractive mortgage rates, housing demand was seen as being damped by such factors
as restrictive credit conditions, particularly for households with low credit scores; high down payments; or
low demand among younger homebuyers, due in part
to the burden of student loan debt. Others noted supply constraints, pointing to shortages of lots, low inven-
tories of desirable homes for sale, an overhang of
homes associated with foreclosures or seriously delinquent mortgages, or rising construction costs. Several
other participants suggested the possibility that more
persistent structural changes in housing demand associated with an aging population and evolving lifestyle
preferences were boosting demand for multifamily
units at the expense of single-family homes.
Information from participants’ business contacts suggested capital spending was likely to increase going
forward. Contacts in a number of Districts reported
that they were generally optimistic about the business
outlook, although in a couple of regions respondents
remained cautious about prospects for stronger economic growth or worried about a renewal of federal
fiscal restraint after the current congressional budget
agreement expires. Among the industries cited as relatively strong in recent months were transportation, energy, telecommunications, and manufacturing, particularly motor vehicles. Some participants commented
that their contacts in small and medium-sized businesses reported an improved outlook for sales, and several
heard businesses more generally discuss plans to increase capital expenditures. One participant noted that
District businesses were investing largely to meet replacement needs, while another suggested that the
backlog of such needs would likely provide some impetus to business investment.
Favorable financial conditions appeared be supporting
economic activity. While information about mortgage
lending was mixed, a number of participants reported
increases in C&I lending by banks in their Districts, a
pickup in loan demand at banks, or better credit quality
for borrowers. In addition, small businesses reported
improvements in credit availability. However, participants also discussed whether some recent trends in
financial markets might suggest that investors were not
appropriately taking account of risks in their investment decisions. In particular, low implied volatility in
equity, currency, and fixed-income markets as well as
signs of increased risk-taking were viewed by some participants as an indication that market participants were
not factoring in sufficient uncertainty about the path of
the economy and monetary policy. They agreed that
the Committee should continue to carefully monitor
financial conditions and to emphasize in its communications the dependence of its policy decisions on the
evolution of the economic outlook; it was also pointed
out that, where appropriate, supervisory measures
should be applied to address excessive risk-taking and
associated financial imbalances. At the same time, it
Minutes of the Meeting of June 17–18, 2014
Page 9
_____________________________________________________________________________________________
was noted that monetary policy needed to continue to
promote the favorable financial conditions required to
support the economic expansion.
In discussing economic developments abroad, a couple
of participants noted that recent monetary policy actions by the ECB and the Bank of Japan had improved
the outlook for economic activity in those areas and
could help return inflation to target. Several others,
however, remained concerned that persistent low inflation in Europe and Japan could eventually erode inflation expectations more broadly. And a couple of participants expressed uncertainty about the outlook for
economic growth in Japan and China. In addition, several saw developments in Iraq and Ukraine as posing
possible downside risks to global economic activity or
potential upside risks to world oil prices.
Labor market conditions generally continued to improve over the intermeeting period. That improvement
was evidenced by the decline in the unemployment rate
as well as by changes in other indicators, such as solid
gains in nonfarm payrolls, a low level of new claims for
unemployment insurance, uptrends in quits and job
openings, and more positive views of job availability by
households. In assessing labor market conditions, participants again offered a range of views on how far
conditions in the labor market were from those associated with maximum employment. Many judged that
slack remained elevated, and a number of them thought
it was greater than measured by the official unemployment rate, citing, in particular, the still-high level of
workers employed part time for economic reasons or
the depressed labor force participation rate. Even so,
several participants pointed out that both long- and
short-term unemployment and measures that include
marginally attached workers had declined. Most participants projected the improvement in labor market conditions to continue, with the unemployment rate moving down gradually over the medium term. However, a
couple of participants anticipated that the decline in
unemployment would be damped as part-time workers
shift to full-time jobs and as nonparticipants rejoin the
labor force, while a few others commented that they
expected no lasting reversal of the decline in labor
force participation.
Aggregate wage measures continued to rise at only a
modest rate, and reports on wages from business contacts and surveys in a number of Districts were mixed.
Several of those reports pointed to an absence of wage
pressures, while some others indicated that tight labor
markets or shortages of skilled workers were leading to
upward pressure on wages in some areas or occupations and that an increasing proportion of small businesses were planning to raise wages. Participants discussed the prospects for wage increases to pick up as
slack in the labor market diminishes. Several noted that
a return to growth in real wages in line with productivity growth would provide welcome support for household spending.
Readings on a range of price measures—including the
PCE price index, the CPI, and a number of the analytical measures developed at the Reserve Banks—
appeared to provide evidence that inflation had moved
up recently from low levels earlier in the year, consistent with the Committee’s forecast of a gradual increase in inflation over the medium term. Reports
from business contacts were mixed, spanning an absence of price pressures in some Districts and rising
input costs in others. Some participants expressed
concern about the persistence of below-trend inflation,
and a couple of them suggested that the Committee
may need to allow the unemployment rate to move
below its longer-run normal level for a time in order
keep inflation expectations anchored and return inflation to its 2 percent target, though one participant emphasized the risks of doing so. In contrast, some others expected a faster pickup in inflation or saw upside
risks to inflation and inflation expectations because
they anticipated a more rapid decline in economic slack.
During their consideration of issues related to monetary policy over the medium term, participants generally
supported the Committee’s current guidance about the
likely path of its asset purchases and about its approach
to determining the timing of the first increase in the
federal funds rate and the path of the policy rate thereafter. Participants offered views on a range of issues
related to policy communications. Some participants
suggested that the Committee’s communications about
its forward guidance should emphasize more strongly
that its policy decisions would depend on its ongoing
assessment across a range of indicators of economic
activity, labor market conditions, inflation and inflation
expectations, and financial market developments. In
that regard, circumstances that might entail either a
slower or a more rapid removal of policy accommodation were cited. For example, a number of participants
noted their concern that a more gradual approach
might be appropriate if forecasts of above-trend economic growth later this year were not realized. And a
couple suggested that the Committee might need to
strengthen its commitment to maintain sufficient policy
accommodation to return inflation to its target over the
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medium term in order to prevent an undesirable decline in inflation expectations. Alternatively, some other participants expressed concern that economic
growth over the medium run might be faster than currently expected or that the rate of growth of potential
output might be lower than currently expected, calling
for a more rapid move to begin raising the federal
funds rate in order to avoid significantly overshooting
the Committee’s unemployment and inflation objectives.
While the current asset purchase program is not on a
preset course, participants generally agreed that if the
economy evolved as they anticipated, the program
would likely be completed later this year. Some committee members had been asked by members of the
public whether, if tapering in the pace of purchases
continues as expected, the final reduction would come
in a single $15 billion per month reduction or in a
$10 billion reduction followed by a $5 billion reduction.
Most participants viewed this as a technical issue with
no substantive macroeconomic consequences and no
consequences for the eventual decision about the timing of the first increase in the federal funds rate—a
decision that will depend on the Committee’s evolving
assessments of actual and expected progress toward its
objectives. In light of these considerations, participants
generally agreed that if incoming information continued
to support its expectation of improvement in labor
market conditions and a return of inflation toward its
longer-run objective, it would be appropriate to complete asset purchases with a $15 billion reduction in the
pace of purchases in order to avoid having the small,
remaining level of purchases receive undue focus
among investors. If the economy progresses about as
the Committee expects, warranting reductions in the
pace of purchases at each upcoming meeting, this final
reduction would occur following the October meeting.
Committee Policy Action
In their discussion of monetary policy in the period
ahead, members judged that information received since
the Federal Open Market Committee met in April indicated that economic activity was rebounding from the
decline in the first quarter of the year. Labor market
indicators generally showed further improvement. The
unemployment rate, though lower, remained elevated.
Household spending appeared to be rising moderately
and business fixed investment resumed its advance,
while the recovery in the housing sector remained slow.
Fiscal policy was restraining economic growth, although the extent of restraint was diminishing. The
Committee expected that, with appropriate policy ac-
commodation, economic activity would expand at a
moderate pace and labor market conditions would continue to improve gradually, moving toward those the
Committee judges consistent with its dual mandate.
Members saw the risks to the outlook for the economy
and the labor market as nearly balanced. Inflation was
running below the Committee’s longer-run objective,
but the Committee anticipated that with stable inflation
expectations and strengthening economic activity, inflation would, over time, return to the Committee’s 2 percent objective. However, members continued to recognize that inflation persistently below its longer-run
objective could pose risks to economic performance
and agreed to monitor inflation developments closely
for evidence that inflation was moving back toward its
objective over the medium term.
Members judged that the economy had sufficient underlying strength to support ongoing improvement in
labor market conditions and a return of inflation toward the Committee’s longer-run 2 percent objective,
and thus agreed that a further measured reduction in
the pace of the Committee’s asset purchases was appropriate at this meeting. Accordingly, the Committee
agreed that beginning in July, it would add to its holdings of agency MBS at a pace of $15 billion per month
rather than $20 billion per month, and it would add to
its holdings of Treasury securities at a pace of
$20 billion per month rather than $25 billion per
month. Members again judged that, if incoming information broadly supported the Committee’s expectations for ongoing progress toward meeting its dual objectives of maximum employment and inflation of
2 percent, the Committee would likely reduce the pace
of asset purchases in further measured steps at future
meetings. The Committee reiterated, however, that
purchases were not on a preset course, and that its decisions about the pace of purchases would remain contingent on its outlook for the labor market and inflation
as well as its assessment of the likely efficacy and costs
of such purchases.
The Committee agreed to maintain its target range for
the federal funds rate and to reiterate its forward guidance about how it would assess the appropriate timing
of the first increase in the target rate and the anticipated behavior of the federal funds rate after it is raised.
The guidance continued to emphasize that the Committee’s decisions about how long to maintain the current target range for the federal funds rate would depend on its assessment of actual and expected progress
toward its objectives of maximum employment and
2 percent inflation. The Committee again stated that it
Minutes of the Meeting of June 17–18, 2014
Page 11
_____________________________________________________________________________________________
currently anticipated that it likely would be appropriate
to maintain the current target range for the federal
funds rate for a considerable time after the asset purchase program ends, especially if projected inflation
continued to run below the Committee’s 2 percent
longer-run goal, and provided that longer-term inflation expectations remained well anchored. The forward guidance also reiterated the Committee’s expectation that even after employment and inflation are near
mandate-consistent levels, economic conditions may,
for some time, warrant keeping the target federal funds
rate below levels the Committee views as normal in the
longer run.
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 July, the Desk is directed to
purchase longer-term Treasury securities at
a pace of about $20 billion per month and
to purchase agency mortgage-backed securities at a pace of about $15 billion per
month. The Committee also directs the
Desk to engage in dollar roll and coupon
swap transactions as necessary to facilitate
settlement of the Federal Reserve’s agency
mortgage-backed securities transactions.
The Committee directs the Desk to maintain its policy of rolling over maturing
Treasury securities into new issues and its
policy of reinvesting principal payments on
all agency debt and agency mortgage-backed
securities in agency mortgage-backed securities. The System Open Market Account
manager and the secretary will keep the
Committee informed of ongoing developments regarding the System’s balance sheet
that could affect the attainment over time
of the Committee’s objectives of maximum
employment and price stability.”
The vote encompassed approval of the statement below to be released at 2:00 p.m.:
“Information received since the Federal
Open Market Committee met in April indicates that growth in economic activity has
rebounded in recent months. Labor market
indicators generally showed further improvement.
The unemployment rate,
though lower, remains elevated. Household
spending appears to be rising moderately
and business fixed investment resumed its
advance, while the recovery in the housing
sector remained slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. 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 activity will expand at a moderate pace and labor market
conditions will continue to improve gradually, moving toward those the Committee
judges consistent with its dual mandate.
The Committee sees the risks to the outlook for the economy and the labor market
as 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.
The Committee currently judges that there
is sufficient underlying strength in the
broader economy to support ongoing improvement in labor market conditions. In
light of the cumulative progress toward
maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset
purchase program, the Committee decided
to make a further measured reduction in the
pace of its asset purchases. Beginning in July, the Committee will add to its holdings of
agency mortgage-backed securities at a pace
of $15 billion per month rather than
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Federal Open Market Committee
_____________________________________________________________________________________________
$20 billion per month, and will add to its
holdings of longer-term Treasury securities
at a pace of $20 billion per month rather
than $25 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. The Committee’s sizable and still-increasing holdings of longerterm 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 remains appropriate. In determining how long to maintain the current
0 to ¼ percent target range for the federal
funds rate, the Committee will assess progress—both realized and expected—toward
its objectives of maximum employment and
2 percent inflation. This assessment will
take into account a wide range of information, including 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 for a considerable time after the asset purchase program ends, especially if projected inflation
continues to run below the Committee’s
2 percent longer-run goal, and provided that
longer-term inflation expectations remain
well anchored.
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. The Committee currently anticipates that, even after employment and inflation are near mandateconsistent levels, economic conditions may,
for some time, warrant keeping the target
federal funds rate below levels the Committee views as normal in the longer run.”
Voting for this action: Janet L. Yellen, William C.
Dudley, Lael Brainard, Stanley Fischer, Richard W.
Fisher, Narayana Kocherlakota, Loretta J. Mester,
Charles I. Plosser, Jerome H. Powell, and Daniel K.
Tarullo.
Voting against this action: None.
It was agreed that the next meeting of the Committee
would be held on Tuesday–Wednesday, July 29–30.
The meeting adjourned at 11:10 a.m. on June 18, 2014.
Notation Vote
By notation vote completed on May 19, 2014, the
Committee unanimously approved the minutes of the
Committee meeting held on April 29–30, 2014.
_________________________________________
William B. English
Secretary
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Summary of Economic Projections
In conjunction with the June 17–18, 2014, Federal
Open Market Committee (FOMC) meeting, meeting
participants submitted their assessments of real output
growth, the unemployment rate, inflation, and the target federal funds rate for each year from 2014 through
2016 and over the longer run.1 Each participant’s assessment was based on information available at the
time of the meeting plus his or her judgment of appropriate monetary policy and assumptions about the factors likely to affect economic outcomes. The longerrun projections represent each participant’s judgment
of the value to which each variable would be expected
to converge, over time, under appropriate monetary
policy and in the absence of further shocks to the
economy. “Appropriate monetary policy” is defined as
the future path of policy that each participant deems
most likely to foster outcomes for economic activity
and inflation that best satisfy his or her individual interpretation of the Federal Reserve’s objectives of maximum employment and stable prices
Overall, FOMC participants expected that, under appropriate monetary policy, economic growth would
_______________________
1 Four members of the Board of Governors and the presidents of the 12 Federal Reserve Banks submitted projections.
Governor Brainard took office on June 16, 2014, and participated in the June 17–18, 2014, FOMC meeting; she was not
able to submit economic projections.
pick up notably in the second half of 2014 and remain
in 2015 and 2016 above their estimates of the longerrun normal rate of economic growth. Consistent with
that outlook, the unemployment rate was projected to
continue to decline toward its longer-run normal level
over the projection period (table 1 and figure 1). The
majority of participants projected that inflation, as
measured by the annual change in the price index for
personal consumption expenditures (PCE), would rise
to a level at or slightly below the Committee’s 2 percent
objective in 2016.
The majority of participants expected that highly accommodative monetary policy would remain appropriate over the next few years to foster progress toward
the Federal Reserve’s longer-run objectives. As shown
in figure 2, all but one of the participants anticipated
that it would be appropriate to wait at least until 2015
before beginning to increase the federal funds rate, and
most projected that it would then be appropriate to
raise the target federal funds rate fairly gradually. Given their economic outlooks, most participants judged
that it would be appropriate to continue gradually slowing the pace of the Committee’s purchases of longerterm securities and complete the asset purchase program later this year.
Most participants saw the uncertainty associated with
their outlooks for economic growth, the unemploy-
Table 1. Economic projections of Federal Reserve Board members and Federal Reserve Bank presidents, June 2014
Percent
Variable
Central tendency1
Range2
2014
2015
2016
Longer run
2014
2015
2016
Longer run
Change in real GDP . . . . .
March projection . . . . .
2.1 to 2.3
2.8 to 3.0
3.0 to 3.2
3.0 to 3.2
2.5 to 3.0
2.5 to 3.0
2.1 to 2.3
2.2 to 2.3
1.9 to 2.4
2.1 to 3.0
2.2 to 3.6
2.2 to 3.5
2.2 to 3.2
2.2 to 3.4
1.8 to 2.5
1.8 to 2.4
Unemployment rate . . . . .
March projection . . . . .
6.0 to 6.1
6.1 to 6.3
5.4 to 5.7
5.6 to 5.9
5.1 to 5.5
5.2 to 5.6
5.2 to 5.5
5.2 to 5.6
5.8 to 6.2
6.0 to 6.5
5.2 to 5.9
5.4 to 5.9
5.0 to 5.6
5.1 to 5.8
5.0 to 6.0
5.2 to 6.0
PCE inflation . . . . . . . . . . . 1.5 to 1.7
March projection . . . . . 1.5 to 1.6
1.5 to 2.0
1.5 to 2.0
1.6 to 2.0
1.7 to 2.0
2.0
2.0
1.4 to 2.0
1.3 to 1.8
1.4 to 2.4
1.5 to 2.4
1.5 to 2.0
1.6 to 2.0
2.0
2.0
Core PCE inflation3 . . . . .
March projection . . . . .
1.6 to 2.0
1.7 to 2.0
1.7 to 2.0
1.8 to 2.0
1.4 to 1.8
1.3 to 1.8
1.5 to 2.4
1.5 to 2.4
1.6 to 2.0
1.6 to 2.0
1.5 to 1.6
1.4 to 1.6
NOTE: Projections of change in real gross domestic product (GDP) and projections for both measures of inflation are from the fourth quarter of the previous
year to the fourth quarter of the year indicated. PCE inflation and core PCE inflation are the percentage rates of change in, respectively, the price index for personal consumption expenditures (PCE) and the price index for PCE excluding food and energy. Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated. Each participant’s projections are based on his or her assessment of appropriate monetary
policy. Longer-run projections represent each participant’s assessment of the rate to which each variable would be expected to converge under appropriate monetary policy and in the absence of further shocks to the economy. The March projections were made in conjunction with the meeting of the Federal Open Market
Committee on March 18–19, 2014.
1. The central tendency excludes the three highest and three lowest projections for each variable in each year.
2. The range for a variable in a given year includes all participants’ projections, from lowest to highest, for that variable in that year.
3. Longer-run projections for core PCE inflation are not collected.
Page 2
Federal Open Market Committee
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Figure 1. Central tendencies and ranges of economic projections, 2014–16 and over the longer run
Percent
Change in real GDP
4
Central tendency of projections
Range of projections
3
2
1
+
0
-
Actual
2009
2010
2011
2012
2013
2014
2015
2016
Longer
run
Percent
Unemployment rate
10
9
8
7
6
5
2009
2010
2011
2012
2013
2014
2015
2016
Longer
run
Percent
PCE inflation
3
2
1
2009
2010
2011
2012
2013
2014
2015
2016
Longer
run
Percent
Core PCE inflation
3
2
1
2009
2010
2011
2012
2013
2014
2015
2016
Longer
run
Note: Definitions of variables are in the general note to table 1. The data for the actual values of the variables are
annual.
Summary of Economic Projections of the Meeting of June 17–18, 2014
Page 3
_____________________________________________________________________________________________
Figure 2. Overview of FOMC participants’ assessments of appropriate monetary policy
Number of participants
Appropriate timing of policy firming
13
12
12
11
10
9
8
7
6
5
4
3
3
2
1
1
2014
2015
2016
Appropriate pace of policy firming
Percent
Target federal funds rate at year-end
6
5
4
3
2
1
0
2014
2015
2016
Longer run
Note: In the upper panel, the height of each bar denotes the number of FOMC participants who judge that, under
appropriate monetary policy, the first increase in the target federal funds rate from its current range of 0 to 1/4 percent
will occur in the specified calendar year. In March 2014, the numbers of FOMC participants who judged that the first
increase in the target federal funds rate would occur in 2014, 2015, and 2016 were, respectively, 1, 13, and 2. In the lower
panel, each shaded circle indicates the value (rounded to the nearest 1/4 percentage point) of an individual participant’s
judgment of the appropriate level of the target federal funds rate at the end of the specified calendar year or over the
longer run.
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Federal Open Market Committee
_____________________________________________________________________________________________
ment rate, and inflation as similar to that of the past
20 years. In addition, most participants considered the
risks to the outlook for real GDP growth and the unemployment rate to be broadly balanced, and a majority
saw the risks to inflation as broadly balanced. However, some saw the risks to their forecasts for economic
growth or inflation as tilted to the downside, and a
couple saw the risks to their forecasts for inflation as
tilted to the upside.
The Outlook for Economic Activity
Participants generally projected that, conditional on
their individual assumptions about appropriate monetary policy, real GDP growth would pick up notably in
the second half of this year and remain in 2015 and
2016 above their estimates of the longer-run normal
rate of output growth. All participants revised down
their projections of real GDP growth for the first half
of 2014 compared with their projections in March, but
most left their forecasts for the remainder of the projection period largely unchanged. Participants generally
judged that real GDP growth in the first half of this
year was held down by transitory factors depressing
output early in the year, and they pointed to a number
of factors that they expected would continue to contribute to a pickup in economic growth later this year
and next, including rising household net worth, diminished restraint from fiscal policy, improving labor market conditions, and highly accommodative monetary
policy. The central tendencies of participants’ projections for real GDP growth were 2.1 to 2.3 percent in
2014, 3.0 to 3.2 percent in 2015, and 2.5 to 3.0 percent
in 2016. The central tendency for the longer-run normal rate of growth of real GDP was 2.1 to 2.3 percent,
only slightly lower than in March.
Participants continued to anticipate a gradual decline in
the unemployment rate over the projection period.
The central tendencies of participants’ forecasts for the
unemployment rate in the fourth quarter of each year
were 6.0 to 6.1 percent in 2014, 5.4 to 5.7 percent in
2015, and 5.1 to 5.5 percent in 2016. Nearly all participants revised down their projected paths for the unemployment rate this year and next relative to their March
projections, with the majority pointing to the decline in
the unemployment rate in recent months as a reason
for the downward revision. The central tendency of
participants’ estimates of the longer-run normal rate of
unemployment that would prevail under appropriate
monetary policy and in the absence of further shocks
to the economy also edged down, to 5.2 to 5.5 percent.
Most participants projected that the unemployment
rate would be close to their individual estimates of its
longer-run level at the end of 2016.
Figures 3.A and 3.B show that participants continued
to hold a range of views regarding the likely outcomes
for real GDP growth and the unemployment rate over
the next two years. The diversity of views reflected
their individual assessments of the rate at which the
headwinds that have been holding back the pace of the
economic recovery would abate and of the anticipated
path for foreign economic activity, the trajectory for
growth in household net worth, and the appropriate
path of monetary policy. Relative to March, the dispersion of participants’ projections for real GDP growth
narrowed a bit in 2014 but was largely unchanged over
the next two years, and the dispersion of projections
for the unemployment rate over the entire projection
period was little changed.
The Outlook for Inflation
Compared with March, the central tendencies of participants’ projections for inflation were largely unchanged
for all years in the projection period, although many
participants marked up a bit their projections for inflation in 2014. The vast majority of participants anticipated that, on average, both headline and core inflation
would rise gradually over the next few years, and the
majority of participants expected headline inflation to
be at or slightly below the Committee’s 2 percent objective in 2016. Specifically, the central tendencies for
PCE inflation were 1.5 to 1.7 percent in 2014, 1.5 to
2.0 percent in 2015, and 1.6 to 2.0 percent in 2016.
The central tendencies of the forecasts for core inflation were broadly similar to those for the headline
measure. It was noted that some combination of stable
inflation expectations and steadily diminishing resource
slack was likely to contribute to a gradual rise of inflation back toward the Committee’s longer-run objective
of 2 percent.
Figures 3.C and 3.D provide information on the diversity of participants’ views about the outlook for inflation. The ranges of participants’ projections for overall
inflation were little changed relative to March. The
forecasts for PCE inflation in 2016 were at or below
the Committee’s longer-run objective. Similar to the
projections for headline inflation, the projections for
core inflation in 2016 were concentrated at or below
2 percent.
Appropriate Monetary Policy
As indicated in figure 2, nearly all participants judged
that low levels of the federal funds rate would remain
appropriate for the next few years. In particular,
12 participants thought that the first increase in the
target federal funds rate would not be warranted until
sometime in 2015, and 3 judged that policy firming
Summary of Economic Projections of the Meeting of June 17–18, 2014
Page 5
_____________________________________________________________________________________________
Figure 3.A. Distribution of participants’ projections for the change in real GDP, 2014–16 and over the longer run
Number of participants
2014
20
18
16
14
12
10
8
6
4
2
June projections
March projections
1.8 1.9
2.0 2.1
2.2 2.3
2.4 2.5
2.6 2.7
2.8 2.9
3.0 3.1
3.2 3.3
3.4 3.5
3.6 3.7
Percent range
Number of participants
2015
1.8 1.9
20
18
16
14
12
10
8
6
4
2
2.0 2.1
2.2 2.3
2.4 2.5
2.6 2.7
2.8 2.9
3.0 3.1
3.2 3.3
3.4 3.5
3.6 3.7
Percent range
Number of participants
2016
1.8 1.9
20
18
16
14
12
10
8
6
4
2
2.0 2.1
2.2 2.3
2.4 2.5
2.6 2.7
2.8 2.9
3.0 3.1
3.2 3.3
3.4 3.5
3.6 3.7
Percent range
Number of participants
Longer run
1.8 1.9
20
18
16
14
12
10
8
6
4
2
2.0 2.1
2.2 2.3
2.4 2.5
2.6 2.7
2.8 2.9
Percent range
Note: Definitions of variables are in the general note to table 1.
3.0 3.1
3.2 3.3
3.4 3.5
3.6 3.7
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Federal Open Market Committee
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Figure 3.B. Distribution of participants’ projections for the unemployment rate, 2014–16 and over the longer run
Number of participants
2014
20
18
16
14
12
10
8
6
4
2
June projections
March projections
5.0 5.1
5.2 5.3
5.4 5.5
5.6 5.7
5.8 5.9
6.0 6.1
6.2 6.3
6.4 6.5
Percent range
Number of participants
2015
20
18
16
14
12
10
8
6
4
2
5.0 5.1
5.2 5.3
5.4 5.5
5.6 5.7
5.8 5.9
6.0 6.1
6.2 6.3
6.4 6.5
Percent range
Number of participants
2016
20
18
16
14
12
10
8
6
4
2
5.0 5.1
5.2 5.3
5.4 5.5
5.6 5.7
5.8 5.9
6.0 6.1
6.2 6.3
6.4 6.5
Percent range
Number of participants
Longer run
5.0 5.1
20
18
16
14
12
10
8
6
4
2
5.2 5.3
5.4 5.5
5.6 5.7
5.8 5.9
Percent range
Note: Definitions of variables are in the general note to table 1.
6.0 6.1
6.2 6.3
6.4 6.5
Summary of Economic Projections of the Meeting of June 17–18, 2014
Page 7
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Figure 3.C. Distribution of participants’ projections for PCE inflation, 2014–16 and over the longer run
Number of participants
2014
20
18
16
14
12
10
8
6
4
2
June projections
March projections
1.3 1.4
1.5 1.6
1.7 1.8
1.9 2.0
2.1 2.2
2.3 2.4
Percent range
Number of participants
2015
20
18
16
14
12
10
8
6
4
2
1.3 1.4
1.5 1.6
1.7 1.8
1.9 2.0
2.1 2.2
2.3 2.4
Percent range
Number of participants
2016
20
18
16
14
12
10
8
6
4
2
1.3 1.4
1.5 1.6
1.7 1.8
1.9 2.0
2.1 2.2
2.3 2.4
Percent range
Number of participants
Longer run
1.3 1.4
20
18
16
14
12
10
8
6
4
2
1.5 1.6
1.7 1.8
1.9 2.0
Percent range
Note: Definitions of variables are in the general note to table 1.
2.1 2.2
2.3 2.4
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Figure 3.D. Distribution of participants’ projections for core PCE inflation, 2014–16
Number of participants
2014
20
June projections
March projections
18
16
14
12
10
8
6
4
2
1.3 1.4
1.5 1.6
1.7 1.8
1.9 2.0
2.1 2.2
2.3 2.4
Percent range
Number of participants
2015
20
18
16
14
12
10
8
6
4
2
1.3 1.4
1.5 1.6
1.7 1.8
1.9 2.0
2.1 2.2
2.3 2.4
Percent range
Number of participants
2016
20
18
16
14
12
10
8
6
4
2
1.3 1.4
1.5 1.6
1.7 1.8
1.9 2.0
Percent range
Note: Definitions of variables are in the general note to table 1.
2.1 2.2
2.3 2.4
Summary of Economic Projections of the Meeting of June 17–18, 2014
Page 9
_____________________________________________________________________________________________
would likely not be appropriate until 2016. Only 1 participant thought that an increase in the federal funds
rate would be warranted in 2014.
All participants projected that the unemployment rate
would be below 6 percent at the end of the year in
which they judged the initial increase in the federal
funds rate to be warranted, and all but one anticipated
that inflation would be at or below the Committee’s
longer-run objective at that time. Most participants
projected that the unemployment rate would remain
above their estimates of its longer-run normal level at
the end of the year in which they saw the federal funds
rate increasing from its effective lower bound.
Figure 3.E provides the distribution of participants’
judgments regarding the appropriate level of the target
federal funds rate at the end of each calendar year from
2014 to 2016 and over the longer run. As noted earlier,
nearly all participants judged that economic conditions
would warrant maintaining the current exceptionally
low level of the federal funds rate at least until 2015.
Relative to their projections in March, the median values of the federal funds rate at the end of 2015 and
2016 increased 13 basis points and 25 basis points to
1.13 percent and 2.50 percent, respectively, while the
mean values rose 7 basis points and 11 basis points to
1.18 percent and 2.53 percent, respectively. The dispersion of projections for the value of the federal funds
rate was little changed in 2015 but widened slightly in
2016. Most participants expected that the federal funds
rate at the end of 2016 would still be significantly below
their individual assessments of its longer-run level. For
about half of these participants, the low level of the
federal funds rate at that time was associated with inflation well below the Committee’s 2 percent objective.
In contrast, the rest of these participants saw the federal funds rate at the end of 2016 as still significantly low
despite their projections that the unemployment rate
would be close to or below their individual longer-run
projections and inflation would be at or close to 2 percent at that time. These participants cited some combination of a lower equilibrium real interest rate, continuing headwinds from the financial crisis and subsequent recession, and a desire to raise the federal funds
rate at a gradual pace after liftoff as explanations for
the still-low level of the projected federal funds rate at
the end of 2016. A couple of participants also mentioned broader measures of labor market slack that may
take longer to return to their normal levels than the
unemployment rate. Estimates of the longer-run level
of the federal funds rate ranged from 3¼ to about
4¼ percent, reflecting the Committee’s inflation objective of 2 percent and participants’ individual judgments
regarding the appropriate longer-run level of the real
federal funds rate in the absence of further shocks to
the economy. Compared with March, some participants revised down their estimates of the longer-run
federal funds rate, with a lower assessment of the longer-run level of potential output growth cited as a contributing factor for the majority of those revisions. As
a result, the median estimate of the longer-run federal
funds rate shifted down to 3.75 percent from 4 percent
in March, while its mean value declined 11 basis points
to 3.78 percent.
Participants also described their views regarding the
appropriate path of the Federal Reserve’s balance sheet.
Conditional on their respective economic outlooks,
most participants judged that it would be appropriate
to continue to reduce the pace of the Committee’s purchases of longer-term securities in measured steps and
to conclude the purchases later this year. A couple of
participants judged that a more rapid reduction in the
pace of purchases and an earlier end to the asset purchase program would be appropriate.
Participants’ views of the appropriate path for monetary policy were informed by their judgments about the
state of the economy, including the values of the unemployment rate and other labor market indicators that
would be consistent with maximum employment, the
extent to which the economy was currently falling short
of maximum employment, the prospects for inflation
to return to the Committee’s longer-term objective of
2 percent, and the balance of risks around the outlook.
Many participants also mentioned the prescriptions of
various monetary policy rules as factors they considered in judging the appropriate path for the federal
funds rate.
Uncertainty and Risks
The vast majority of participants continued to judge the
levels of uncertainty about their projections for real
GDP growth and the unemployment rate as broadly
similar to the norms during the previous 20 years (figure 4). Most participants continued to judge the risks
to real GDP growth and the unemployment rate to be
Table 2 provides estimates of the forecast uncertainty for
the change in real GDP, the unemployment rate, and total
consumer price inflation over the period from 1994 through
2013. At the end of this summary, the box “Forecast Uncertainty” discusses the sources and interpretation of uncertainty in the economic forecasts and explains the approach used
to assess the uncertainty and risks attending the participants’
projections.
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Federal Open Market Committee
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Figure 3.E. Distribution of participants’ projections for the target federal funds rate, 2014–16 and over the longer run
Number of participants
2014
20
June projections
March projections
18
16
14
12
10
8
6
4
2
0.00 0.37
0.38 0.62
0.63 0.87
0.88 1.12
1.13 1.37
1.38 1.62
1.63 1.87
1.88 2.12
2.13 2.37
2.38 2.62
2.63 2.87
2.88 3.12
3.13 3.37
3.38 3.62
3.63 3.87
3.88 4.12
4.13 4.37
Percent range
Number of participants
2015
20
18
16
14
12
10
8
6
4
2
0.00 0.37
0.38 0.62
0.63 0.87
0.88 1.12
1.13 1.37
1.38 1.62
1.63 1.87
1.88 2.12
2.13 2.37
2.38 2.62
2.63 2.87
2.88 3.12
3.13 3.37
3.38 3.62
3.63 3.87
3.88 4.12
4.13 4.37
Percent range
Number of participants
2016
20
18
16
14
12
10
8
6
4
2
0.00 0.37
0.38 0.62
0.63 0.87
0.88 1.12
1.13 1.37
1.38 1.62
1.63 1.87
1.88 2.12
2.13 2.37
2.38 2.62
2.63 2.87
2.88 3.12
3.13 3.37
3.38 3.62
3.63 3.87
3.88 4.12
4.13 4.37
Percent range
Number of participants
Longer run
20
18
16
14
12
10
8
6
4
2
0.00 0.37
0.38 0.62
0.63 0.87
0.88 1.12
1.13 1.37
1.38 1.62
1.63 1.87
1.88 2.12
2.13 2.37
2.38 2.62
2.63 2.87
2.88 3.12
3.13 3.37
3.38 3.62
3.63 3.87
3.88 4.12
4.13 4.37
Percent range
Note: The target federal funds rate is measured as the level of the target rate at the end of the calendar year or
in the longer run.
Summary of Economic Projections of the Meeting of June 17–18, 2014
Page 11
_____________________________________________________________________________________________
Figure 4. Uncertainty and risks in economic projections
Number of participants
Uncertainty about GDP growth
20
18
16
14
12
10
8
6
4
2
June projections
March projections
Lower
Broadly
similar
Higher
Number of participants
Risks to GDP growth
20
18
16
14
12
10
8
6
4
2
June projections
March projections
Weighted to
downside
Broadly
balanced
Number of participants
Uncertainty about the unemployment rate
Lower
Broadly
similar
20
18
16
14
12
10
8
6
4
2
Higher
Number of participants
Risks to the unemployment rate
Weighted to
downside
Broadly
balanced
Number of participants
Uncertainty about PCE inflation
Lower
Broadly
similar
20
18
16
14
12
10
8
6
4
2
Higher
Lower
Broadly
similar
Higher
Weighted to
upside
Risks to PCE inflation
Weighted to
downside
20
18
16
14
12
10
8
6
4
2
20
18
16
14
12
10
8
6
4
2
Number of participants
Broadly
balanced
Number of participants
Uncertainty about core PCE inflation
Weighted to
upside
20
18
16
14
12
10
8
6
4
2
Weighted to
upside
Number of participants
Risks to core PCE inflation
Weighted to
downside
Broadly
balanced
20
18
16
14
12
10
8
6
4
2
Weighted to
upside
Note: For definitions of uncertainty and risks in economic projections, see the box “Forecast Uncertainty.” Definitions of variables are in the general note to table 1.
Page 12
Federal Open Market Committee
_____________________________________________________________________________________________
broadly balanced, although a few participants viewed
the risks as weighted to the downside, reflecting, for
example, their concerns about the limited ability of
monetary policy at the zero lower bound to respond to
negative shocks to the economy as well as external
economic and geopolitical risks. Similar to March,
nearly all participants continued to judge the risks to
the unemployment rate to be broadly balanced.
Almost all participants saw the level of uncertainty and
the balance of risks around their forecasts for overall
PCE inflation and core inflation as little changed from
March. Most participants continued to judge the levels
of uncertainty associated with their forecasts for the
two inflation measures to be broadly similar to historical norms, and a majority continued to see the risks to
those projections as broadly balanced. A few participants, however, viewed the risks to their inflation forecasts as tilted to the downside, reflecting, for example,
the possibilities that the recent low levels of inflation
could prove more persistent than anticipated, and that
the upward pull on prices from inflation expectations
might be weaker than assumed. Conversely, two participants saw upside risks to inflation, with one citing
uncertainty about the timing and efficacy of the Committee’s withdrawal of accommodation.
Table 2. Average historical projection error ranges
Percentage points
Variable
2014
2015
2016
GDP1
........
±1.4
±2.0
±2.1
Unemployment
rate1
.........
±0.4
±1.2
±1.8
Total consumer
prices2
±0.8
±1.0
±1.0
Change in real
.......
NOTE: Error ranges shown are measured as plus or minus the root
mean squared error of projections for 1994 through 2013 that were
released in the spring by various private and government forecasters. As
described in the box “Forecast Uncertainty,” under certain assumptions,
there is about a 70 percent probability that actual outcomes for real
GDP, unemployment, and consumer prices will be in ranges implied by
the average size of projection errors made in the past. For more information, see David Reifschneider and Peter Tulip (2007), “Gauging the
Uncertainty of the Economic Outlook from Historical Forecasting Errors,” Finance and Economics Discussion Series 2007-60 (Washington:
Board of Governors of the Federal Reserve System, November), available at http://www.federalreserve.gov/pubs/feds/2007/200760/200760
abs.html ; and Board of Governors of the Federal Reserve System, Division of Research and Statistics (2014), “Updated Historical Forecast
Errors,” memorandum, April 9, http://www.federalreserve.gov/foia/
files/20140409-historical-forecast-errors.pdf.
1. Definitions of variables are in the general note to table 1.
2. Measure is the overall consumer price index, the price measure
that has been most widely used in government and private economic
forecasts. Projection is percent change, fourth quarter of the previous
year to the fourth quarter of the year indicated.
Summary of Economic Projections of the Meeting of June 17–18, 2014
Page 13
_____________________________________________________________________________________________
Forecast Uncertainty
The economic projections provided by
the members of the Board of Governors and
the presidents of the Federal Reserve Banks
inform discussions of monetary policy among
policymakers and can aid public understanding of the basis for policy actions. Considerable uncertainty attends these projections,
however. The economic and statistical models
and relationships used to help produce economic forecasts are necessarily imperfect descriptions of the real world, and the future
path of the economy can be affected by myriad unforeseen developments and events.
Thus, in setting the stance of monetary policy,
participants consider not only what appears to
be the most likely economic outcome as embodied in their projections, but also the range
of alternative possibilities, the likelihood of
their occurring, and the potential costs to the
economy should they occur.
Table 2 summarizes the average historical
accuracy of a range of forecasts, including
those reported in past Monetary Policy Reports
and those prepared by the Federal Reserve
Board’s staff in advance of meetings of the
Federal Open Market Committee. The projection error ranges shown in the table illustrate the considerable uncertainty associated with economic forecasts. For example,
suppose a participant projects that real gross
domestic product (GDP) and total consumer
prices will rise steadily at annual rates of, respectively, 3 percent and 2 percent. If the
uncertainty attending those projections is similar to that experienced in the past and the risks
around the projections are broadly balanced,
the numbers reported in table 2 would imply a
probability of about 70 percent that actual
GDP would expand within a range of 1.6 to
4.4 percent in the current year, 1.0 to 5.0 percent in the second year, and 0.9 to 5.1 percent
in the third year. The corresponding 70 percent
confidence intervals for overall inflation would
be 1.2 to 2.8 percent in the current year and
1.0 to 3.0 percent in the second and third years.
Because current conditions may differ
from those that prevailed, on average, over history, participants provide judgments as to
whether the uncertainty attached to their projections of each variable is greater than, smaller
than, or broadly similar to typical levels of
forecast uncertainty in the past, as shown in
table 2. Participants also provide judgments as
to whether the risks to their projections are
weighted to the upside, are weighted to the
downside, or are broadly balanced. That is,
participants judge whether each variable is
more likely to be above or below their projections of the most likely outcome. These judgments about the uncertainty and the risks attending each participant’s projections are distinct from the diversity of participants’ views
about the most likely outcomes. Forecast uncertainty is concerned with the risks associated
with a particular projection rather than with
divergences across a number of different projections.
As with real activity and inflation, the outlook for the future path of the federal funds
rate is subject to considerable uncertainty. This
uncertainty arises primarily because each participant’s assessment of the appropriate stance of
monetary policy depends importantly on the
evolution of real activity and inflation over
time. If economic conditions evolve in an unexpected manner, then assessments of the appropriate setting of the federal funds rate
would change from that point forward.
Cite this document
Federal Reserve (2014, June 17). FOMC Minutes. Fomc Minutes, Federal Reserve. https://whenthefedspeaks.com/doc/fomc_minutes_20140618
@misc{wtfs_fomc_minutes_20140618,
author = {Federal Reserve},
title = {FOMC Minutes},
year = {2014},
month = {Jun},
howpublished = {Fomc Minutes, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/fomc_minutes_20140618},
note = {Retrieved via When the Fed Speaks corpus}
}