FOMC Minutes

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Minutes of the Federal Open Market Committee

March 17–18, 2015

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, March 17, 2015, at 10:30 a.m. and continued

on Wednesday, March 18, 2015, at 9:00 a.m.

PRESENT:

Janet L. Yellen, Chair

William C. Dudley, Vice Chairman

Lael Brainard

Charles L. Evans

Stanley Fischer

Jeffrey M. Lacker

Dennis P. Lockhart

Jerome H. Powell

Daniel K. Tarullo

John C. Williams

James Bullard, Christine Cumming, Esther L. George,

Loretta J. Mester, and Eric Rosengren, Alternate

Members of the Federal Open Market Committee

Narayana Kocherlakota, President of the Federal

Reserve Bank of Minneapolis

Helen E. Holcomb and Blake Prichard, First Vice

Presidents, Federal Reserve Banks of Dallas and

Philadelphia, respectively

Thomas Laubach, Secretary and Economist

Matthew M. Luecke, Deputy Secretary

David W. Skidmore, Assistant Secretary

Michelle A. Smith, Assistant Secretary

Scott G. Alvarez, General Counsel

Thomas C. Baxter, Deputy General Counsel

Steven B. Kamin, Economist

David W. Wilcox, Economist

Michael S. Gibson, Director, Division of Banking

Supervision and Regulation, Board of Governors

James A. Clouse, Deputy Director, Division of

Monetary Affairs, Board of Governors

William B. English, Senior Special Adviser to the

Board, Office of Board Members, Board of

Governors

Andrew Figura, David Reifschneider, and Stacey

Tevlin, Special Advisers to the Board, Office of

Board Members, Board of Governors

Trevor A. Reeve, Special Adviser to the Chair, Office

of Board Members, Board of Governors

Linda Robertson, Assistant to the Board, Office of

Board Members, Board of Governors

David E. Lebow and Michael G. Palumbo, Senior

Associate Directors, Division of Research and

Statistics, Board of Governors

Michael T. Kiley, Senior Adviser, Division of Research

and Statistics, and Senior Associate Director,

Office of Financial Stability Policy and Research,

Board of Governors

Ellen E. Meade and Joyce K. Zickler, Senior Advisers,

Division of Monetary Affairs, Board of Governors

Fabio M. Natalucci2 and Gretchen C. Weinbach,1

Associate Directors, Division of Monetary Affairs,

Board of Governors

Jane E. Ihrig and David López-Salido, Deputy

Associate Directors, Division of Monetary Affairs,

Board of Governors; John J. Stevens, Deputy

Associate Director, Division of Research and

Statistics, Board of Governors

David Altig, Thomas A. Connors, Michael P. Leahy,

William R. Nelson, Glenn D. Rudebusch, Daniel

G. Sullivan, William Wascher, and John A.

Weinberg, Associate Economists

Simon Potter, Manager, System Open Market Account

Lorie K. Logan, Deputy Manager, System Open

Market Account

Robert deV. Frierson,1 Secretary of the Board, Office

of the Secretary, Board of Governors

________________

Attended the joint session of the Federal Open Market

Committee and the Board of Governors.

2 Attended the portion of the meeting following the joint

session of the Federal Open Market Committee and the

Board of Governors.

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Glenn Follette, Assistant Director, Division of

Research and Statistics, Board of Governors;

Elizabeth Klee, Assistant Director, Division of

Monetary Affairs, Board of Governors

Penelope A. Beattie,1 Assistant to the Secretary, Office

of the Secretary, Board of Governors

Dana L. Burnett and Don Kim, Section Chiefs,

Division of Monetary Affairs, Board of Governors

Katie Ross,1 Manager, Office of the Secretary, Board of

Governors

David H. Small, Project Manager, Division of

Monetary Affairs, Board of Governors

Zeynep Senyuz, Economist, Division of Monetary

Affairs, Board of Governors

Kenneth C. Montgomery, First Vice President, Federal

Reserve Bank of Boston

Ron Feldman, Executive Vice President, Federal Reserve Bank of Minneapolis

Michael Dotsey, Craig S. Hakkio, Evan F. Koenig, and

Paolo A. Pesenti, Senior Vice Presidents, Federal

Reserve Banks of Philadelphia, Kansas City, Dallas,

and New York, respectively

David Andolfatto, Todd E. Clark, Antoine Martin, Joe

Peek, and Douglas Tillett, Vice Presidents, Federal

Reserve Banks of St. Louis, Cleveland, New York,

Boston, and Chicago, respectively

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 manager of the System Open Market Account (SOMA) reported on developments in domestic and foreign financial markets. The deputy manager followed with a review of System open market operations conducted during the period since the Committee met on January 27–28, 2015. The deputy manager

also discussed the outcomes of recent tests of supplementary normalization tools—namely, the Term Deposit Facility (TDF) and term and overnight reverse repurchase agreement operations (term RRP operations

and ON RRP operations, respectively). The TDF operations were executed as three overlapping 21-day term

operations with same-day settlement; the total amount

of term deposits outstanding peaked at roughly the same

level as in the largest operation conducted in prior testing. The term RRP operations were executed as a series

of four one-week operations and conducted away from

quarter-end; take-up primarily represented substitution

away from ON RRP operations. The combination of

these term and ON RRP test operations continued to

provide a soft floor for money market rates over the intermeeting period.

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.

Normalization Tools

A staff briefing provided background on options for setting the aggregate capacity of the ON RRP facility in the

early stages of the normalization process. Two options

were discussed: initially setting a temporarily elevated

aggregate cap or suspending the aggregate cap for a

time. The briefing noted that, as the balance sheet normalizes and reserve balances decline, usage of the ON

RRP facility should diminish, allowing the facility to be

phased out over time. In addition, the briefing outlined

strategies for actively reducing take-up at the ON RRP

facility after policy normalization is under way, while

maintaining an appropriate degree of monetary control,

if take-up is larger than the FOMC desires. These strategies included adjusting the values of the interest on excess reserves (IOER) and ON RRP rates associated with

a given target range for the federal funds rate, relying on

tools such as term RRPs and the TDF to broaden arbitrage opportunities and to drain reserve balances, and

selling shorter-term Treasury securities to reduce the size

of the balance sheet at a faster pace. In addition, the

briefing presented some information on specific calibrations of policy tools that could be used during the early

stages of policy normalization.

In their discussion of the options and strategies surrounding the use of tools at liftoff and the potential subsequent reduction in aggregate ON RRP capacity, participants emphasized that during the early stages of policy normalization, it will be a priority to ensure appropriate control over the federal funds rate and other shortterm interest rates. Against this backdrop, participants

generally saw some advantages to a temporarily elevated

aggregate cap or a temporary suspension of the cap to

ensure that the facility would have sufficient capacity to

support policy implementation at the time of liftoff, but

they also indicated that they expected that it would be

appropriate to reduce ON RRP capacity fairly soon after

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the Committee begins firming the stance of policy. A

couple of participants stated their view that the risks to

financial stability that might arise from a temporarily elevated aggregate ON RRP capacity were likely to be

small, and it was noted that there might be little potential

for a temporarily large Federal Reserve presence in

money markets to affect the structure of those markets

if plans for reducing the facility’s capacity were clearly

communicated and well understood. However, a couple

of participants expressed financial stability concerns, and

one stressed that more planning was needed to address

the potential risks before the Committee decides on the

appropriate level of ON RRP capacity at the time of liftoff.

In their discussion regarding strategies for reducing ON

RRP usage, should it become undesirably large during

the early stages of normalization, most participants

viewed raising the IOER rate, thereby widening the

spread between the IOER and ON RRP rates, as an appropriate initial step. A majority of participants thought

term reserve draining tools could be useful in reducing

ON RRP usage, although a couple of participants questioned their effectiveness in placing upward pressure on

market interest rates, and a few did not see term RRPs

as reducing the Federal Reserve’s presence in money

markets, arguing that investors view term and overnight

RRPs as close substitutes. Many participants mentioned

that selling assets that will mature in a relatively short

time could be considered at some stage, if necessary to

reduce ON RRP usage. However, a number of participants noted that it could be difficult to communicate the

reason for such sales to the public, and, in particular, that

the announcement of such sales would risk an outsized

market reaction, as the public could view the sales as a

signal of a tighter overall stance of monetary policy than

they had anticipated or as an indication that the Committee might be more willing than had been thought to

sell longer-term assets. Some participants pointed out

that an earlier end to reinvestments of principal on maturing or prepaying securities would help reduce the level

of reserve balances, thereby increasing the effectiveness

of the IOER rate and allowing a more rapid reduction in

the size of the ON RRP facility. A number of participants suggested that it would be useful to consider specific plans for these and other details of policy normalization under a range of post-liftoff scenarios.

The statement titled Policy Normalization Principles and

Plans is available on the Board’s website at www.federalreserve.gov/newsevents/press/monetary/20140917c.htm.

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Participants also discussed whether to communicate to

the public additional details regarding the approach they

intend to take when it becomes appropriate to begin the

normalization process, including the width of the target

range for the federal funds rate, the settings of the IOER

and ON RRP rates, and the use of supplementary tools.

A couple of participants suggested communicating a

specific commitment to reducing ON RRP capacity

soon after liftoff. However, a number of participants

emphasized that maintaining control of short-term interest rates would be paramount in the initial stages of

policy normalization, and that it was difficult to know in

advance when a reduction would be appropriate. They

therefore desired to retain some flexibility over the timing of any reduction. That said, many participants

agreed that an elevated aggregate capacity for the facility

would likely be appropriate only for a short period after

liftoff.

At the conclusion of their discussion, all participants

agreed to augment the Committee’s Policy Normalization Principles and Plans by providing the following additional details regarding the operational approach the

FOMC intends to use when it becomes appropriate to

begin normalizing the stance of monetary policy.3

When economic conditions warrant the commencement

of policy firming, the Federal Reserve intends to:







Continue to target a range for the federal funds rate

that is 25 basis points wide.

Set the IOER rate equal to the top of the target

range for the federal funds rate and set the offering

rate associated with an ON RRP facility equal to the

bottom of the target range for the federal funds rate.

Allow aggregate capacity of the ON RRP facility to

be temporarily elevated to support policy implementation; adjust the IOER rate and the parameters of

the ON RRP facility, and use other tools such as

term operations, as necessary for appropriate monetary control, based on policymakers’ assessments

of the efficacy and costs of their tools. The Committee expects that it will be appropriate to reduce

the capacity of the facility fairly soon after it commences policy firming.

A staff briefing outlined some options for further testing

of term RRP operations over future quarter-ends. While

the tests of term RRPs to date had been informative, the

staff suggested that if the Committee envisioned using

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term RRPs as part of its strategy at liftoff, or potentially

at some other point during normalization, continued

testing may be useful. Participants discussed whether a

resolution that authorized term RRP test operations at

quarter-ends through the end of 2015 might reduce the

probability that market participants mistakenly interpret

future decisions about testing term RRPs over quarterends as containing information about the likely timing of

liftoff. It was noted that such a resolution would be

more efficient from an administrative and communications standpoint, as it would simply allow a continuation

of recent quarter-end testing of term RRPs. Moreover,

the resolution would not convey any information regarding either the timing of the start of policy normalization

or whether term RRP operations might be employed at

the time of liftoff and, if so, for how long.

Following the discussion of the testing of term RRP

operations, the Committee approved the following

resolution on term RRP testing over quarter-ends

through January 29, 2016:

“During each of the periods of June 18 to 29,

2015; September 18 to 29, 2015; and December

17 to 30, 2015, the Federal Open Market Committee (FOMC) authorizes the Federal Reserve

Bank of New York to conduct a series of term

reverse repurchase operations involving U.S.

government securities. Such operations shall:

(i) mature no later than July 8, 2015, October 7,

2015, and January 8, 2016, respectively; (ii) be

subject to an overall size limit of $300 billion

outstanding at any one time; (iii) be subject to a

maximum bid rate of five basis points above the

ON RRP offering rate in effect on the day of

the operation; (iv) be awarded to all submitters:

(A) at the highest submitted rate if the sum of

the bids received is less than or equal to the preannounced size of the operation, or (B) at the

stop-out rate, determined by evaluating bids in

ascending order by submitted rate up to the

point at which the total quantity of bids equals

the preannounced size of the operation, with all

bids below this rate awarded in full at the stopout rate and all bids at the stop-out rate awarded

on a pro rata basis, if the sum of the counterparty offers received is greater than the preannounced size of the operation. Such operations

may be for forward settlement. The System

Open Market Account manager will inform the

FOMC in advance of the terms of the planned

operations. The Chair must approve the terms

of, timing of the announcement of, and timing

of the operations. These operations shall be

conducted in addition to the authorized overnight reverse repurchase agreements, which remain subject to a separate overall size limit authorized by the FOMC.”

Mr. Lacker dissented in the vote on the resolution because the March end-of-quarter testing had not yet been

completed and he felt that there was no need to authorize additional testing before then.

The Board meeting concluded at the end of the discussion of normalization tools.

Staff Review of the Economic Situation

The information reviewed for the March 17‒18 meeting

suggested that real gross domestic product (GDP)

growth moderated in the first quarter and that labor market conditions improved further. Consumer price inflation was restrained significantly by declines in energy

prices and continued to run below the FOMC’s longerrun objective of 2 percent. Market-based measures of

inflation compensation were still low, while survey

measures of longer-run inflation expectations remained

stable.

Nonfarm payroll employment continued to expand

strongly in January and February. The unemployment

rate declined to 5.5 percent in February. Both the labor

force participation rate and the employment-topopulation ratio rose slightly over the first two months

of the year, and the share of workers employed part time

for economic reasons edged down. The rate of privatesector job openings moved up in January and was at an

elevated level; the rate of quits remained the same as in

the fourth quarter, but the rate of hiring stepped down.

Industrial production decreased a little, on net, in January and February, as declines in the output of the manufacturing and mining sectors more than offset an increase in utilities production. Some indicators of mining

activity, such as counts of drilling rigs in operation,

dropped further. However, automakers’ assembly

schedules and broader indicators of manufacturing production, such as the readings on new orders from national and regional manufacturing surveys, generally

pointed to modest gains in factory output in coming

months.

Real personal consumption expenditures (PCE) appeared to decelerate somewhat going into the first quarter after rising markedly in the fourth quarter. The components of the nominal retail sales data used by the Bureau of Economic Analysis to construct its estimate of

PCE declined slightly in January and February, and light

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motor vehicle sales stepped down; unusually severe

weather in some regions in February may have accounted for a small part of the slowing in consumer

spending in that month. Recent information about key

factors that influence household spending pointed toward a pickup in PCE in the coming months. The purchasing power of households’ income continued to be

supported by low energy prices, and real disposable income rose briskly in January. Moreover, households’ net

worth likely increased as equity prices and home values

advanced further, and consumer sentiment in the University of Michigan Surveys of Consumers was still near

its highest level since prior to the most recent recession.

The pace of activity in the housing sector remained slow.

Both starts and building permits for new single-family

homes declined over January and February. Starts of

multifamily units also decreased, on net, over the past

two months. Sales of new and existing homes moved

down in January, although pending home sales increased

somewhat.

Real private expenditures for business equipment and intellectual property products appeared to be expanding in

the first quarter at about the same modest pace as in the

previous quarter. Both nominal orders and shipments

of nondefense capital goods excluding aircraft rose in

January. New orders for these capital goods remained

above the level of shipments, indicating that shipments

may increase in subsequent months. Other forwardlooking indicators, such as national and regional surveys

of business conditions, were generally consistent with

modest increases in business equipment spending in the

near term. Firms’ nominal spending for nonresidential

structures moved down in January after rising in the

fourth quarter.

Federal spending data for January and February pointed

toward a further decline in real federal government purchases in the first quarter. Real state and local government purchases appeared to be rising modestly in the

first quarter as their payrolls increased in recent months,

although their construction expenditures decreased a little in January.

The U.S. international trade deficit widened substantially

in December before narrowing somewhat in January.

Exports declined in both December and January, reflecting weak agricultural goods exports, the lower price of

petroleum products, and falling or flat exports of most

other categories of goods. Imports rose in December,

with an increased volume of petroleum imports, but declined in January, driven by lower prices and volumes for

petroleum.

Total U.S. consumer prices, as measured by the PCE

price index, edged up only ¼ percent over the

12 months ending in January, as energy prices declined

significantly. The core PCE price index, which excludes

food and energy prices, rose 1¼ percent over the same

12-month period. Measures of expected long-run inflation from a variety of surveys, including the Michigan

survey, the Blue Chip Economic Indicators, the Survey of

Professional Forecasters, and the Desk’s Survey of Primary Dealers, remained stable. Market-based measures

of inflation compensation were still low. Measures of

labor compensation continued to increase at a modest

pace, although faster than consumer prices. Both compensation per hour in the nonfarm business sector and

the employment cost index rose 2¼ percent over the

year ending in the fourth quarter. Average hourly earnings for all employees increased 2 percent over the

12 months ending in February.

Foreign real GDP appeared to expand at a moderate

pace in the fourth quarter. While GDP growth stepped

down in several economies, including Canada and China,

it picked up in the euro area, Japan, and Mexico. Indicators for the first quarter suggested continued firming

in the euro area and further slowing in China and Canada. Consumer prices in many foreign economies declined further in the first months of this year, reflecting

the falls in energy prices as well as decreases in food

prices in some emerging market economies. Many central banks took steps to ease monetary policy during the

period, including the European Central Bank (ECB),

which began purchasing sovereign bonds under its public sector purchase program (PSPP), and the People’s

Bank of China, which lowered required reserve ratios for

banks. A number of other central banks in advanced

and emerging market economies cut policy interest rates.

Staff Review of the Financial Situation

Movements in asset prices over the intermeeting period

largely seemed to reflect receding concerns about downside risks to the global economic outlook. Two strong

U.S. employment reports and the January consumer

price index release, all of which were above market expectations; the start of sovereign bond purchases by the

ECB; and the somewhat more encouraging economic

news from Europe all appeared to contribute to the improved sentiment in financial markets. Equity prices

were higher, on net, although they declined later in the

period.

Federal Reserve communications over the intermeeting

period, including the minutes of the January FOMC

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meeting, reportedly were perceived as slightly more accommodative than expected on balance. Market commentary also highlighted Chair Yellen’s statement at the

Monetary Policy Report testimony that the eventual removal

of the language in the policy statement noting that “the

Committee judges that it can be patient in beginning to

normalize the stance of monetary policy” should not be

viewed as indicating that the federal funds rate would

necessarily be increased within a couple of meetings.

However, the effects of these communications on the

expected path for the federal funds rate were more than

offset by reactions to stronger-than-expected data for

the labor market and consumer inflation, along with perceptions of receding downside risks to the foreign economic outlook. On net, the expected path for the federal funds rate implied by financial market quotes shifted

up over the period.

Yields on nominal Treasury securities increased across

the maturity spectrum, and the Treasury yield curve

steepened. Measures of inflation compensation based

on Treasury Inflation-Protected Securities increased

early in the intermeeting period amid rising oil prices but

ended the period little changed, on net, after oil prices

dropped back.

Broad U.S. equity price indexes moved up, on balance,

over the intermeeting period, and one-month optionimplied volatility on the S&P 500 index moved down on

net. Spreads of 10-year corporate bond yields over those

on comparable-maturity Treasury securities for both

BBB-rated and speculative-grade issuers narrowed notably, likely reflecting increased appetite for riskier investments. While the tightening of spreads was broad based,

the declines in short- and intermediate-term spreads for

speculative-grade energy firms were particularly pronounced, retracing most of their strong run-up approaching the end of last year.

Results from the Desk’s Survey of Primary Dealers and

Survey of Market Participants for March indicated that

the respondents attached the greatest probabilities to the

first increase in the target range for the federal funds rate

occurring at either the June or September FOMC meeting; those probabilities were marked up relative to the

January survey. In addition, survey respondents widely

expected the “patient” language to be removed from the

FOMC statement following the March meeting. Conditional on this change in the statement, respondents assigned a roughly 40 percent probability, on average, to

liftoff occurring two meetings ahead and assigned most

of the remaining probability to later dates.

Credit conditions faced by large nonfinancial firms remained generally accommodative. Corporate bond issuance increased in February, mostly reflecting activity by

investment-grade firms. Commercial and industrial

loans on banks’ books continued to expand strongly, reportedly in part to fund increased merger and acquisition

activity. Institutional leveraged loan issuance during January and February was supported by strong issuance of

new money loans, while refinancing activity effectively

came to a stop, likely reflecting elevated loan spreads.

On net, issuance of collateralized loan obligations was

only modestly below the strong pace registered in the

fourth quarter of 2014.

Financing for the commercial real estate (CRE) sector

stayed broadly available over the intermeeting period.

Growth of CRE loans on banks’ books remained solid,

in part supported by loans to finance construction activity. The issuance of commercial mortgage-backed securities (CMBS) was still robust so far this year, and

spreads continued to be low. After taking into account

deals in the pipeline for March, issuance in the first quarter of 2015 was expected to be the strongest since the

financial crisis. According to the March Senior Credit

Officer Opinion Survey on Dealer Financing Terms,

dealers’ willingness to provide warehouse financing for

loans intended for inclusion in CMBS increased since

the beginning of 2014. In addition, demand for funding

of CMBS by hedge funds and real estate investment

trusts reportedly rose over the same period.

Credit conditions for mortgages remained tight for riskier borrowers, with relatively few mortgages originated

to borrowers in the lower portion of the credit score distribution. For borrowers who qualify for a mortgage,

the cost of credit stayed low by historical standards.

Consumer credit rose further over the intermeeting period. Auto and student loan balances continued to expand robustly through January, while credit card balances decelerated slightly. Issuance of consumer assetbacked securities remained robust.

The dollar appreciated against most other currencies

over the intermeeting period, as policymakers in the euro

area, Sweden, Denmark, and many emerging market

economies eased monetary policy even as market participants anticipated monetary policy tightening in the

United States. Central bank policymakers in Sweden and

Denmark lowered the rates on their respective deposit

facilities further below zero. In addition, in Sweden, the

benchmark repurchase agreement (or repo) rate was reduced in February to below zero for the first time, and a

further cut was announced in March. Equity prices rose

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in most of the advanced foreign economies, with euroarea stocks rallying both before and after the early March

commencement of sovereign bond purchases by the

ECB under its PSPP. Stock market performance in the

emerging market economies was more varied, with net

losses in some and net gains in others. Yields on German government securities declined, with negative yields

extending to longer maturities than at the time of the

January meeting, likely in reaction to the PSPP, and yield

spreads of most other euro-area sovereign bonds over

German bonds narrowed. The main exception was

Greek bonds, spreads on which widened, on net, amid

heightened volatility as negotiations between Greece and

its official creditors over support for the country’s public

finances continued. Yields on the long-term sovereign

bonds of many other countries, including Japan and the

United Kingdom, rose during the period.

Staff Economic Outlook

In the U.S. economic forecast prepared by the staff for

the March FOMC meeting, projected real GDP growth

in the first half of this year was lower than in the forecast

prepared for the January meeting, largely reflecting

downward revisions to the near-term forecasts for

household spending, net exports, and residential investment. The staff’s medium-term forecast for real GDP

growth also was revised down, mostly because of the effects of a higher projected path for the foreign exchange

value of the dollar. Nonetheless, the staff continued to

forecast that real GDP would expand at a faster pace

than potential output in 2015 and 2016, supported by

increases in consumer and business confidence and a

small pickup in foreign economic growth, even as the

normalization of monetary policy was assumed to begin.

In 2017, real GDP growth was projected to slow toward,

but to remain above, the rate of potential output growth.

The expansion in economic activity over the medium

term was anticipated to gradually reduce resource slack;

the unemployment rate was expected to decline slowly

and to temporarily move a little below the staff’s estimate of its longer-run natural rate. In its medium-term

and longer-run projections, the staff slightly lowered its

assumptions for potential GDP growth and real equilibrium interest rates.

The staff’s forecast for inflation in the near term was little changed, with the large declines in energy prices since

last June still anticipated to lead to a temporary decrease

The president of the Federal Reserve Bank of Dallas did

not participate in this FOMC meeting, and the incoming

president of the Federal Reserve Bank of Philadelphia is

scheduled to assume office on July 1. Helen E. Holcomb

4

in the 12-month change in total PCE prices in the first

half of this year. The staff’s forecast for inflation in 2016

and 2017 was unchanged, as energy prices and non-oil

import prices were still expected to bottom out and

begin rising later this year; inflation was projected to

move closer to, but remain below, the Committee’s

longer-run objective of 2 percent over those years. Inflation was anticipated to move back to 2 percent thereafter, with inflation expectations in the longer run assumed to be consistent with the Committee’s objective

and slack in labor and product markets projected to have

waned.

The staff viewed the extent of uncertainty around its

March projections for real GDP growth, the unemployment rate, and inflation as similar to the average over the

past 20 years. The risks to the forecasts for real GDP

growth and inflation were viewed as tilted a little to the

downside, reflecting the staff’s assessment that neither

monetary policy nor fiscal policy was 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 as roughly balanced.

Participants’ Views on Current Conditions and the

Economic Outlook

In conjunction with this FOMC meeting, members of

the Board of Governors and participating Federal Reserve Bank presidents submitted their projections of the

most likely outcomes for real GDP growth, the unemployment rate, inflation, and the federal funds rate for

each year from 2015 through 2017 and over the longer

run, conditional on each participant’s judgment of appropriate monetary policy.4 The longer-run projections

represent each participant’s assessment of the rate to

which each variable would be expected to converge, over

time, under appropriate monetary policy and in the absence of further shocks to the economy. These economic projections and policy assessments are described

in the Summary of Economic Projections, which is attached as an addendum to these minutes.

In their discussion of the economic situation and the

outlook, meeting participants regarded the information

received over the intermeeting period as indicating that

the pace of economic activity had moderated somewhat.

Labor market conditions continued to improve, with

strong job gains and a lower unemployment rate, and

and Blake Prichard, First Vice Presidents of the Federal Reserve Banks of Dallas and Philadelphia, respectively, submitted economic projections.

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participants judged that underutilization of labor resources was continuing to diminish. A number of participants noted that slow growth of productivity or the

labor force could reconcile the moderation in economic

growth with the solid performance of some labor market

indicators. Participants expected that, over the medium

term, real economic activity would expand at a moderate

pace and there would be additional improvements in labor market conditions. Participants generally regarded

the net effect of declines in energy prices as likely to be

positive for economic activity and employment in the

United States, although a couple noted that physical limits on the accumulation of stocks of crude oil could result in further downward pressure on prices and reduce

U.S. oil and gas production and investment. Inflation

had declined further below the Committee’s longer-run

objective, largely reflecting declines in energy prices, and

was expected to stay near its recent low level in the near

term. Market-based measures of inflation compensation

5 to 10 years ahead remained low, while survey-based

measures of longer-term inflation expectations had remained stable. Participants generally anticipated that inflation would rise gradually toward the Committee’s

2 percent objective as the labor market improved further

and the transitory effects of energy price declines and

other factors dissipated. While almost all participants

noted potential risks to the economic outlook resulting

from foreign economic and financial developments,

most saw the risks to the outlook for economic growth

and the labor market as nearly balanced.

Household spending appeared to have slowed somewhat over the intermeeting period, with some participants suggesting that the recent softness in spending indicators was likely due in part to transitory factors, such

as unseasonably cold winter weather in parts of the

country. Some participants expressed the view that

growth in consumer spending over the medium term

would be supported by the strong labor market and rising income, increases in wealth and improvements in

household balance sheets, lower gasoline prices, and

gains in consumer confidence. Although activity in the

housing sector remained sluggish, a few participants

were cautiously optimistic that recent higher rates of

household formation, together with low mortgage rates,

would enable a faster pace of recovery.

Business contacts in many parts of the country continued to express optimism about prospects for future sales

or investment. However, there were widespread reports

of a slowdown in growth during the first quarter across

a range of industries, partly reflecting severe winter

weather in some regions as well as labor disputes at West

Coast ports that temporarily disrupted some supply

chains. In several parts of the country, persistently low

oil prices had resulted in declines in drilling and delays

in planned capital expenditures in the energy sector, and

had negatively affected state government revenues.

Manufacturing contacts in a couple of regions reported

a softening in export sales. In contrast, service-sector

activity had been reasonably strong in several parts of

the country, as had auto sales, and the increase in household purchasing power from lower gasoline prices was

expected to boost retail sales. Labor market conditions

continued to improve in most regions, with wage pressures generally reported to be modest.

In their discussion of the foreign economic outlook, several participants noted that the dollar’s further appreciation over the intermeeting period was likely to restrain

U.S. net exports and economic growth for a time. A few

participants suggested that accommodative policy actions by a number of foreign central banks could lead to

a further appreciation of the dollar, but another noted

that such actions had also strengthened the outlook for

growth abroad, which would bolster U.S. exports. Participants pointed to a number of risks to the international economic outlook, including the slowdown in

growth in China, fiscal and financial problems in Greece,

and geopolitical tensions.

Participants saw broad-based improvement in labor

market conditions over the intermeeting period, including strong gains in payroll employment and a further reduction in the unemployment rate. Several participants

judged, based on the improvement in a variety of labor

market indicators, that the economy was making further

progress toward the Committee’s goal of maximum employment. Nonetheless, many judged that some degree

of labor market slack remained, as evidenced by the low

rate of labor force participation, still-elevated involuntary part-time employment, or subdued growth in wages.

A few of them noted that continued modest wage

growth could prompt them to reduce their estimates of

the longer-run normal rate of unemployment. A few

participants observed that the absence of a notable

pickup in wages might not be a useful yardstick for evaluating the degree of remaining slack because of the long

lags between declines in unemployment and the response of wages or uncertainty about trend productivity

growth. One participant, however, saw some evidence

of rising wage growth and suggested that compositional

changes in the labor force could be masking underlying

wage pressures, particularly as measured by average

hourly earnings.

Minutes of the Meeting of March 17–18, 2015

Page 9

_____________________________________________________________________________________________

Many participants judged that the inflation data received

over the intermeeting period had been about in line with

their expectations that inflation would move temporarily

further below the Committee’s goal, largely reflecting

declines in energy prices and lower prices of non-oil imports. They continued to expect that inflation would

move up toward the Committee’s 2 percent objective

over the medium term as the effects of these transitory

factors waned and conditions in the labor market improved further. Survey-based measures of inflation expectations had remained stable, and market-based

measures of inflation compensation over the longer

term were about unchanged from the time of the January

meeting, although they had exhibited some volatility

over the intermeeting period. It was noted that the

market-based measures had tracked quite closely the

movements in crude oil prices over the period, first rising and then falling back. Participants offered various

explanations for this correlation, including that marketbased measures of inflation compensation were responding to the same global developments as oil prices,

that these measures were capturing changes in risk or liquidity premiums, or that inflation-indexed securities

were subject to mispricing. A couple of participants

pointed out that the movements in crude oil prices and

market-based inflation compensation measures had not

been particularly well aligned over a longer historical period, or that information gleaned from inflation derivatives suggested a substantial increase in the probability

that inflation would remain well below the Committee’s

target over the next decade. One of them judged that

the low level of inflation compensation could reflect increased concern on the part of investors about adverse

outcomes in which low inflation was accompanied by

weak economic activity, and that it was important not to

dismiss this possible interpretation.

In their discussion of communications regarding the

path of the federal funds rate over the medium term, almost all participants favored removing from the forward

guidance in the Committee’s postmeeting statement the

indication that the Committee would be patient in beginning to normalize the stance of monetary policy.

These participants continued to think that an increase in

the target range for the federal funds rate was unlikely in

April. But, with continued improvement in economic

conditions, they preferred language that would provide

the Committee with the flexibility to subsequently adjust

the target range for the federal funds rate on a meetingby-meeting basis. It was noted that eliminating the reference to being patient would be appropriate in light of

the considerable progress achieved toward the Committee’s objective of maximum employment, and that such

a change would not indicate that the Committee had decided on the timing of the initial increase in the target

range for the federal funds rate. Participants generally

judged that the appropriate timing of liftoff would depend on their assessment of improvement in the labor

market and their degree of confidence that inflation

would move back to the Committee’s 2 percent objective over the medium term, and that it would be helpful

to convey to the public this data-dependent approach to

monetary policy. A few participants emphasized that the

decision regarding the appropriate timing of liftoff

should take account of the risks that could be associated

with departing from the effective lower bound later and

those that could be associated with departing earlier.

One participant did not favor the change to the forward

guidance because, with inflation well below the Committee’s 2 percent longer-run target, the announcement of a

meeting-by-meeting approach to policy could lead to a

tightening of financial conditions that would slow progress toward the Committee’s objectives.

Participants expressed a range of views about how they

would assess the outlook for inflation and when they

might deem it appropriate to begin removing policy accommodation. It was noted that there were no simple

criteria for such a judgment, and, in particular, that, in a

context of progress toward maximum employment and

reasonable confidence that inflation will move back to 2

percent over the medium term, the normalization process could be initiated prior to seeing increases in core

price inflation or wage inflation. Further improvement

in the labor market, a stabilization of energy prices, and

a leveling out of the foreign exchange value of the dollar

were all seen as helpful in establishing confidence that

inflation would turn up. Several participants judged that

the economic data and outlook were likely to warrant

beginning normalization at the June meeting. However,

others anticipated that the effects of energy price declines and the dollar’s appreciation would continue to

weigh on inflation in the near term, suggesting that conditions likely would not be appropriate to begin raising

rates until later in the year, and a couple of participants

suggested that the economic outlook likely would not

call for liftoff until 2016. With regard to communications about the timing of the first increase in the target

range for the federal funds rate, two participants thought

that the Committee should seek to signal its policy intentions at the meeting before liftoff appeared likely, but

two others judged that doing so would be inconsistent

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Federal Open Market Committee

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with a meeting-by-meeting approach. Finally, many participants commented that it would be desirable to provide additional information to the public about the

Committee’s strategy for policy after the beginning of

normalization. Some participants emphasized that the

stance of policy would remain highly accommodative

even after the first increase in the target range for the

federal funds rate, and several noted that they expected

economic developments would call for a fairly gradual

pace of normalization or that a data-dependent approach would not necessarily dictate increases in the target range at every meeting.

Committee Policy Action

In their discussion of monetary policy for the period

ahead, members judged that information received since

the FOMC met in January indicated that economic

growth had moderated somewhat. Labor market conditions had improved further, with strong job gains and a

lower unemployment rate; a variety of labor market indicators suggested that the underutilization of labor resources continued to diminish. Household spending

was rising moderately, with declines in energy prices

boosting household purchasing power. Business fixed

investment was advancing, although the recovery in the

housing sector remained slow and export growth had

weakened. Inflation had declined further below the

Committee’s longer-run objective, largely reflecting the

declines in energy prices. Market-based measures of inflation compensation remained low; survey-based

measures of longer-term inflation expectations had been

stable. The Committee expected that, with appropriate

monetary policy accommodation, economic activity

would expand at a moderate pace and labor market indicators would continue to move toward levels the Committee judges consistent with its dual mandate. The

Committee also expected that inflation would remain

near its recent low level in the near term but rise gradually toward 2 percent over the medium term as the labor

market improves further and the transitory effects of energy price declines and other factors dissipate. In light

of the uncertainties attending the outlook for inflation,

the Committee agreed that it should continue to monitor

inflation developments closely.

In their discussion of language for the postmeeting statement, the Committee agreed that the data received over

the intermeeting period suggested that economic growth

had moderated somewhat. One factor behind that moderation was a slowdown in the growth of exports, and

members decided that the statement should explicitly

note that factor. In addition, data received over the intermeeting period indicated that inflation had declined,

as the Committee had anticipated, and members agreed

to update the statement to reflect their judgment that inflation was likely to remain near its recent low level in

the near term. Members also judged that it was appropriate to note that market-based measures of inflation

compensation remained near levels registered at the time

of the January FOMC meeting.

The Committee agreed to maintain the target range for

the federal funds rate at 0 to ¼ percent and to reaffirm

in the statement that the Committee’s decision 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. Members

continued to judge that this assessment of progress

would 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 and international developments. In

light of the considerable progress to date toward the

Committee’s maximum-employment objective and the

implications of that progress for the outlook for inflation, members agreed to remove from the forward guidance in the postmeeting statement the indication that the

Committee judges that it can be patient in beginning to

normalize the stance of monetary policy and to indicate

instead that the Committee anticipates that it will be appropriate to raise the target range for the federal funds

rate when it has seen further improvement in the labor

market and is reasonably confident that inflation will

move back to its 2 percent objective over the medium

term. Members viewed the new guidance as consistent

with the outlook for policy that the Committee had expressed in January, and they agreed that the postmeeting

statement should note that an increase in the target range

for the federal funds rate remained unlikely at the April

FOMC meeting; in addition, they generally saw the new

language as providing the Committee with the flexibility

to begin raising the target range for the federal funds rate

in June or at a subsequent meeting. Members noted that

the timing of the first increase would depend on the evolution of economic conditions and the outlook, and that

the change in the forward guidance was not intended to

indicate that the Committee had decided on the timing

of the initial increase in the target range for the federal

funds rate.

The Committee also decided to maintain its policy of reinvesting principal payments from agency debt and

agency mortgage-backed securities in agency mortgagebacked securities and of rolling over maturing Treasury

Minutes of the Meeting of March 17–18, 2015

Page 11

_____________________________________________________________________________________________

securities at auction. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions. The Committee agreed to reiterate its 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. 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

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 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 January suggests that

economic growth has moderated somewhat.

Labor market conditions have improved further, with strong job gains and a lower unemployment rate. A range of labor market indicators suggests that underutilization of labor resources continues to diminish. Household

spending is rising moderately; declines in energy

prices have boosted household purchasing

power. Business fixed investment is advancing,

while the recovery in the housing sector remains

slow and export growth has weakened. Inflation has declined further below the Committee’s longer-run objective, largely reflecting declines in energy prices. Market-based measures

of inflation compensation remain low; surveybased measures of 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,

with labor market indicators continuing to

move toward levels the Committee judges consistent with its dual mandate. The Committee

continues to see the risks to the outlook for economic activity and the labor market as nearly

balanced. Inflation is anticipated to remain near

its recent low level in the near term, but the

Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory

effects of energy price declines and other factors dissipate. The Committee continues to

monitor inflation developments closely.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current

0 to ¼ percent target range for the federal funds

rate remains appropriate. In determining how

long to maintain this target range, 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

and international developments. Consistent

with its previous statement, the Committee

judges that an increase in the target range for the

federal funds rate remains unlikely at the April

FOMC meeting. The Committee anticipates

that it will be appropriate to raise the target

range for the federal funds rate when it has seen

further improvement in the labor market and is

reasonably confident that inflation will move

Page 12

Federal Open Market Committee

_____________________________________________________________________________________________

back to its 2 percent objective over the medium

term. This change in the forward guidance does

not indicate that the Committee has decided on

the timing of the initial increase in the target

range.

The Committee is maintaining its existing policy

of reinvesting principal payments from its holdings of agency debt and agency mortgagebacked securities in agency mortgage-backed securities and of rolling over maturing Treasury

securities at auction. This policy, by keeping the

Committee’s holdings of longer-term securities

at sizable levels, should help maintain accommodative financial conditions.

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 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.”

Voting for this action: Janet L. Yellen, William C. Dudley, Lael Brainard, Charles L. Evans, Stanley Fischer, Jeffrey M. Lacker, Dennis P. Lockhart, Jerome H. Powell,

Daniel K. Tarullo, and John C. Williams.

Voting against this action: None.

It was agreed that the next meeting of the Committee

would be held on Tuesday–Wednesday, April 28–29,

2015. The meeting adjourned at 10:45 a.m. on March

18, 2015.

Notation Vote

By notation vote completed on February 17, 2015, the

Committee unanimously approved the minutes of the

Committee meeting held on January 27–28, 2015.

_____________________________

Thomas Laubach

Secretary

Page 1

_____________________________________________________________________________________________

Summary of Economic Projections

In conjunction with the Federal Open Market Committee (FOMC) meeting held on March 17–18, 2015, meeting participants submitted their projections of the most

likely outcomes for real output growth, the unemployment rate, inflation, and the federal funds rate for each

year from 2015 to 2017 and over the longer run.1 Each

participant’s projection was based on information available at the time of the meeting plus his or her assessment

of appropriate monetary policy and assumptions about

the factors likely to affect economic outcomes. The

longer-run projections represent each participant’s assessment of the value to which each variable would be

expected to converge, over time, under appropriate

monetary policy and in the absence of further shocks to

the economy. “Appropriate monetary policy” is defined

as the future path of policy that each participant deems

most likely to foster outcomes for economic activity and

inflation that best satisfy his or her individual interpretation of the Federal Reserve’s objectives of maximum

employment and stable prices.

________________

1 The

president of the Federal Reserve Bank of Dallas did not

participate in this FOMC meeting, and the incoming president

of the Federal Reserve Bank of Philadelphia is scheduled to

assume office on July 1. Helen E. Holcomb and Blake Prichard, First Vice Presidents of the Federal Reserve Banks of Dallas and Philadelphia, respectively, submitted economic projections.

All FOMC participants but one expected that economic

growth under appropriate policy would be somewhat

faster in 2015 and in 2016 than their individual estimates

of the U.S. economy’s longer-run normal growth rate

and at or near its longer-run rate in 2017 (table 1 and

figure 1). Most participants projected that the unemployment rate would continue to decline in 2015 and

2016, and all participants projected that the unemployment rate would be at or below their individual judgments of its longer-run normal level by the end of 2017.

Participants saw inflation, as measured by the fourquarter change in the price index for personal consumption expenditures (PCE), slowing this year but picking

up notably next year; almost all of the participants projected that inflation would be at or close to the Committee’s 2 percent longer-run objective in 2017.

As shown in figure 2, all but two participants anticipated

that it would be appropriate to begin raising the target

range for the federal funds rate in 2015. Most expected

that it would be appropriate to raise the target federal

funds rate fairly gradually over the projection period as

labor market conditions and inflation move toward values the Committee judges consistent with the attainment

of its mandated objectives of maximum employment

and stable prices. Most participants continued to expect

that it would be appropriate for the federal funds rate to

stay appreciably below its longer-run level after inflation

and unemployment are near mandate-consistent levels,

Table 1. Economic projections of Federal Reserve Board members and Federal Reserve Bank presidents, March 2015*

Percent

Variable

Central tendency1

2015

Range2

2016

2017

Longer run

2015

2016

2017

Longer run

Change in real GDP . . . . . 2.3 to 2.7

December projection . . 2.6 to 3.0

2.3 to 2.7

2.5 to 3.0

2.0 to 2.4

2.3 to 2.5

2.0 to 2.3

2.0 to 2.3

2.1 to 3.1

2.1 to 3.2

2.2 to 3.0

2.1 to 3.0

1.8 to 2.5

2.0 to 2.7

1.8 to 2.5

1.8 to 2.7

Unemployment rate . . . . . 5.0 to 5.2

December projection . . 5.2 to 5.3

4.9 to 5.1

5.0 to 5.2

4.8 to 5.1

4.9 to 5.3

5.0 to 5.2

5.2 to 5.5

4.8 to 5.3

5.0 to 5.5

4.5 to 5.2

4.9 to 5.4

4.8 to 5.5

4.7 to 5.7

4.9 to 5.8

5.0 to 5.8

PCE inflation . . . . . . . . . . . 0.6 to 0.8

December projection . . 1.0 to 1.6

1.7 to 1.9

1.7 to 2.0

1.9 to 2.0

1.8 to 2.0

2.0

2.0

0.6 to 1.5

1.0 to 2.2

1.6 to 2.4

1.6 to 2.1

1.7 to 2.2

1.8 to 2.2

2.0

2.0

Core PCE inflation3 . . . . . 1.3 to 1.4

December projection . . 1.5 to 1.8

1.5 to 1.9

1.7 to 2.0

1.8 to 2.0

1.8 to 2.0

1.2 to 1.6

1.5 to 2.2

1.5 to 2.4

1.6 to 2.1

1.7 to 2.2

1.8 to 2.2

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 December projections were made in conjunction with the meeting of the Federal Open Market Committee

on December 16–17, 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.

* The lower end of the central tendency for longer-run unemployment from the December projections was corrected on April 8, 2015. The error only affected

the PDF version of the March Summary of Economic Projections.

Page 2

Federal Open Market Committee

_____________________________________________________________________________________________

Figure 1. Central tendencies and ranges of economic projections, 2015–17 and over the longer run

Percent

Change in real GDP

4

Central tendency of projections

Range of projections

3

2

1

+

0

-

Actual

2010

2011

2012

2013

2014

2015

2016

2017

Longer

run

Percent

Unemployment rate

10

9

8

7

6

5

2010

2011

2012

2013

2014

2015

2016

2017

Longer

run

Percent

PCE inflation

3

2

1

2010

2011

2012

2013

2014

2015

2016

2017

Longer

run

Percent

Core PCE inflation

3

2

1

2010

2011

2012

2013

2014

2015

2016

2017

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 March 17–18, 2015

Page 3

_____________________________________________________________________________________________

Figure 2. Overview of FOMC participants’ assessments of appropriate monetary policy

Number of participants

Appropriate timing of policy firming

15

15

14

13

12

11

10

9

8

7

6

5

4

3

2

2

1

2015

2016

Percent

Appropriate pace of policy firming: Midpoint of target range or target level for the federal funds rate

5

4.5

4

3.5

3

2.5

2

1.5

1

0.5

0

2015

2016

2017

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 range for the federal funds rate from its current range of

0 to 1/4 percent will occur in the specified calendar year. In December 2014, the numbers of FOMC participants who

judged that the first increase in the target federal funds rate would occur in 2015, and 2016 were, respectively, 15, and 2.

In the lower panel, each shaded circle indicates the value (rounded to the nearest 1/8 percentage point) of an individual

participant’s judgment of the midpoint of the appropriate target range for the federal funds rate or the appropriate

target level for the federal funds rate at the end of the specified calendar year or over the longer run.

Page 4

Federal Open Market Committee

_____________________________________________________________________________________________

reflecting the effects of remaining headwinds holding

back the recovery, along with other factors.

Most participants viewed the uncertainty associated with

their outlooks for economic growth and the unemployment rate as broadly similar to the average level of the

past 20 years. Most participants also judged the level of

uncertainty about inflation to be broadly similar to the

average level of the past 20 years, although several participants viewed it as higher. In addition, most participants continued to see the risks to the outlook for economic growth and for the unemployment rate as broadly

balanced, though some viewed the risks to economic

growth as weighted to the downside. Equal numbers of

participants saw the risks to inflation as balanced or as

weighted to the downside, while one judged these risks

as tilted to the upside.

The Outlook for Economic Activity

Participants generally projected that, conditional on their

individual assumptions about appropriate monetary policy, real gross domestic product (GDP) would grow in

2015 and 2016 at a pace somewhat faster than their estimates of its longer-run normal rate and at or near its

longer-run rate in 2017. Participants pointed to a number of factors that they expected would contribute to

solid real output growth over the next few years, including improving labor market conditions, strengthened

household and business balance sheets, the boost to

consumer spending from low energy prices, diminishing

restraint from fiscal policy, and still-accommodative

monetary policy.

Compared with their Summary of Economic Projections

(SEP) contributions in December, all but a couple of

participants revised down their projections of real GDP

growth over the forecast period. A number of participants cited the further appreciation of the dollar and recent weakness in spending and production data as reasons for their revision. The central tendencies of participants’ current projections for real GDP growth were

2.3 to 2.7 percent in 2015 and in 2016, and 2.0 to

2.4 percent in 2017. The central tendency of the projections of real GDP growth over the longer run was 2.0 to

2.3 percent, unchanged from December.

Most participants projected that the unemployment rate

would continue to decline through 2016, and all projected that by the fourth quarter of 2017 the unemployment rate would be at or below their individual judgments of its longer-run normal level. The central

tendencies of participants’ forecasts for the unemployment rate in the fourth quarter of each year were 5.0 to

5.2 percent in 2015, 4.9 to 5.1 percent in 2016, and

4.8 to 5.1 percent in 2017. Compared with the December SEP, participants’ projected paths for the unemployment rate generally shifted down slightly through 2017.

Many participants noted that recent data pointing to

faster-than-expected improvement in labor market conditions were an important factor underlying the downward revisions to their unemployment rate forecasts.

More than half of the participants revised down their estimates of the longer-run normal rate of unemployment;

as a result, the central tendency of these estimates shifted

down to 5.0 to 5.2 percent. Several participants noted

that still-subdued wage and price inflation despite the

stronger-than-expected momentum in the labor market

suggested a lower level of the longer-run normal unemployment rate than they had thought previously, and a

couple mentioned research indicating that demographic

groups with lower average unemployment rates have

accounted for an increasing fraction of the labor force.

Figures 3.A and 3.B show the distribution of participants’ views regarding the likely outcomes for real GDP

growth and the unemployment rate through 2017. Some

of the diversity of views reflected participants’ individual

assessments of the effects of lower oil prices on consumer spending and business investment, of the extent

to which dollar appreciation would affect real activity, of

the rate at which the forces that have been restraining

the pace of the economic recovery would continue to

abate, of the trajectory for growth in consumption as

labor market slack diminishes, and of the appropriate

path of monetary policy. Relative to the December SEP,

the dispersion of participants’ projections for real GDP

growth was a bit narrower from 2015 through 2017,

while for the unemployment rate, the dispersion was

roughly unchanged.

The Outlook for Inflation

Compared with the December SEP, all participants

marked down their projections for PCE inflation this

year, noting that inflation had been running below their

earlier projections and that significant declines in energy

prices and import prices were putting temporary downward pressure on inflation. All participants saw PCE inflation picking up in 2016, and almost all saw inflation at

or close to the Committee’s 2 percent longer-run objective in 2017. All of the participants also marked down

their projections for core PCE inflation this year, and

nearly half revised down their projections for core PCE

inflation in 2016 by 0.2 percentage point or more, with

many noting that core inflation had run below their earlier projections in recent months and several citing declines in non-oil import prices and pass-through of de-

Summary of Economic Projections of the Meeting of March 17–18, 2015

Page 5

_____________________________________________________________________________________________

Figure 3.A. Distribution of participants’ projections for the change in real GDP, 2015–17 and over the longer run

Number of participants

2015

18

16

14

12

10

8

6

4

2

March projections

December 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

Percent range

Number of participants

2016

18

16

14

12

10

8

6

4

2

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

Percent range

Number of participants

2017

18

16

14

12

10

8

6

4

2

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

Percent range

Number of participants

Longer run

18

16

14

12

10

8

6

4

2

1.8 1.9

2.0 2.1

2.2 2.3

2.4 2.5

2.6 2.7

Percent range

Note: Definitions of variables are in the general note to table 1.

2.8 2.9

3.0 3.1

3.2 3.3

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Federal Open Market Committee

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Figure 3.B. Distribution of participants’ projections for the unemployment rate, 2015–17 and over the longer run

Number of participants

2015

18

16

14

12

10

8

6

4

2

March projections

December projections

4.4 4.5

4.6 4.7

4.8 4.9

5.0 5.1

5.2 5.3

5.4 5.5

5.6 5.7

5.8 5.9

Percent range

Number of participants

2016

18

16

14

12

10

8

6

4

2

4.4 4.5

4.6 4.7

4.8 4.9

5.0 5.1

5.2 5.3

5.4 5.5

5.6 5.7

5.8 5.9

Percent range

Number of participants

2017

18

16

14

12

10

8

6

4

2

4.4 4.5

4.6 4.7

4.8 4.9

5.0 5.1

5.2 5.3

5.4 5.5

5.6 5.7

5.8 5.9

Percent range

Number of participants

Longer run

18

16

14

12

10

8

6

4

2

4.4 4.5

4.6 4.7

4.8 4.9

5.0 5.1

5.2 5.3

Percent range

Note: Definitions of variables are in the general note to table 1.

5.4 5.5

5.6 5.7

5.8 5.9

Summary of Economic Projections of the Meeting of March 17–18, 2015

Page 7

_____________________________________________________________________________________________

clines in energy prices. Almost all expected core inflation to rise gradually over the projection period and to

reach a level at or near 2 percent in 2017. The central

tendencies for PCE inflation were 0.6 to 0.8 percent in

2015, 1.7 to 1.9 percent in 2016, and 1.9 to 2.0 percent

in 2017, and the central tendencies for core PCE inflation were 1.3 to 1.4 percent in 2015, 1.5 to 1.9 percent

in 2016, and 1.8 to 2.0 percent in 2017. Factors cited by

participants as likely to contribute to a rise of inflation

toward 2 percent included stable longer-term inflation

expectations, steadily diminishing resource slack, a

pickup in wage growth, the waning effects of declines in

energy prices, and still-accommodative monetary policy.

Figures 3.C and 3.D provide information on the distribution of participants’ views about the outlook for inflation. The range of participants’ projections for PCE inflation in 2015 narrowed somewhat compared with December. The range for PCE inflation in 2016 widened

slightly, likely reflecting in part differences in participants’ assessments of the effects of the declines in energy and import prices on the outlook for inflation. Similarly, the ranges for core PCE inflation narrowed in

2015 and widened slightly in 2016. The range for both

measures in 2017 was relatively little changed and continued to show a very substantial concentration near the

Committee’s 2 percent longer-run objective by that time.

Appropriate Monetary Policy

Participants judged that it would be appropriate to raise

the target range for the federal funds rate over the projection period as labor market conditions and inflation

move toward values the Committee judges consistent

with the attainment of its mandated objectives of maximum employment and price stability. As shown in figure 2, all but two participants anticipated that it would

be appropriate to begin raising the target range for the

federal funds rate during 2015. However, a large majority projected that the appropriate level of the federal

funds rate would remain below their individual estimates

of its longer-run normal level through 2017.

Most participants projected that the unemployment rate

would be at or somewhat above their estimates of its

longer-run normal level at the end of the year in which

they judged the initial increase in the target range for the

federal funds rate would be warranted. Almost all participants projected that inflation would be below the

Committee’s 2 percent objective that year, but they also

saw inflation rising substantially closer to 2 percent in

the following year.

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

2015 to 2017 and over the longer run. The median values of the federal funds rate at the end of 2015, 2016,

and 2017 decreased 50, 62, and 50 basis points, respectively, relative to December, to 0.63, 1.88, and 3.13 percent, while the mean values for those years declined

35, 52, and 32 basis points, respectively, to 0.78, 2.03,

and 3.19 percent. Compared with December, the dispersion of the projections for the appropriate level of

the federal funds rate was a bit narrower over the projection period.

Most participants judged that it would be appropriate for

the federal funds rate in 2017 to remain below its longerrun normal level, with nearly half of them projecting the

federal funds rate in 2017 to be more than ½ percentage

point lower than their estimates of its longer-run value.

Participants provided a number of reasons why they

thought it would be appropriate for the federal funds

rate to remain below its longer-run normal level for

some time after inflation and the unemployment rate

were near mandate-consistent levels. These reasons included an assessment that the headwinds that have been

holding back the recovery will continue to exert some

restraint on economic activity at that time, that weak real

activity abroad and the recent appreciation of the dollar

are likely to continue to restrain U.S. net exports for

some time, that residual slack in the labor market will

still be evident in measures of labor utilization other than

the unemployment rate, and that the risks to the economic outlook are asymmetric as a result of the constraints on monetary policy associated with the effective

lower bound on the federal funds rate.

Relative to the December SEP, almost half of the participants revised down their estimates of the longer-run

level of the federal funds rate, typically by ¼ percentage

point, with a lower assessment of the economy’s longerrun potential growth rate generally cited as a contributing factor for those revisions. Though the median estimate of the longer-run normal federal funds rate was

unchanged from December, the central tendency narrowed to 3.5 to 3.75 percent from 3.5 to 4.0 percent in

December, and the range moved down a bit to 3.0 to

4.25 percent from 3.25 to 4.25 percent in December. All

participants judged that inflation in the longer run would

be equal to the Committee’s inflation objective of 2 percent, implying that their individual judgments regarding

the appropriate longer-run level of the real federal funds

rate in the absence of further shocks to the economy

ranged from 1.0 to 2.25 percent.

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Figure 3.C. Distribution of participants’ projections for PCE inflation, 2015–17 and over the longer run

Number of participants

2015

March projections

December projections

18

16

14

12

10

8

6

4

2

0.5 0.6

0.7 0.8

0.9 1.0

1.1 1.2

1.3 1.4

1.5 1.6

1.7 1.8

1.9 2.0

2.1 2.2

2.3 2.4

Percent range

Number of participants

2016

18

16

14

12

10

8

6

4

2

0.5 0.6

0.7 0.8

0.9 1.0

1.1 1.2

1.3 1.4

1.5 1.6

1.7 1.8

1.9 2.0

2.1 2.2

2.3 2.4

Percent range

Number of participants

2017

18

16

14

12

10

8

6

4

2

0.5 0.6

0.7 0.8

0.9 1.0

1.1 1.2

1.3 1.4

1.5 1.6

1.7 1.8

1.9 2.0

2.1 2.2

2.3 2.4

Percent range

Number of participants

Longer run

18

16

14

12

10

8

6

4

2

0.5 0.6

0.7 0.8

0.9 1.0

1.1 1.2

1.3 1.4

1.5 1.6

Percent range

Note: Definitions of variables are in the general note to table 1.

1.7 1.8

1.9 2.0

2.1 2.2

2.3 2.4

Summary of Economic Projections of the Meeting of March 17–18, 2015

Page 9

_____________________________________________________________________________________________

Figure 3.D. Distribution of participants’ projections for core PCE inflation, 2015–17

Number of participants

2015

March projections

December projections

18

16

14

12

10

8

6

4

2

1.1 1.2

1.3 1.4

1.5 1.6

1.7 1.8

1.9 2.0

2.1 2.2

2.3 2.4

Percent range

Number of participants

2016

18

16

14

12

10

8

6

4

2

1.1 1.2

1.3 1.4

1.5 1.6

1.7 1.8

1.9 2.0

2.1 2.2

2.3 2.4

Percent range

Number of participants

2017

18

16

14

12

10

8

6

4

2

1.1 1.2

1.3 1.4

1.5 1.6

1.7 1.8

Percent range

Note: Definitions of variables are in the general note to table 1.

1.9 2.0

2.1 2.2

2.3 2.4

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Figure 3.E. Distribution of participants’ judgments of the midpoint of the appropriate target range for the federal funds

rate or the appropriate target level for the federal funds rate, 2015–17 and over the longer run

Number of participants

2015

March projections

December 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

2016

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

2017

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

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 midpoints of the target ranges for the federal funds rate and the target levels for the federal funds rate

are measured at the end of the specified calendar year or over the longer run.

Summary of Economic Projections of the Meeting of March 17–18, 2015

Page 11

_____________________________________________________________________________________________

the prescriptions of various monetary policy rules as factors they considered in judging the appropriate path for

the federal funds rate.

Table 2. Average historical projection error ranges

Percentage points

Variable

2015

2016

2017

......

±1.6

±2.1

±2.0

Unemployment rate1 . . . . . .

±0.5

±1.2

±1.7

Total consumer prices2 . . . .

±0.9

±1.0

±1.0

Change in real

GDP1

NOTE: Error ranges shown are measured as plus or minus the

root mean squared error of projections for 1995 through 2014 that

were released in the winter 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

www.federalreserve.gov/pubs/

feds/ 2007/200760/200760abs.html; and Board of Governors of the

Federal Reserve System, Division of Research and Statistics (2014),

“Updated Historical Forecast Errors,” memorandum, April 9,

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.

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,

the implications of international developments for the

domestic economy, the desire to minimize potential disruptions in financial markets, and the balance of risks

around the outlook. Some participants also mentioned

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 1995 through 2014.

At the end of this summary, the box “Forecast Uncertainty”

2

Uncertainty and Risks

Nearly all participants continued to judge the levels of

uncertainty attending their projections for real GDP

growth and the unemployment rate as broadly similar to

the norms during the previous 20 years (figure 4).2 Most

participants continued to see the risks to their outlooks

for real GDP growth as broadly balanced, though some

participants viewed the risks to real GDP growth as

weighted to the downside. Those participants who

viewed the risks as weighted to the downside cited, for

example, concern about the limited ability of monetary

policy at the effective lower bound to respond to further

negative shocks to the economy or about the trajectory

for economic growth abroad. Nearly all participants

again judged the risks to the outlook for the unemployment rate to be broadly balanced.

As in the December SEP, participants generally agreed

that the levels of uncertainty associated with their inflation forecasts were broadly similar to historical norms.

Almost half of participants viewed the risks to their inflation forecast as balanced. However, the risks were

seen as tilted to the downside by an equal number of

participants, an increase since the December SEP.

These participants cited the possibility that the recent

low levels of inflation could prove more persistent than

anticipated or that the upward pressure on prices from

inflation expectations might be weaker than assumed, or

the judgment that, in current circumstances, it would be

difficult for the Committee to respond effectively to

low-inflation outcomes. Conversely, one participant saw

upside risks to inflation, citing uncertainty about the timing and efficacy of the Committee’s withdrawal of monetary policy accommodation.

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.

Page 12

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Figure 4. Uncertainty and risks in economic projections

Number of participants

Uncertainty about GDP growth

Risks to GDP growth

March projections

December projections

Lower

Broadly

similar

Number of participants

18

16

14

12

10

8

6

4

2

Higher

March projections

December projections

Weighted to

downside

Broadly

balanced

Number of participants

Uncertainty about the unemployment rate

18

16

14

12

10

8

6

4

2

Weighted to

upside

Number of participants

Risks to the unemployment rate

18

16

14

12

10

8

6

4

2

Lower

Broadly

similar

Higher

18

16

14

12

10

8

6

4

2

Weighted to

downside

Broadly

balanced

Number of participants

Uncertainty about PCE inflation

Weighted to

upside

Number of participants

Risks to PCE inflation

18

16

14

12

10

8

6

4

2

Lower

Broadly

similar

Higher

18

16

14

12

10

8

6

4

2

Weighted to

downside

Broadly

balanced

Number of participants

Uncertainty about core PCE inflation

Weighted to

upside

Number of participants

Risks to core PCE inflation

18

16

14

12

10

8

6

4

2

Lower

Broadly

similar

Higher

18

16

14

12

10

8

6

4

2

Weighted to

downside

Broadly

balanced

Weighted to

upside

Note: For definitions of uncertainty and risks in economic projections, see the box “Forecast Uncertainty.” Definitions of variables are in the general note to table 1.

Summary of Economic Projections of the Meeting of March 17–18, 2015

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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 1.4 to

4.6 percent in the current year, 0.9 to 5.1 percent in the second year, and 1.0 to 5.0 percent

in the third year. The corresponding 70 percent

confidence intervals for overall inflation would

be 1.1 to 2.9 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.