FOMC Minutes

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Minutes of the Federal Open Market Committee

April 28–29, 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, April 28, 2015, at 1:00 p.m. and continued on

Wednesday, April 29, 2015, at 9:00 a.m.

Michael S. Gibson, Director, Division of Banking

Supervision and Regulation, Board of Governors

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 A. Clouse and Stephen A. Meyer, Deputy

Directors, Division of Monetary Affairs, Board of

Governors

James Bullard, Christine Cumming, Esther L. George,

Loretta J. Mester, and Eric Rosengren, Alternate

Members of the Federal Open Market Committee

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

of Board Members, Board of Governors

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

Steven B. Kamin, Economist

David W. Wilcox, Economist

David Altig, Thomas A. Connors, Eric M. Engen,

Michael P. Leahy, and William Wascher, 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

Nellie Liang, Director, Office of Financial Stability

Policy and Research, 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

Linda Robertson, Assistant to the Board, Office of

Board Members, 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;

Jeremy B. Rudd, Senior Adviser, Division of

Research and Statistics, Board of Governors

Joshua Gallin, Associate Director, Division of Research

and Statistics, Board of Governors; Fabio M.

Natalucci,2 Associate Director, Division of

Monetary Affairs, Board of Governors; Beth Anne

Wilson, Associate Director, Division of

International Finance, Board of Governors

________________

1 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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Jane E. Ihrig1 and David López-Salido, Deputy

Associate Directors, Division of Monetary Affairs,

Board of Governors

Edward Nelson, Assistant Director, Division of

Monetary Affairs, Board of Governors

Burcu Duygan-Bump, Adviser, Division of Monetary

Affairs, Board of Governors; Eric C. Engstrom,

Adviser, Division of Research and Statistics, Board

of Governors

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

of the Secretary, Board of Governors

Dana L. Burnett, Section Chief, Division of Monetary

Affairs, Board of Governors

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

Governors

Jonathan E. Goldberg, Economist, Division of

Monetary Affairs, Board of Governors

James M. Lyon, First Vice President, Federal Reserve

Bank of Minneapolis

James J. McAndrews, Executive Vice President, Federal

Reserve Bank of New York

Troy Davig, Michael Dotsey, Evan F. Koenig, and

Spencer Krane, Senior Vice Presidents, Federal Reserve Banks of Kansas City, Philadelphia, Dallas,

and Chicago, respectively

Todd E. Clark, Sylvain Leduc, Giovanni Olivei,

Douglas Tillett, and David C. Wheelock, Vice

Presidents, Federal Reserve Banks of Cleveland,

San Francisco, Boston, Chicago, and St. Louis,

respectively

Kei-Mu Yi, Special Policy Advisor to the President,

Federal Reserve Bank of Minneapolis

Matthew D. Raskin, Assistant Vice President, Federal

Reserve Bank of New York

Andreas L. Hornstein, Senior Advisor, Federal Reserve

Bank of Richmond

James M. Egelhof,1 Markets Officer, Federal Reserve

Bank of New York

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 March 17–18, 2015. The deputy manager

also discussed the outcomes of continued testing of the

Federal Reserve’s term and overnight reverse repurchase

agreement operations (term RRP operations and ON

RRP operations, respectively). The Open Market Desk

conducted two term RRP operations over the March

quarter-end. The combination of term and ON RRP

operations continued to provide a soft floor for money

market rates over the intermeeting period, including

around quarter-end. Based on experience around recent

quarter-ends, the deputy manager discussed possible

plans for June test RRP operations. The manager summarized ongoing staff work related to improved data

collection for, and possible adjustments to, the calculation of the effective federal funds rate that were intended

to provide a more robust measure of trading conditions

in the federal funds market over time.

The Committee voted to renew the reciprocal currency

arrangements with the Bank of Canada and the Bank of

Mexico; these arrangements are associated with the Federal Reserve’s participation in the North American

Framework Agreement of 1994. In addition, the Committee voted to renew the dollar and foreign currency

liquidity swap arrangements with the Bank of Canada,

the Bank of England, the Bank of Japan, the European

Central Bank, and the Swiss National Bank. The votes

to renew the Federal Reserve’s participation in these

standing arrangements are taken annually at the April

meeting. Mr. Lacker dissented on both votes because of

his opposition, as indicated at the January meeting, to

foreign exchange market intervention by the Federal Reserve, which such swap arrangements might facilitate,

and because, in his view, such arrangements were best

left to fiscal authorities.

By unanimous vote, the Committee ratified the Desk’s

domestic transactions over the intermeeting period.

There were no intervention operations in foreign

currencies for the System’s account over the

intermeeting period.

Minutes of the Meeting of April 28–29, 2015

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Normalization Procedures

The staff provided a briefing on issues related to the implementation of monetary policy during the period immediately following the first increase in the target range

for the federal funds rate, when it becomes appropriate.

In their subsequent discussion, participants agreed that

the Committee’s testing of normalization tools, in conjunction with its other planning, had created conditions

under which policy normalization would likely proceed

smoothly once it commences. Nonetheless, as part of

prudent contingency planning, participants agreed to

have the staff provide more frequent updates on financial market developments for a period after firming begins. Such updates would ensure that, if adjustments to

policy normalization tools prove necessary to maintain

appropriate control over money market rates, policymakers could make such changes in a timely manner.

Participants also considered whether it might be appropriate, when the Committee first raises the target range

for the federal funds rate, to increase the spread between

the primary credit rate and the top of the federal funds

rate target range. One participant argued for such a step

in order to bring the spread up to a level closer to that

prevailing prior to the financial crisis, but several participants favored maintaining the current spread at least until the process of policy normalization was well under

way and policymakers had considered carefully the potential benefits and costs of such a change. In part, that

view reflected concerns that an increase in the spread

that coincided with the initial step in policy normalization could complicate communications regarding the

Committee’s policy intentions.

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

Staff Review of the Economic Situation

The information reviewed for the April 28–29 meeting

indicated that real gross domestic product (GDP) only

edged up in the first quarter, with growth likely held

down, in part, by transitory factors. The pace of improvement in labor market conditions moderated somewhat, and the unemployment rate was unchanged over

the intermeeting period. Consumer price inflation continued to run below the FOMC’s longer-run objective of

2 percent, partly restrained by earlier declines in energy

prices along with further decreases in non-energy import

prices. Market-based measures of inflation compensation were still low, while survey measures of longer-run

inflation expectations remained stable.

Payroll employment expanded at a solid pace in the first

quarter, on average, but the gain in March was smaller

than in earlier months. The unemployment rate remained at 5.5 percent in March, the labor force participation rate edged down, and the employment-topopulation ratio was little changed. The share of workers employed part time for economic reasons was also

little changed. In the private sector, the rate of job openings edged up in February and was well above its prerecession level, while the rates of hiring and of quits were

about flat and remained slightly above their levels of a

year ago.

Industrial production fell in the first quarter, with another drop in the drilling of new oil and gas wells as well

as a decrease in manufacturing output that appeared to

reflect, in part, the effects of the labor dispute at West

Coast ports. Automakers’ assembly schedules suggested

that light motor vehicle production would increase at a

solid pace in the second quarter, but broader indicators

of manufacturing activity, such as the readings on new

orders from national and regional manufacturing surveys, pointed to only modest gains in factory output over

the next several months.

Real personal consumption expenditures (PCE) increased in the first quarter, albeit at a much slower pace

than in the fourth quarter of 2014. Light motor vehicle

sales, as well as the components of nominal retail sales

used by the Bureau of Economic Analysis (BEA) to construct its estimate of PCE, rebounded in March after declining in February, suggesting that unusually severe winter weather in February likely held down spending.

Among the factors that influence household spending,

real disposable income rose strongly, on net, in the first

quarter, buoyed in part by earlier declines in energy

prices. In addition, further gains in house values and equity prices likely raised households’ net worth, and the

index of consumer sentiment in the University of Michigan Surveys of Consumers remained near its highest

level since prior to the most recent recession.

Residential investment increased at a slow pace in the

first quarter, and other indicators of housing-sector activity remained weak. Starts and building permits for

single-family homes decreased during the first quarter

despite small gains in March; starts of multifamily units

also declined during the first quarter. Sales of new

homes were little changed, on average, over February

and March, while existing home sales edged up on net.

Real private expenditures on business equipment and intellectual property products rose modestly in the first

quarter, and forward-looking indicators—including data

on orders and shipments of nondefense capital goods

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and the national and regional surveys of business conditions—were generally consistent with only small further

gains in the near term. Real spending for nonresidential

structures fell considerably in the first quarter, as outlays

for drilling and mining structures dropped sharply and

outlays for other structures declined.

Real government purchases moved down in the first

quarter. Federal spending was flat. But construction expenditures by state and local governments contracted,

while these governments’ payrolls were unchanged.

The U.S. international trade deficit narrowed sharply in

February, as imports fell more than exports. Imports of

all major categories of goods moved lower as imports

from several major trading partners—including Canada,

China, Japan, and Korea—registered declines. Disruptions related to the West Coast port labor disputes likely

contributed to the decline in imports in February. The

reduction in exports was largest for durable goods and

industrial supplies, with exports to Canada and China accounting for most of the drop. Despite the narrowing

of the nominal trade deficit in February, the BEA estimated that real net exports were a substantial drag on

the growth of real GDP in the first quarter.

Total U.S. consumer prices in the first quarter, as measured by the PCE price index, were only ¼ percent higher

than a year earlier, importantly reflecting the decrease in

consumer energy prices. The core PCE price index,

which excludes food and energy prices, increased

1¼ percent over the same four-quarter period, partly restrained by the declines in prices of non-energy imported

goods. The PCE price index in February and the consumer price index (CPI) in March rose at a faster pace

than in previous months, as energy prices reversed a

small part of their earlier declines. Survey-based

measures of expected long-run inflation were stable,

with the measure from the Desk’s Survey of Primary

Dealers unchanged and the Michigan survey measure

down a little but still in the range seen over recent years.

Market-based measures of inflation compensation at

longer horizons increased somewhat but were still low.

Over the 12 months ending in March, nominal average

hourly earnings for all employees increased 2 percent,

somewhat faster than the increase in core consumer

prices over the same period.

Economic growth in both advanced foreign and emerging market economies appeared to slow, on balance, in

the first quarter of 2015. Global trade and industrial production weakened. Among advanced economies, output

growth declined in the United Kingdom and economic

indicators for Canada and Japan also pointed to slower

growth in the first quarter. In contrast, real GDP growth

seemed to have increased in the euro area. In emerging

market economies, real GDP growth slowed sharply in

China and indicators of activity weakened in Mexico and

Brazil, but real GDP growth picked up in some emerging Asian economies. Inflation remained low in most

economies, partly as a result of earlier declines in oil

prices.

Staff Review of the Financial Situation

Financial conditions eased, on balance, over the intermeeting period. Federal Reserve communications that

were reportedly viewed as more accommodative than

anticipated put downward pressure on interest rates. A

number of weaker-than-expected U.S. economic data releases, including the March employment report, also

pushed interest rates lower. On net, measures of inflation compensation rose, equity prices increased somewhat, and the foreign exchange value of the dollar declined.

The expected path of the federal funds rate moved down

following the March FOMC statement and the Chair’s

postmeeting press conference. Investors reportedly

took note of changes in the Summary of Economic Projections, including downward revisions to FOMC participants’ projections of the appropriate level of the federal

funds rate at the end of 2015, 2016, and 2017. During

the remainder of the intermeeting period, the expected

policy rate path implied by financial market quotes

shifted down further, in part because U.S. economic data

were weaker, on net, than anticipated. Results from the

Survey of Primary Dealers and Survey of Market Participants for April indicated that respondents saw the September 2015 meeting as the most likely time for the first

increase in the target range for the federal funds rate; the

probabilities attached to scenarios in which policy firming did not begin until after the July 2015 meeting were

higher than the corresponding probabilities in the surveys conducted before the March meeting.

Over the intermeeting period, 5- and 10-year nominal

Treasury yields decreased, but yields on Treasury

Inflation-Protected Securities declined by a greater

amount. Measures of inflation compensation over the

next 5 years rose significantly, consistent with increases

in oil prices and somewhat higher-than-expected February and March consumer price inflation data. Inflation

compensation 5 to 10 years ahead also increased but remained at the lower end of its range over the past few

years.

On balance, U.S. equity price indexes rose somewhat

and option-implied volatility for the S&P 500 index over

Minutes of the Meeting of April 28–29, 2015

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the next month declined. Energy firms’ stock prices retraced a small portion of their substantial drop since

mid-2014. Spreads of yields on 10-year speculativegrade corporate bonds over those on comparablematurity Treasury securities narrowed, in part because of

a further decrease in spreads on speculative-grade bonds

issued by energy firms. About 40 percent of firms in the

S&P 500 index had reported earnings for the first quarter, with those reports generally viewed as better than

anticipated. Nonetheless, first-quarter earnings per

share were expected to be lower than in the previous

quarter.

Financing conditions for nonfinancial firms remained

accommodative. Corporate bond issuance was strong in

the first quarter, and seasoned equity offerings rose.

Commercial and industrial loans on banks’ books again

expanded briskly. In the leveraged loan market, issuance

of new money loans to institutional investors slowed in

the first quarter but stayed robust, supported by continued strong issuance of collateralized loan obligations.

Financing for commercial real estate (CRE) remained

broadly available. CRE loans on banks’ books increased

appreciably in the first quarter, consistent with stronger

loan demand reported in the April Senior Loan Officer

Opinion Survey on Bank Lending Practices (SLOOS).

Issuance of commercial mortgage-backed securities continued to be robust.

Measures of residential mortgage lending conditions

were generally little changed over the intermeeting period, and lending volumes remained light. In the April

SLOOS, some large banks reported having eased lending standards for a number of categories of residential

mortgage loans in the first quarter. House prices continued to rise moderately in February. Nonetheless, estimates of the share of mortgages in a negative equity

position were little changed in recent quarters, and they

remained elevated when judged against levels prevailing

prior to the crisis.

Financing conditions in consumer credit markets stayed

generally accommodative. Auto and student loan balances expanded robustly through February. Growth in

credit card loans slowed a bit on a year-over-year basis,

likely reflecting weaker retail activity.

The U.S. dollar depreciated during the intermeeting period, as U.S. macroeconomic data generally came in

weaker than expected, and as market participants appeared to mark down somewhat their expectations for

the path of the federal funds rate. Nonetheless, the cu-

mulative appreciation of the dollar since mid-2014 remained substantial. Government bond yields in most

advanced foreign economies declined modestly, pushing

some yields, particularly in Europe, further into negative

territory. By contrast, Greek sovereign yields stayed elevated as the difficult negotiations between Greece and

its official creditors continued. Spillovers from Greek

markets into other peripheral financial markets remained

limited. Equity prices in most advanced foreign economies moved higher, buoyed in part by ongoing monetary

policy accommodation. Equity prices also rose in most

emerging market economies, with the stock market in

China outperforming.

The staff provided its latest report on potential risks to

financial stability. A number of factors appeared to limit

the vulnerability of the U.S. financial system to adverse

shocks. Leverage in the banking system remained relatively low, and increases in household debt stayed modest and continued to be associated primarily with borrowers with strong credit scores. However, some indicators suggested that valuations remained stretched for

some asset classes. An estimate of the expected real return on equities moved down, reflecting an increase in

stock prices and downward revisions to forecasts of corporate earnings, and corporate bond spreads declined

somewhat. The staff also noted changes in the structure

of some fixed-income markets that could increase volatility. In addition, the staff discussed the risks to financial stability associated with the possibility of substantial

unanticipated changes in longer-term U.S. interest rates,

including the scope for a sharp increase in such rates to

affect financial conditions in emerging market economies. A number of other risks were noted, including geopolitical tensions and the potential for an increase in

financial strains related to the negotiations between

Greece and its official creditors.

Staff Economic Outlook

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

the April FOMC meeting, real GDP growth in the first

half of the year was lower than in the projection prepared for the March meeting, as the data on economic

activity received during the intermeeting period were

generally weaker than the staff had expected. However,

much of this weakness was attributed to transitory factors or statistical noise, with little implication for the

pace of expansion beyond the near term. Indeed, the

medium-term projection for real GDP growth was revised up modestly, as monetary policy was assumed to

be a little more accommodative in this projection and

the projected path for the foreign exchange value of the

dollar was a little lower. The staff continued to project

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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 growth of potential output. The

expansion in economic activity over the medium term

was expected to lead to a gradual reduction in resource

slack; the unemployment rate was projected to decline

slowly and to move a little below the staff’s estimate of

its longer-run natural rate for a time.

The staff’s forecast for inflation in the near term was revised up a little, reflecting the slightly higher-thanexpected recent monthly data on core consumer prices

and a path for crude oil prices that was a bit higher than

in the previous projection. The medium-term forecast

for inflation was little changed, with inflation in 2016

and 2017 projected to move closer to, but remain below,

the Committee’s longer-run objective of 2 percent, as

energy prices were expected to rise, import prices to turn

up, and resource utilization to tighten further. Thereafter, inflation was anticipated to move back to 2 percent,

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 uncertainty around its April projections for real GDP growth, the unemployment rate, and

inflation as similar to the average of the past 20 years.

The risks to the forecast for real GDP and inflation were

seen as tilted to the downside, reflecting the staff’s assessment that neither monetary nor fiscal policy appeared well positioned to help the economy withstand

substantial 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 their discussion of the economic situation and the

outlook, meeting participants regarded the information

received over the intermeeting period as suggesting that

economic growth had slowed during the winter months,

in part reflecting transitory factors. The pace of job

gains had moderated, and the unemployment rate had

remained steady, with a range of labor market indicators

suggesting that underutilization of labor resources was

little changed. Most participants expected that, following the slowdown in the first quarter, real economic activity would resume expansion at a moderate pace, and

that labor market conditions would improve further. Inflation continued to run below the Committee’s longerrun objective, partly reflecting earlier declines in energy

prices and decreasing prices of non-energy imports.

Market-based measures of inflation compensation remained low, while survey-based measures of longerterm 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 declines in energy prices and non-energy import

prices dissipated. Participants judged that recent domestic economic developments had increased uncertainty

regarding the economic outlook. While participants

continued to see potential downside risks resulting from

foreign economic and financial developments, most still

viewed the risks to the outlook for economic growth and

the labor market as nearly balanced.

Participants generally agreed that data on private spending for the first quarter had been disappointing, with unexpectedly weak household expenditures and investment spending. Retail sales had continued to be tepid,

although consumer sentiment stayed high and auto sales

rebounded in March. The recovery in the housing sector

remained slow. Business fixed investment softened, in

part reflecting sizable reductions in capital expenditures

in the energy sector. Exports contracted, likely reflecting the damping influence of the dollar’s appreciation.

In combination with a decline in government spending,

the weakness of private spending had led to a substantial

slowing in economic growth in the first quarter.

Participants discussed whether the weakness of spending in the first quarter primarily reflected temporary factors or instead suggested a longer-lasting loss of momentum for the economy. A number of reasons were advanced for believing that the weakness in spending observed during the first quarter was partly or even largely

transitory. Most notably, the severe winter weather in

some regions had reportedly weighed on economic activity, and the labor dispute at West Coast ports temporarily disrupted some supply chains. Furthermore, a pattern observed in previous years of the current expansion

was that the first quarter of the year tended to have

weaker seasonally adjusted readings on economic

growth than did the subsequent quarters. This tendency

supported the expectation that economic growth would

return to a moderate pace over the rest of this year. Participants also pointed to other reasons for anticipating

that the weakness seen in the first quarter would not endure. A number of the fundamental factors that drive

consumer spending remained favorable, among them

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low interest rates, high consumer confidence, and rising

household real income. In addition, business contacts in

several parts of the country continued to be optimistic

and expected sales, investment, and hiring to expand

over the rest of the year. In the agricultural sector,

drought effects had worsened in some parts of the country, but effects on production were limited and planting

intentions remained strong. Finally, if the decline in oil

prices and the rise in the foreign exchange value of the

dollar did not continue, then their influence on the

growth rate of investment and the change in net exports

would likely recede.

Various reasons were also advanced for believing that

some of the recent weakness in the pace of economic

activity might persist. A number of participants suggested that the damping effects of the earlier appreciation of the dollar on net exports or of the earlier decline

in oil prices on firms’ investment spending might be

larger and longer-lasting than previously anticipated. In

addition, the expected boost to household spending

from lower energy prices had apparently so far not materialized, highlighting the possibility of less underlying

momentum in consumer expenditures than participants

had previously judged. Some participants expressed particular concern about this prospect, as their expectations

of a moderate expansion of economic activity in the medium term, combined with further improvements in labor market conditions, rested largely on a scenario in

which consumer spending grows robustly despite softness in other components of aggregate demand. Participants discussed downside risks to economic growth,

and a few indicated that, in their assessment, such risks

had risen since the March meeting. However, most participants continued to see the risks to the outlook for

economic growth and the labor market as nearly balanced.

In their discussion of the foreign economic outlook, several participants noted that the foreign exchange value

of the U.S. dollar had fallen back somewhat over the intermeeting period. Nonetheless, the value of the dollar

had increased significantly since the middle of last year,

and it was seen as likely to continue to be a factor restraining U.S. net exports and economic growth for a

time. It was suggested that one element underpinning

the strength of the U.S. dollar was the increasing prevalence of negative interest rates on sovereign debt in some

key European economies. Participants also pointed to a

number of risks to the international economic outlook,

including the slowdown in growth in China and fiscal

and financial problems in Greece.

Many participants judged that the pace of improvement

in labor market conditions had slowed. The March increase in payrolls had been smaller than expected, and

the unemployment rate had remained steady. However,

it was noted that the intermeeting period had also witnessed some more-positive news on labor market conditions, including a further increase in the rate of job

openings. Various business contacts in energy-related

sectors reported layoffs in response to low oil prices, but

some information received from business contacts suggested a tightening in labor markets, with shortages of

skilled labor reported in some areas and sectors; there

had also been an increase in transitions of workers to

better-paying jobs. Larger wage gains were also reported

in some regions, although in other parts of the country

wage pressures reportedly remained muted. One participant suggested that a significant rise in aggregate nominal wage growth should be a criterion in assessing the

Committee’s degree of confidence regarding the return

of inflation to the Committee’s 2 percent longer-run objective. However, a couple of other participants argued

that the behavior of nominal wage growth should not

play a significant role in that assessment, on the grounds

that there was only a loose relationship between nominal

wage growth and inflation in the United States.

Many participants noted that measures of inflation averaged over several months or more continued to run below the Committee’s longer-run objective. However,

this shortfall partly reflected the earlier declines in energy

prices and decreasing prices of non-energy imports, and

some participants pointed out that, by some measures,

the most recent monthly inflation readings had firmed a

bit. Although participants expected that inflation would

continue, in the near term, to be below the Committee’s

2 percent longer-run objective, energy prices were no

longer declining and most participants continued to expect that inflation would move up toward the Committee’s 2 percent objective over the medium term as the

effects of the transitory factors waned and conditions in

the labor market and the overall economy improved further. Survey-based measures of inflation expectations

had remained broadly stable. Market-based measures of

inflation compensation had risen slightly but remained

low. One participant suggested that, in the past, marketbased measures of inflation compensation had been of

little value in predicting inflation one to two years ahead,

and that measures of inflation expectations from surveys

of professional forecasters were more useful for forecasting inflation. Another participant argued that low

values for market-based measures of inflation compensation should concern policymakers, on the grounds that

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these low values reflected investors placing at least some

likelihood on adverse outcomes in which low inflation

was accompanied by weak economic activity.

In their discussion of financial market developments and

financial stability issues, policymakers highlighted possible risks related to the low level of term premiums.

Some participants noted the possibility that, at the time

when the Committee decides to begin policy firming,

term premiums could rise sharply—in a manner similar

to the increase observed in the spring and summer of

2013—which might drive longer-term interest rates

higher. In this connection, it was suggested that the tendency for bond prices to exhibit volatility may be greater

than it had been in the past, in view of the increased role

of high-frequency traders, decreased inventories of

bonds held by broker-dealers, and elevated assets of

bond funds. A couple of participants underscored the

need for a better understanding of the structure of the

bond market in the current environment, including the

effect on bond market behavior of regulatory changes.

Some participants noted that careful Committee communications regarding its policy intentions could help

damp any resulting increase in market volatility around

the time of the commencement of normalization. It was

also noted that financial stability and the Committee’s

macroeconomic goals were likely to be complementary

objectives, but different views were expressed about the

potential implications for financial stability of monetary

policy tightening in current economic conditions.

In their discussion of communications regarding the

path of the federal funds rate over the medium term,

participants expressed a range of views about when economic conditions were likely to warrant an increase in

the target range for the federal funds rate. Participants

continued to judge that it would be appropriate to raise

the target range for the federal funds rate when they had

seen further improvement in the labor market and were

reasonably confident that inflation would move back to

its 2 percent objective over the medium term. Although

participants expressed different views about the likely

timing and pace of policy firming, they agreed that the

Committee’s decision to begin firming would appropriately depend on the incoming data and their implications

for the economic outlook. A few anticipated that the

information that would accrue by the time of the June

meeting would likely indicate sufficient improvement in

the economic outlook to lead the Committee to judge

that its conditions for beginning policy firming had been

met. Many participants, however, thought it unlikely

that the data available in June would provide sufficient

confirmation that the conditions for raising the target

range for the federal funds rate had been satisfied, although they generally did not rule out this possibility.

Participants discussed the merits of providing an explicit

indication, in postmeeting statements released prior to

the commencement of policy firming, that the target

range for the federal funds rate would likely be raised in

the near term. However, most participants felt that the

timing of the first increase in the target range for the federal funds rate would appropriately be determined on a

meeting-by-meeting basis and would depend on the evolution of economic conditions and the outlook. In keeping with this data-dependent approach, some participants further suggested that the postmeeting statement’s

description of the economic situation and outlook, and

of progress toward the Committee’s goals, provided the

appropriate means by which the Committee could help

the public assess the likely timing of the initial increase

in the target range for the federal funds rate.

During their discussion of economic conditions and

monetary policy, participants also commented on different concepts of the equilibrium real federal funds rate—

that is, a reference value of the inflation-adjusted federal

funds rate consistent with the economy achieving, over

a specified time horizon, maximum employment and

price stability. Estimates of such equilibrium real interest rates were highly uncertain, but some participants reported that their estimates were currently unusually low

by historical standards, reflecting, for example, factors

weighing persistently on aggregate demand. In light of

their low estimates, a few of these participants questioned whether the Committee was providing sufficient

accommodation at the present time and cautioned

against initiating policy firming in the near future. However, other participants cited factors, including the current low level of term premiums, that might cast doubt

on the notion that the equilibrium real federal funds rate

was particularly low. Some participants observed that

more discussion of this topic was likely to be helpful in

assessing these issues. One participant suggested that, in

part because of the evidence that the equilibrium real interest rate was low by historical standards, the Committee should discuss the possibility of increasing its longerrun inflation objective. This participant and a few others

thought such a discussion could be useful but emphasized that any decision to change the Committee’s

longer-run goals and policy strategy should not be made

lightly. One of these participants noted, in particular,

that a decision to raise the Committee’s longer-run inflation objective might work against the achievement of

maximum employment and price stability because such

a change could undermine the Committee’s credibility

Minutes of the Meeting of April 28–29, 2015

Page 9

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and, in addition, lead to adverse changes in inflation dynamics that could pose significant challenges for policymakers.

Committee Policy Action

In their discussion of monetary policy for the period

ahead, members judged that information received since

the FOMC met in March suggested that economic

growth slowed during the winter months, in part reflecting transitory factors. The pace of job gains moderated,

and the unemployment rate remained steady. A range

of labor market indicators suggested that underutilization of labor resources was little changed. Although

growth in household spending declined, households’

real incomes rose strongly, partly reflecting earlier declines in energy prices, and consumer sentiment remained high. Business fixed investment softened, the

recovery in the housing sector remained slow, and exports declined. Inflation continued to run below the

Committee’s longer-run objective, but this partly reflected earlier declines in energy prices and decreasing

prices of non-energy imports. Market-based measures

of inflation compensation remained low, while surveybased measures of longer-term inflation expectations

had remained stable. Despite the slower growth in output and employment observed of late, members continued to expect that, with appropriate policy accommodation, economic activity would expand at a moderate

pace, with labor market indicators continuing to move

toward levels the Committee judged consistent with its

dual mandate. Members generally continued to see the

risks to the outlook for economic activity and the labor

market as nearly balanced. Inflation was anticipated to

remain near its recent low level in the near term, but

members expected inflation to rise gradually toward

2 percent over the medium term as further improvement

in the labor market occurred and the transitory effects

of declines in energy and import prices dissipated. In

light of the uncertainties associated with the outlook for

inflation, the Committee agreed that it would continue

to monitor inflation developments closely.

In their discussion of language for the postmeeting statement, members agreed that the wording should reflect

their assessment that economic conditions had progressed to a stage at which the Committee’s decision to

begin normalizing policy would appropriately be determined on a meeting-by-meeting basis. The Committee

agreed that the statement should indicate that the data

received over the intermeeting period suggested that

economic growth had slowed and to note that this partly

reflected transitory factors. The Committee also agreed

to change the statement’s characterization of the labor

market data to note that the pace of job growth slowed

over the intermeeting period and that a number of labor

market indicators suggested that there was little change

in underutilization of labor resources, and to update the

statement’s description of investment and export behavior in light of the recent weaker readings. In addition,

members agreed to modify the discussion of inflation

developments to indicate that inflation, although no

longer declining, was still below the Committee’s longerterm objective and was likely to remain so in the near

term, partly because of transitory factors such as earlier

declines in energy prices and decreasing prices of nonenergy imports. The Committee altered its characterization of the economic outlook to indicate that, while economic growth slowed in the first quarter, the Committee

continued to expect that, with appropriate policy accommodation, economic activity would expand at a moderate pace, and that it anticipated that labor market indicators would resume their movement toward levels that

the Committee judged consistent with its dual mandate.

With respect to the outlook for inflation, members expected inflation to rise gradually toward 2 percent over

the medium term as the labor market improves further

and the transitory effects of declines in energy and import prices dissipate.

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.

Members agreed to retain the indication 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.

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

securities at auction. This policy, by keeping the Committee’s holdings of longer-term securities at sizable lev-

Page 10

Federal Open Market Committee

_____________________________________________________________________________________________

els, 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 March suggests

that economic growth slowed during the winter months, in part reflecting transitory factors. The pace of job gains moderated, and

the unemployment rate remained steady. A

range of labor market indicators suggests that

underutilization of labor resources was little

changed. Growth in household spending declined; households’ real incomes rose

strongly, partly reflecting earlier declines in

energy prices, and consumer sentiment remains high. Business fixed investment softened, the recovery in the housing sector remained slow, and exports declined. Inflation

continued to run below the Committee’s

longer-run objective, partly reflecting earlier

declines in energy prices and decreasing prices

of non-energy imports.

Market-based

measures of inflation compensation remain

low; survey-based measures of longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the

Committee seeks to foster maximum employment and price stability. Although growth in

output and employment slowed during the

first quarter, the Committee continues to expect 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 declines in energy and import prices 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. The Committee anticipates that it will be appropriate to raise the

Minutes of the Meeting of April 28–29, 2015

Page 11

_____________________________________________________________________________________________

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.

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, June 16–17,

2015. The meeting adjourned at 11:00 a.m. on April 29,

2015.

Notation Vote

By notation vote completed on April 7, 2015, the

Committee unanimously approved the minutes of the

Committee meeting held on March 17–18, 2015.

_____________________________

Thomas Laubach

Secretary