FOMC Minutes
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Minutes of the Federal Open Market Committee
September 16–17, 2015
A joint meeting of the Federal Open Market Committee
and the Board of Governors was held in the offices of
the Board of Governors of the Federal Reserve System
in Washington, D.C., on Wednesday, September 16,
2015, at 1:00 p.m. and continued on Thursday,
September 17, 2015, at 8:30 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, Esther L. George, Loretta J. Mester,
Eric Rosengren, and Michael Strine, Alternate
Members of the Federal Open Market Committee
Patrick Harker, Robert S. Kaplan, and Narayana
Kocherlakota, Presidents of the Federal Reserve
Banks of Philadelphia, Dallas, and Minneapolis,
respectively
Brian F. Madigan, Secretary
Matthew M. Luecke, Deputy Secretary
David W. Skidmore, Assistant Secretary
Michelle A. Smith, Assistant Secretary
Scott G. Alvarez, General Counsel
Steven B. Kamin, Economist
Thomas Laubach, Economist
David W. Wilcox, Economist
David Altig, Thomas A. Connors, Michael P. Leahy,
William R. Nelson, 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, Secretary of the Board, Office of
the Secretary, Board of Governors
Michael S. Gibson, Director, Division of Banking
Supervision and Regulation, Board of Governors
Nellie Liang, Director, Office of Financial Stability
Policy and Research, Board of Governors
James A. Clouse and Stephen A. Meyer, Deputy
Directors, Division of Monetary Affairs, Board of
Governors
William B. English, Senior Special Adviser to the
Board, Office of Board Members, Board of
Governors
David Bowman, 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
Christopher J. Erceg, Senior Associate Director,
Division of International Finance, Board of
Governors; David E. Lebow and Michael G.
Palumbo, Senior Associate Directors, Division of
Research and Statistics, Board of Governors
Ellen E. Meade and Joyce K. Zickler, Senior Advisers,
Division of Monetary Affairs, Board of Governors
John J. Stevens, Deputy Associate Director, Division of
Research and Statistics, Board of Governors
Stephanie R. Aaronson, Assistant Director, Division of
Research and Statistics, Board of Governors;
Francisco Covas and Elizabeth Klee, Assistant
Directors, Division of Monetary Affairs, Board of
Governors
Eric C. Engstrom, Adviser, Division of Research and
Statistics, Board of Governors
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Penelope A. Beattie,¹ Assistant to the Secretary, Office
of the Secretary, 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
Elmar Mertens, Senior Economist, Division of
Monetary Affairs, Board of Governors
Randall A. Williams, Information Management Analyst,
Division of Monetary Affairs, Board of Governors
Gregory L. Stefani, First Vice President, Federal
Reserve Bank of Cleveland
Alberto G. Musalem, Executive Vice President, Federal
Reserve Bank of New York
Mary Daly, Troy Davig, Evan F. Koenig, Paolo A. Pesenti, Samuel Schulhofer-Wohl, Ellis W. Tallman,
and Christopher J. Waller, Senior Vice Presidents,
Federal Reserve Banks of San Francisco, Kansas
City, Dallas, New York, Minneapolis, Cleveland,
and St. Louis, respectively
Giovanni Olivei, Keith Sill, and Douglas Tillett, Vice
Presidents, Federal Reserve Banks of Boston, Philadelphia, and Chicago, respectively
________________
¹ Attended Wednesday’s session only.
Developments in Financial Markets, Open Market
Operations, and Policy Normalization
The manager of the System Open Market Account
(SOMA) reported on developments in domestic and foreign financial markets. The deputy manager followed
with a briefing on money market developments and System open market operations conducted by the Open
Market Desk during the period since the Federal Open
Market Committee (FOMC) met on July 28–29. Daily
take-up in the Desk’s overnight reverse repurchase
agreement operations declined somewhat, apart from
month-ends, likely reflecting some increase in money
market interest rates. The deputy manager also discussed recent test operations of the Term Deposit Facility and updated the Committee on plans for tests of term
reverse repurchase agreement operations at the end of
the third quarter.
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.
System Open Market Account Reinvestment Policy
A staff briefing provided background on the macroeconomic effects of alternative approaches to ceasing reinvestments of principal on securities held in the SOMA
after the Committee begins to normalize the stance of
policy by increasing the target range for the federal funds
rate. The briefing presented analysis that was based on
an assumption that the cessation of reinvestments, once
implemented, would be permanent. The briefing suggested that if economic conditions evolved in line with a
modal outlook, differences in macroeconomic outcomes
would be minor across approaches that ceased reinvestments soon after initial policy firming or continued reinvestments until certain levels of the federal funds rate,
such as 1 percent or 2 percent, were reached. As a result,
the appropriate path of the federal funds rate would be
only modestly affected. However, if substantial adverse
shocks occurred, continuing reinvestment until normalization of the level of the federal funds rate was well under way could help avoid situations that would warrant
a larger reduction in the federal funds rate than perhaps
could be accomplished given the constraint posed by the
effective lower bound to nominal interest rates.
In the ensuing discussion, participants considered the
advantages and disadvantages of alternative approaches
to reinvestment. Participants referred to the Committee’s statement on Policy Normalization Principles and
Plans, which indicates that the timing of the cessation or
phasing out of reinvestments will depend on how economic and financial conditions and the economic outlook evolve. Several participants emphasized that continuing reinvestments for some time after the initial policy firming could help manage potential risks, particularly by reducing the probability that the federal funds
rate might return to the effective lower bound. Some
participants expressed a view that, in contrast to the assumption in the staff analysis, the Committee could
choose to resume reinvestments if macroeconomic conditions warranted. At the same time, it was also highlighted that a larger balance sheet could entail costs, and
that the Principles and Plans indicate that, in the longer
run, the SOMA portfolio should be no larger than nec-
Minutes of the Meeting of September 16-17, 2015
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essary to conduct monetary policy efficiently and effectively. The Committee made no decisions regarding its
strategy for ceasing or phasing out reinvestments at this
meeting.
Staff Review of the Economic Situation
The information reviewed for the September 16–17
meeting suggested that real gross domestic product
(GDP) was expanding at a moderate pace in the third
quarter. Labor market conditions continued to improve,
but labor compensation gains were modest. Consumer
price inflation remained below the Committee’s longerrun objective of 2 percent and was restrained by further
declines in energy prices and non-energy import prices.
Survey measures of longer-run inflation expectations remained stable, while market-based measures of inflation
compensation moved lower.
Total nonfarm payroll employment expanded at a solid
pace in July and August. The unemployment rate stayed
at 5.3 percent in July but fell to 5.1 percent in August.
With the labor force participation rate unchanged over
this period, the employment-to-population ratio edged
up. The share of workers employed part time for economic reasons remained elevated. The rate of privatesector job openings increased in July and was at a high
level, while the rates of hiring and quits were little
changed.
Industrial production increased, on balance, during July
and August. Manufacturing production fell in August
primarily because of a large drop in the output of motor
vehicles and parts that reversed a substantial portion of
its jump in July. Automakers scheduled further declines
in assemblies over the remainder of the year, and
broader indicators of manufacturing production, including readings on new orders from national and regional
manufacturing surveys, generally suggested that factory
output would be little changed over that period. Mining
output moved up, on net, in July and August after a steep
decline in the second quarter.
Real personal consumption expenditures (PCE) appeared to be rising at a moderate pace in the third quarter. The components of the nominal retail sales data
used by the Bureau of Economic Analysis to construct
its estimates of PCE increased at a strong rate in July and
August, and sales of light motor vehicles moved up in
both months. Household spending was supported by
moderate growth in real disposable income in July and a
wealth-to-income ratio that remained high even after recent declines in equity values. Consumer sentiment in
the University of Michigan Surveys of Consumers decreased in early September, reportedly in part because of
the recent decline in stock market prices, but it remained
above its year-earlier level.
Activity in the housing sector remained on a gradual upward trend. Starts of new single-family homes rose further early in the third quarter and were slightly above the
pace of permit issuance. In the multifamily sector, starts
fell back after having been temporarily elevated in June.
Sales of new and existing homes both increased in July.
Real private expenditures for business equipment and intellectual property products appeared to be rising moderately. Nominal shipments of nondefense capital goods
excluding aircraft increased in July, and orders for nondefense capital goods pointed to modest gains in shipments in the coming months, consistent with recent
readings from surveys of business conditions. Real
spending for nonresidential structures excluding drilling
and mining increased sharply in the second quarter, and
nominal business expenditures for such structures rose
further in July. In contrast, real business spending for
drilling and mining structures fell steeply in the second
quarter. Available indicators of drilling activity, such as
counts of rigs in operation, suggested spending would
decline less rapidly in the third quarter.
Total real government purchases appeared to be declining slightly in the third quarter. Federal government purchases likely decreased, as defense spending moved
down further through August. State and local government purchases seemed to be increasing, on balance, as
the payrolls of these governments expanded at a faster
pace in July and August than in the second quarter, while
their nominal construction expenditures edged down in
July after a large gain in the second quarter.
The U.S. international trade deficit widened in June before narrowing substantially in July. Exports rose in July,
supported by increased shipments of non-aircraft capital
goods and automobiles, but remained subdued. In contrast, imports declined in July, reversing a June increase,
as imports of consumer goods fell back.
Total U.S. consumer prices, as measured by the PCE
price index, edged up over the 12 months ending in July,
restrained importantly by declines in energy prices. Core
PCE prices, which exclude food and energy prices, increased 1¼ percent over the same period, with the increase damped in part by declines in the prices of nonenergy imports. Over the 12 months ending in August,
total consumer prices as measured by the consumer
price index (CPI) edged up, while the core CPI increased
1¾ percent. Measures of expected longer-run inflation
from a variety of surveys, including the Michigan survey,
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the Survey of Professional Forecasters, and the Desk’s
Survey of Primary Dealers, remained stable. However,
market-based measures of inflation compensation fell to
near their historical lows, reportedly in response to the
recent appreciation of the dollar, the decline in oil prices,
and readings on realized inflation that were slightly below market expectations.
Measures of labor compensation rose faster than consumer prices over the past year, but the modest increases
in compensation were similar to those seen in recent
years. Over the four quarters ending in the second quarter, the employment cost index increased nearly 2 percent and compensation per hour in the nonfarm business sector rose 2¼ percent. Over the 12 months ending in August, average hourly earnings for all employees
increased 2¼ percent.
Foreign economic growth remained weak in the second
quarter, held back by contractions in real GDP in Canada, Japan, Brazil, and Taiwan, even as activity continued
to expand at a moderate pace in the euro area and the
United Kingdom. Indicators for the third quarter
pointed to a slight pickup in the pace of foreign growth,
particularly as recent data for Canada suggested that
some of the first-half weakness there was dissipating.
However, recent indicators for some other countries,
most notably China, were subdued. Inflation rates continued to be quite low in the advanced foreign economies, and market-based measures of inflation compensation had recently moved down in the euro area and
Japan. In contrast, inflation in the emerging market
economies had risen in recent months as a result of
higher food prices and widespread currency depreciation.
Staff Review of the Financial Situation
Although U.S. economic data releases generally met
market expectations, domestic financial conditions tightened modestly as concerns about prospects for global
economic growth, centered on China, prompted an increase in financial market volatility and a deterioration in
risk sentiment during the intermeeting period. Stock
market indexes in most advanced and emerging market
economies ended the period sharply lower. Tighter financial market conditions and greater volatility contributed to a reduction of the odds that market participants
appeared to place on the first increase in the federal
funds rate occurring at the September FOMC meeting
and to a flatter expected path for the policy rate thereafter. Nevertheless, yields on short- and longer-term nominal Treasury securities were modestly higher than when
the Committee met in July.
Over the intermeeting period, the concerns about global
economic growth and turbulence in financial markets led
to greater uncertainty among market participants about
the likely timing of the start of the normalization of the
stance of U.S. monetary policy. Based on federal funds
futures, the probability of a first increase in the target
range for the federal funds rate at the September meeting fell slightly; the probabilities attached to subsequent
meetings through January 2016 were generally little
changed and rose for meetings later that year. Similarly,
results from the Desk’s September Survey of Primary
Dealers and Survey of Market Participants indicated
that, on average, respondents pushed out their expected
timing of the first increase in the target range for the federal funds rate. Regarding the most likely meeting date
for the first rate increase, survey respondents were about
evenly split between September and December. Data on
overnight index swap rates indicated that investors
marked down the expected path of the federal funds
rate, on balance, over the intermeeting period.
Despite the decline in global equity markets and the
downward shift in the expected path of the federal funds
rate, yields on nominal Treasury securities moved up
modestly, with some market participants citing purported sales of Treasury securities by foreign government authorities to finance foreign exchange market intervention as a factor that likely put upward pressure on
Treasury yields. Measures of inflation compensation
based on Treasury Inflation-Protected Securities fell to
near their historical lows.
Broad U.S. equity price indexes were highly correlated
with foreign equity indexes over the intermeeting period
and posted net declines. Although concerns about
global economic growth likely contributed to the declines in domestic equity prices, investors may also have
reassessed valuations and risk in equity markets. Domestic equity indexes were quite volatile in late August
and early September, and one-month-ahead optionimplied volatility on the S&P 500 index reached levels
last seen in 2011. Spreads on 10-year triple-B-rated and
speculative-grade corporate bonds over comparablematurity Treasury securities widened slightly over the intermeeting period.
Financing conditions for nonfinancial businesses tightened modestly over the summer. Corporate bond and
institutional leveraged loan issuance remained solid
through July but moderated in August. The growth of
commercial and industrial loans on banks’ books slowed
in July and August; the deceleration was concentrated in
Minutes of the Meeting of September 16-17, 2015
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banks with greater exposures to oil and gas firms. Financing for commercial real estate (CRE) remained
broadly available, with CRE loans on banks’ books expanding and issuance of commercial mortgage-backed
securities (CMBS) staying robust. However, spreads on
investment-grade CMBS widened noticeably in August,
reportedly a result of heavy issuance as well as the increased volatility in broader financial markets.
Conditions in the market for residential mortgages continued to improve slowly, with interest rates on 30-year
fixed-rate mortgages declining slightly. Bank holdings of
closed-end residential loans increased modestly, and the
Mortgage Bankers Association’s index of mortgage
credit availability edged up further. However, credit
availability for borrowers with low credit scores, hardto-document income, or high debt-to-income ratios remained tight.
Financing conditions in consumer credit markets remained generally accommodative, and the performance
of outstanding consumer loans was largely stable. Credit
card balances expanded amid gradually easing lending
standards, and student and auto loans continued to be
broadly available, even to borrowers with subprime
credit scores. Delinquency rates on credit card loans and
auto loans stayed low through the second quarter, while
delinquency rates on student loans remained elevated.
The exchange value of the U.S. dollar rose notably over
the period against the currencies of most major U.S.
trading partners. While the dollar depreciated against
the euro and the yen, it appreciated against the Canadian
dollar. The dollar also strongly appreciated against the
currencies of most emerging market economies, as most
Asian currencies weakened against the dollar following a
depreciation of the Chinese renminbi, and as the currencies of commodity exporters fell along with declining
commodity prices. Sovereign yields in the advanced foreign economies ended the period roughly unchanged.
Changes in peripheral euro-area sovereign yield spreads
were mixed, with Greek sovereign spreads narrowing
significantly over the period as Greece and the euro area
finalized Greece’s third bailout package. In contrast,
falling commodity prices and concerns about the pace of
global growth contributed to capital outflows and generally wider spreads on dollar-denominated debt in
emerging Asia and Latin America.
Staff Economic Outlook
The U.S. economic forecast prepared by the staff for the
September FOMC meeting was a little weaker, on balance, than the one prepared for the July FOMC meeting.
Recent information on real U.S. economic activity was
generally stronger than expected, but equity prices declined, the foreign exchange value of the dollar appreciated further, and indicators of foreign economic growth
were generally weak. The staff left its forecast for real
GDP growth over the second half of the year little
changed but lowered its projection for economic growth
over the next several years. The staff also further
trimmed its assumptions for the rates of increase in
productivity and potential output over the medium term.
On net, the level of GDP was anticipated to rise above
its potential next year, and that gap was projected to
widen gradually over the medium term. The unemployment rate was projected to run a little below the staff’s
estimate of its longer-run natural rate over this period.
The staff projected that consumer price inflation would
move down over the near term by more than in the previous projection. Crude oil prices declined further over
the intermeeting period and were expected to result in
lower consumer energy prices, and the effects of recent
dollar appreciation and lower commodity prices were
anticipated to push down non-oil import prices. With
energy prices and non-oil import prices expected to
begin to increase steadily next year, the staff projected
that inflation would rise gradually over the next several
years but would still be slightly below the Committee’s
longer-run objective of 2 percent at the end of 2018. Inflation was anticipated to move up 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 uncertainty around its September
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 was well positioned to help the economy withstand substantial adverse shocks. Consistent with this
downside risk to aggregate demand and with the further
adjustments to the staff’s supply-side assumptions, the
staff viewed the risks to its outlook for the unemployment rate as tilted to the upside.
Participants’ Views on Current Conditions and the
Economic Outlook
In conjunction with this FOMC meeting, members of
the Board of Governors and 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
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2015 through 2018 and over the longer run, conditional
on each participant’s judgment of appropriate monetary
policy. 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 projections and policy
assessments are described in the Summary of Economic
Projections, which is an addendum to these minutes.
In their discussion of the economic situation and the
outlook, meeting participants viewed the information received over the intermeeting period as indicating that
economic activity was expanding moderately. Although
net exports remained soft, household spending and business fixed investment were increasing moderately, and
the housing sector recovered further. The labor market
continued to improve, with solid job gains and declining
unemployment, and labor market indicators showed that
underutilization of labor resources had diminished since
early in the year.
Growth in real GDP over the first half of the year was
stronger than participants expected when they prepared
their June forecasts, and the unemployment rate declined somewhat more than anticipated. Participants
made only small adjustments to their projections for
economic activity over the medium term. They continued to anticipate that, with appropriate policy accommodation, the pace of expansion of real activity would remain somewhat above its longer-run rate over the next
two years and lead to further improvement in labor market conditions. Most continued to see the risks to real
activity and unemployment as nearly balanced, but many
acknowledged that recent global economic and financial
developments may have increased the downside risks to
economic activity somewhat.
Inflation continued to run below the Committee’s
longer-run objective, partly reflecting declines in energy
prices and in prices of non-energy imports. Marketbased measures of inflation compensation moved lower;
survey measures of longer-term inflation expectations
remained stable. Participants anticipated that recent
global developments would likely put further downward
pressure on inflation in the near term; compared with
their previous forecasts, more now saw the risks to inflation as tilted to the downside. But participants still
expected that, as the labor market continued to improve
and the transitory effects of declines in energy and nonoil import prices dissipated, inflation would rise gradually toward 2 percent over the medium term.
Consumer spending was rising at a solid rate after a
modest increase in the first quarter. Participants noted
that ongoing gains in employment and real income were
providing support for the rise in spending, and this support was expected to continue going forward. Household credit performance was also favorable, with delinquency rates on credit cards and auto loans low. The
available reports from District contacts in the retail and
auto industries confirmed the recent solid gains in consumer spending. Contacts were generally optimistic
about the outlook, although retail sales appeared to be
softening in a few areas where economic activity was adversely affected by declines in the energy sector and the
increase in the foreign exchange value of the dollar.
Housing activity was improving, with sales and new construction trending higher. Solid gains in employment
and favorable mortgage rates were anticipated to continue to underpin the recovery in housing. Contacts in
a number of Districts were upbeat about prospects for
the sector, citing strengthening sales, rising home prices,
an upturn in household formations, and reports that
buyers had accelerated purchases in anticipation of the
possibility that mortgage rates might move higher in the
near term. Multifamily construction was particularly
strong in a couple of Districts, but in another a shortage
of lots was constraining builders’ ability to meet strong
demand for new single-family homes.
The information on business spending from District
contacts was mixed. Nonresidential construction was
reported to be expanding in a number of regions. In
manufacturing, the auto industry remained a bright spot,
but the appreciation of the dollar was still restraining
production of goods for export. Optimism remained
relatively high according to some District contacts, although a few regional activity surveys noted some caution related to uncertainty about recent economic developments abroad. The weakness in commodity prices
and the appreciation of the dollar also continued to
weigh on activity in the energy and agricultural sectors.
Moreover, the outlook for the energy sector appeared to
be worsening. The substantial global supply of crude oil
seemed likely to maintain downward pressure on energy
prices for some time, leading to a deterioration in credit
conditions for some U.S. producers and a further reduction in their capital outlays.
Participants agreed that labor market conditions had improved considerably since earlier in the year. Payroll employment had been increasing steadily. Underutilization
of labor resources had diminished along a number of dimensions: The unemployment rate had fallen to a level
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close to most participants’ estimates of its longer-run
normal rate, and the numbers of discouraged workers
and those employed part time for economic reasons had
moved lower. With the cumulative improvement in labor market conditions, most participants thought that
the underutilization of labor resources had been substantially reduced, and a few of them expressed the view
that underutilization had been eliminated. But some
others believed that labor market slack in addition to that
measured by the unemployment rate remained and that
further progress was possible before labor market conditions were fully consistent with the Committee’s objective of maximum employment. They pointed out
that, even recognizing the downward trend in labor force
participation, the level of the participation rate, particularly for prime-age adults, remained depressed; similarly,
the number of workers on part-time schedules for economic reasons was still elevated. A number of participants noted that eliminating slack along such broader dimensions might require a temporary decline in the unemployment rate below its longer-run normal level, and
that this development could speed the return of inflation
to 2 percent.
The incoming information on wages and labor compensation, including an especially low reading on the employment cost index for the second quarter, showed no
broad-based acceleration. To some, the continued subdued trend in wages was evidence of an absence of upward pressure on inflation from current levels of labor
utilization. Several others, however, noted that weak
productivity growth and low price inflation might be
contributing to modest wage increases. A number of
participants reported that some of their business contacts were experiencing labor shortages in various occupations and geographic areas resulting in upward pressure on wages, with a few indicating that the pickup in
wages had become more widespread.
Recent readings on headline consumer price inflation reflected only small increases in core inflation and renewed
weakness in consumer energy prices. As a result, the
12-month changes in both the total and core PCE price
indexes for August were expected to still be well below
the Committee’s 2 percent objective. Participants continued to judge that a significant portion of the shortfall
was the result of the transitory effects of declines in
prices of oil and non-energy commodities. A few participants pointed out that since January when the steep
drop in energy prices ended, core PCE prices had risen
at an annual rate of 1.7 percent, closer to the Committee’s objective, despite the continued decline in prices of
non-energy imports. Still, almost all participants anticipated that inflation would continue to run below 2 percent in the near term, particularly in light of the further
decline in oil prices and further appreciation of the dollar
over the intermeeting period. Participants also discussed
various measures of expectations for inflation over the
longer run. Surveys continued to show stable longer-run
inflation expectations, and most participants continued
to anticipate that longer-run inflation expectations
would remain well anchored. A few participants expressed some concern about the decline in market-based
measures of inflation compensation. However, it was
noted that the decline seemed to be related to the further
drop in oil prices or may importantly reflect shifts in risk
and liquidity premiums, and thus may not signal additional broad and persistent downward price pressures.
Participants discussed the potential implications of recent economic and financial developments abroad for
U.S. economic activity and inflation. A material slowdown in economic growth in China and potential adverse spillovers to other economies were likely to depress U.S. net exports to some extent. In addition, concerns associated with developments in China and other
emerging market economies had contributed to a further
appreciation of the dollar and declines in prices of oil
and other commodities, which were likely to hold down
U.S. consumer price inflation in the near term. In the
United States, equity prices fell, on balance, amid significant volatility, and risk spreads for businesses widened.
Many participants judged that the effects of these developments on domestic economic activity were likely to be
small, but they acknowledged the risk that they might
restrain U.S. economic growth somewhat. In particular,
the appreciation of the dollar since mid-2014 was still a
substantial drag on net exports, and the further rise in
the dollar over the intermeeting period could augment
the restraint on U.S. net exports. Some participants
commented that the recent decline in equity prices
needed to be viewed in the context of overall valuation
levels, which they saw as relatively high, and a couple
noted that volatility had begun to subside.
During their discussion of economic conditions and
monetary policy, participants indicated that they did not
see the changes in asset prices during the intermeeting
period as bearing significantly on their policy choice except insofar as they affected the outlook for achieving
the Committee’s macroeconomic objectives and the
risks associated with that outlook. Many of them saw
the likely effects of recent developments on the path of
economic activity and inflation as small or transitory.
Most participants continued to anticipate that, based on
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their assessment of current economic conditions and
their outlook for economic activity, the labor market,
and inflation, the conditions for policy firming had been
met or would likely be met by the end of the year. However, some participants judged that the downside risks to
the outlook for economic growth and inflation had increased. In their view, although the time for policy normalization might be near, it would be appropriate to wait
for information, including evidence of further improvement in the labor market, confirming that the outlook
for economic growth had not deteriorated significantly
and that inflation was still on a path to return to 2 percent over the medium term. A few mentioned that a
pickup in wage increases could bolster their confidence
that resource utilization had tightened sufficiently to
help move inflation toward the Committee’s objective,
but they did not view an acceleration in wages as a necessary condition for gaining such confidence.
Participants weighed a number of risks associated with
the timing of policy firming. Some participants were
concerned that the downside risks to inflation could be
realized if the target range for the federal funds rate was
increased before it was clear that economic growth
would remain at an above-trend pace and downward
pressures on inflation had abated. They also worried
that such a premature tightening might erode the credibility of the Committee’s inflation objective if inflation
stayed at a rate below 2 percent for a prolonged period.
It was noted that monetary policy was better positioned
to respond effectively to unanticipated upside inflation
surprises than to persistent below-objective inflation,
particularly when the federal funds rate was still near its
effective lower bound. Such considerations also argued
for increasing the target range for the federal funds rate
gradually after policy normalization was under way.
Some other participants, however, expressed concerns
about delaying the start of normalizing the target range
for the federal funds rate much longer. For example, a
significant delay risked an undesired buildup of inflationary pressures or economic and financial imbalances that
would be costly to unwind and that eventually could
have adverse consequences for economic growth. In addition, a prompt decision to firm policy could provide a
signal of confidence in the strength of the U.S. economy
that might spur rather than restrain economic activity.
These participants preferred to begin policy firming
soon, with most of them expecting that beginning the
process before long would allow the target range for the
federal funds rate to be increased gradually.
Committee Policy Action
In their discussion of monetary policy for the period
ahead, members judged that information received since
the FOMC met in July indicated that economic activity
was expanding at a moderate pace. Although net exports remained soft, economic growth was broadly
based. Members noted that recent global and financial
market developments might restrain economic activity
somewhat as a result of the higher level of the dollar and
possible effects of slower economic growth in China and
in a number of emerging market and commodityproducing economies. Nevertheless, they still viewed
the risks to U.S. economic activity as nearly balanced,
and they continued to expect that, with appropriate policy accommodation, economic activity would most likely
continue to expand at a moderate pace.
Members agreed that labor market conditions had improved considerably since earlier in the year, with ongoing solid gains in payroll employment and the unemployment rate falling to a level quite close to their estimates
of its longer-run normal rate. Members anticipated that
economic activity was likely to continue to expand at a
pace sufficient to lead to a further reduction in underutilization of labor resources. Headline inflation continued
to be held down by the effects of declines in energy and
commodity prices, and the year-over-year increase in
core PCE inflation remained below the Committee’s objective. Survey-based measures of longer-term inflation
expectations had remained stable; market-based
measures of inflation compensation had moved lower.
Members anticipated that the declines in oil prices and
the appreciation of the dollar over the intermeeting period were likely to exert some additional downward pressure on inflation in the near term. Members expected
inflation to rise gradually toward 2 percent over the medium term as the labor market improved further and the
transitory effects of declines in energy and import prices
dissipated, but they agreed to continue to monitor inflation developments closely.
In assessing whether economic conditions had improved sufficiently to initiate a firming in the stance of
policy, many members said that the improvement in labor market conditions met or would soon meet one of
the Committee’s criteria for beginning policy normalization. But some indicated that their confidence that inflation would gradually return to the Committee’s 2 percent objective over the medium term had not increased,
in large part because recent global economic and financial developments had imparted some restraint to the
economic outlook and placed further downward pressure on inflation in the near term. Most members agreed
Minutes of the Meeting of September 16-17, 2015
Page 9
_____________________________________________________________________________________________
that their confidence that inflation would move to the
Committee’s inflation objective would increase if, as expected, economic activity continued to expand at a moderate rate and labor market conditions improved further.
Many expected those conditions to be met later this year,
although several members were concerned about downside risks to the outlook for real activity and inflation.
Other factors important to the Committee’s assessment
of the inflation outlook were the expectation that the influences of lower energy and commodity prices on headline inflation would abate, as had occurred in previous
episodes, and that inflation expectations would remain
stable. With energy and commodity prices expected to
stabilize, members’ projections of inflation incorporated
a step-up in headline inflation next year. However, several members saw a risk that the additional downward
pressure on inflation from lower oil prices and a higher
foreign exchange value of the dollar could persist and, as
a result, delay or diminish the expected upturn in inflation. And, while survey measures of longer-run inflation
expectations remained stable, a couple of members expressed unease with the decline in market-based
measures of inflation compensation over the intermeeting period.
After assessing the outlook for economic activity, the labor market, and inflation and weighing the uncertainties
associated with the outlook, all but one member concluded that, although the U.S. economy had strengthened and labor underutilization had diminished, economic conditions did not warrant an increase in the target range for the federal funds rate at this meeting. They
agreed that developments over the intermeeting period
had not materially altered the Committee’s economic
outlook. Nevertheless, in part because of the risks to the
outlook for economic activity and inflation, the Committee decided that it was prudent to wait for additional
information confirming that the economic outlook had
not deteriorated and bolstering members’ confidence
that inflation would gradually move up toward 2 percent
over the medium term. One member, however, preferred to raise the target range for the federal funds rate
at this meeting, indicating that the current low level of
real interest rates was not appropriate in the context of
current economic conditions.
The Committee agreed to maintain the target range for
the federal funds rate at 0 to ¼ percent and to reaffirm
in its postmeeting statement that the Committee’s decision about how long to maintain the current target range
for the federal funds rate would depend on its assess-
ment of actual and expected progress toward its objectives of maximum employment and 2 percent inflation.
Members agreed that the Committee’s evaluation of progress on its objectives 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. They also agreed to indicate that
the Committee continued to anticipate that it would be
appropriate to raise the target range for the federal funds
rate when it sees some further improvement in the labor
market and is reasonably confident that inflation will
move back to its 2 percent objective over the medium
term. It was noted that the expected path of the federal
funds rate, rather than the exact timing of the initial increase, was most important in influencing financial conditions and thus the outlook for the economy and inflation. The Committee reiterated its expectation that,
even after employment and inflation are near mandateconsistent levels, economic conditions may, for some
time, warrant keeping the target federal funds rate below
levels the Committee views as normal in the longer run.
The Committee also maintained its policy of reinvesting
principal payments from its agency debt and agency
mortgage-backed 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.
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-
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Federal Open Market Committee
_____________________________________________________________________________________________
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 July suggests that
economic activity is expanding at a moderate
pace. Household spending and business fixed
investment have been increasing moderately,
and the housing sector has improved further;
however, net exports have been soft. The labor
market continued to improve, with solid job
gains and declining unemployment. On balance, labor market indicators show that underutilization of labor resources has diminished
since early this year. Inflation has continued to
run below the Committee’s longer-run objective, partly reflecting declines in energy prices
and in prices of non-energy imports. Marketbased measures of inflation compensation
moved lower; survey-based measures of longerterm inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment
and price stability. Recent global economic and
financial developments may restrain economic
activity somewhat and are likely to put further
downward pressure on inflation in the near
term. Nonetheless, 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 but is monitoring developments
abroad. 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 target range for the federal funds rate when
it has seen some 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,
Dennis P. Lockhart, Jerome H. Powell, Daniel K. Tarullo, and John C. Williams.
Minutes of the Meeting of September 16-17, 2015
Page 11
_____________________________________________________________________________________________
Voting against this action: Jeffrey M. Lacker.
Mr. Lacker dissented because he believed that maintaining exceptionally low real interest rates was not appropriate for an economy with persistently strong consumption growth and tightening labor markets. He viewed
current disinflationary forces as likely to be transitory,
and was reasonably confident that inflation would move
toward 2 percent. In his view, further delay in removing
monetary policy accommodation would represent a risky
departure from past patterns of FOMC behavior in response to such economic conditions.
It was agreed that the next meeting of the Committee
would be held on Tuesday–Wednesday, October 27–28,
2015. The meeting adjourned at 10:55 a.m. on
September 17, 2015.
Notation Vote
By notation vote completed on August 18, 2015, the
Committee unanimously approved the minutes of the
Committee meeting held on July 28–29, 2015.
_____________________________
Brian F. Madigan
Secretary
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_____________________________________________________________________________________________
Summary of Economic Projections
In conjunction with the Federal Open Market Committee (FOMC) meeting held on September 16–17, 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 2018 and over the longer run.
Each participant’s projection was based on information
available at the time of the meeting together with 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.
FOMC participants generally expected that, under appropriate monetary policy, economic growth in 2015
would be at or slightly above their individual estimates
of the U.S. economy’s longer-run normal growth rate
and would increase somewhat in 2016 before slowing to
or toward its longer-run rate in 2017 and 2018 (table 1
and figure 1). Most participants projected that the unemployment rate would decline a bit further over the remainder of 2015 and be at or slightly below their individual judgments of its longer-run normal level from
2016 through 2018. Participants projected that inflation,
as measured by the four-quarter change in the price index for personal consumption expenditures (PCE),
would be very low this year but then would pick up notably next year and rise further in 2017; all participants
projected that inflation would be at or close to the Committee’s 2 percent longer-run objective in 2018.
As shown in figure 2, all but four 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
headwinds to economic growth fade, labor market indicators reach levels consistent with the Committee’s mandated objective of maximum employment, and inflation
moves up to 2 percent. Most participants continued to
expect that it would be appropriate for the federal funds
rate still to be appreciably below its longer-run level in
2016 and 2017, reflecting the effects of remaining headwinds along with other factors.
Most participants viewed the levels of 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 also judged the level of
uncertainty about inflation to be broadly similar to the
average level of the past 20 years, although a few 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, although some viewed the risks to economic
growth as weighted to the downside and some saw the
risks to unemployment as weighted to the upside. A few
more participants saw the risks to inflation as weighted
to the downside than as balanced, while one judged these
risks to be 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
from 2015 through 2017 at a pace slightly above their
estimates of its longer-run normal rate, and that real
GDP growth would then slow in 2018 to a rate at or near
their individual estimates of the longer-run rate. Participants pointed to a number of factors that they expected
would contribute to moderate 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 June, all participants revised up
their projections of real GDP growth for 2015, reflecting
stronger-than-anticipated growth over the first half of
the year. Most participants revised down their projections of real GDP growth in 2016 and 2017. Several
participants cited slower projected productivity growth
as a reason for their downward revisions. The median
value of participants’ current projections for real GDP
growth was 2.1 percent in 2015, 2.3 percent in 2016,
2.2 percent in 2017, and 2.0 percent in 2018. Although
about half of the participants marked down their projections of real GDP growth in the longer run, the median
remained at 2.0 percent.
Most participants projected that the unemployment rate
would decline a bit further over the remainder of 2015
0.4
0.6
1.4
1.6
1.7
1.8
2.6
2.9
1.9
2.0
3.4
n.a.
2.0
n.a.
2.0
n.a.
3.5
3.8
2.0
2.0
2.0
n.a.
2.0
2.0
1.2 – 1.7
1.2 – 1.6
0.3 – 1.0
0.6 – 1.0
1.5 – 2.4
1.5 – 2.4
1.5 – 2.4
1.5 – 2.4
4.5 – 5.0
4.6 – 5.2
2.1 – 2.8
2.3 – 3.0
2016
1.7 – 2.2 1.8 – 2.1
1.7 – 2.2
n.a.
1.7 – 2.2 1.8 – 2.1
1.7 – 2.2
n.a.
2.0
2.0
4.5 – 5.0 4.6 – 5.3 4.7 – 5.8
4.8 – 5.5
n.a.
5.0 – 5.8
Longer
run
1.9 – 2.6 1.6 – 2.4 1.8 – 2.7
2.0 – 2.5
n.a.
1.8 – 2.5
2018
0.1 – 0.6 1.1 – 2.1 2.1 – 3.4 3.0 – 3.6 3.3 – 3.8 -0.1 – 0.9 -0.1 – 2.9 1.0 – 3.9 2.9 – 3.9 3.0 – 4.0
0.4 – 0.9 1.4 – 2.4 2.4 – 3.8
n.a.
3.5 – 3.8 0.1 – 0.9 0.4 – 2.9 2.0 – 3.9
n.a.
3.3 – 4.3
1.3 – 1.4 1.5 – 1.8 1.8 – 2.0 1.9 – 2.0
1.3 – 1.4 1.6 – 1.9 1.9 – 2.0
n.a.
0.3 – 0.5 1.5 – 1.8 1.8 – 2.0
0.6 – 0.8 1.6 – 1.9 1.9 – 2.0
4.9 – 5.2
5.0 – 5.3
1.9 – 2.5
1.7 – 2.3
2015
Range3
2017
Note: Projections of change in real gross domestic product (GDP) and projections for both measures of inflation are percent changes 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 projections
for the federal funds rate are the value (rounded to the nearest 1/8 percentage point) of the midpoint of the projected appropriate target range for the federal funds rate or the projected
appropriate target level for the federal funds rate at the end of the specified calendar year or over the longer run. The June projections were made in conjunction with the meeting of
the Federal Open Market Committee on June 16–17, 2015.
1. For each period, the median is the middle projection when the projections are arranged from lowest to highest. When the number of projections is even, the median is the
average of the two middle projections.
2. The central tendency excludes the three highest and three lowest projections for each variable in each year.
3. The range for a variable in a given year includes all participants’ projections, from lowest to highest, for that variable in that year.
4. Longer-run projections for core PCE inflation are not collected.
Federal funds rate
June projection
Memo: Projected
appropriate policy path
1.4
1.3
1.9
2.0
5.0 – 5.1 4.7 – 4.9 4.7 – 4.9 4.7 – 5.0 4.9 – 5.2
5.2 – 5.3 4.9 – 5.1 4.9 – 5.1
n.a.
5.0 – 5.2
Core PCE inflation4
June projection
1.7
1.8
4.9
5.0
0.4
0.7
4.8
n.a.
PCE inflation
June projection
4.8
5.0
Unemployment rate
June projection
4.8
5.1
5.0
5.3
Change in real GDP
June projection
Variable
Median1
Central tendency2
2015 2016 2017 2018 Longer 2015
2016
2017
2018
Longer
run
run
2.1
2.3
2.2
2.0
2.0
2.0 – 2.3 2.2 – 2.6 2.0 – 2.4 1.8 – 2.2 1.8 – 2.2
1.9
2.5
2.3 n.a.
2.0
1.8 – 2.0 2.4 – 2.7 2.1 – 2.5
n.a.
2.0 – 2.3
Percent
Table 1. Economic projections of Federal Reserve Board members and Federal Reserve Bank presidents,
under their individual assessments of projected appropriate monetary policy, September 2015
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Federal Open Market Committee
_____________________________________________________________________________________________
Summary of Economic Projections of the Meeting of September 16-17, 2015
Page 3
_____________________________________________________________________________________________
Figure 1. Medians, central tendencies, and ranges of economic projections, 2015–18 and over the longer run
Percent
Change in real GDP
4
Median of projections
Central tendency of projections
Range of projections
3
2
1
+
0
-
Actual
2010
2011
2012
2013
2014
2015
2016
2017
2018
Longer
run
Percent
Unemployment rate
10
9
8
7
6
5
2010
2011
2012
2013
2014
2015
2016
2017
2018
Longer
run
Percent
PCE inflation
3
2
1
2010
2011
2012
2013
2014
2015
2016
2017
2018
Longer
run
Percent
Core PCE inflation
3
2
1
2010
2011
2012
2013
2014
2015
2016
2017
2018
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.
Page 4
Federal Open Market Committee
_____________________________________________________________________________________________
Figure 2. Overview of FOMC participants’ assessments of appropriate monetary policy
Number of participants
Appropriate timing of policy firming
14
13
13
12
11
10
9
8
7
6
5
4
3
3
2
1
2015
2016
1
2017
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
0.5
2015
2016
2017
2018
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 June 2015, the numbers of FOMC participants who judged that
the first increase in the target federal funds rate would occur in 2015, 2016, and 2017 were, respectively, 15, 2, and 0.
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.
Summary of Economic Projections of the Meeting of September 16-17, 2015
Page 5
_____________________________________________________________________________________________
and be at or below their individual judgments of its
longer-run normal level from 2016 through 2018. The
median of participants’ forecasts for the unemployment
rate in the fourth quarter of each year was 5.0 percent in
2015 and 4.8 percent from 2016 through 2018. Compared with the June SEP, participants’ projected paths
for the unemployment rate generally shifted down somewhat 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. All but a few participants revised down
their estimates of the longer-run normal rate of unemployment; as a result, the median estimate edged down
to 4.9 percent. Several participants noted that still-subdued wage and price inflation despite the stronger-thanexpected momentum in the labor market suggested a
lower level of the longer-run normal rate of unemployment than they had thought previously. A few also 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 2018 and in
the longer run. The diversity of views across participants
reflected, in part, their individual assessments of a number of factors, including the effects of lower oil prices on
consumer spending and business investment, the extent
to which dollar appreciation and weaker foreign economic growth would affect real activity, the rate at which
the forces that have been restraining the pace of the economic expansion would continue to abate, the degree to
which ongoing improvements in the labor market would
support stronger consumption growth, and the appropriate path of monetary policy. Relative to the June SEP,
the dispersion of participants’ projections for real GDP
growth was roughly unchanged through 2016 but was
somewhat wider in 2017 and the longer run. The dispersion of participants’ projections for the unemployment rate in the longer run also widened somewhat.
The Outlook for Inflation
Compared with the June SEP, almost all participants
marked down their projections for PCE inflation this
year, noting that inflation had been running below their
earlier projections and that further declines in energy
prices and import prices were putting additional temporary downward pressure on PCE inflation. Nearly all
participants saw PCE inflation picking up in 2016 and
rising further in 2017, and almost all saw inflation at or
close to the Committee’s 2 percent longer-run objective
in 2018. Some participants also marked down their projections for core PCE inflation from 2015 through 2017,
although almost all still expected core inflation to rise
gradually over the projection period and to reach a level
at or near 2 percent in 2018. The median values of projections for PCE inflation were 0.4 percent in 2015,
1.7 percent in 2016, 1.9 percent in 2017, and 2.0 percent
in 2018, and the median values for core PCE inflation
were 1.4 percent in 2015, 1.7 percent in 2016, 1.9 percent
in 2017, and 2.0 percent in 2018. Factors cited by participants as likely to contribute to a rise of inflation toward 2 percent included stable longer-term inflation expectations, tighter resource utilization, a pickup in wage
growth, the waning effects of declines in energy prices
and appreciation of the dollar, 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 widened slightly compared with June, reflecting in part differences in participants’ assessments
of the effects of the declines in energy and import prices
on the outlook for inflation. The dispersion for PCE
inflation for 2016 and 2017 was about unchanged. Similarly, the ranges for core PCE inflation widened slightly
in 2015 and were unchanged for 2016 and 2017. The
distributions for both inflation measures in 2017 and
2018 were notably more concentrated near the Committee’s 2 percent longer-run objective than those for 2015
and 2016.
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 forces that have been restraining the
expansion abate and as labor market indicators 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 four participants anticipated that it would
be appropriate to begin raising the target range for the
federal funds rate during 2015. However, most projected that the appropriate level of the federal funds rate
would remain noticeably below their individual estimates
of its longer-run normal level through 2017. Most participants saw the appropriate level of the federal funds
rate as close to its longer-run normal level by 2018.
Most participants projected that the unemployment rate
would be at or only slightly above their estimates of its
longer-run normal level at the end of the year in which
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Federal Open Market Committee
_____________________________________________________________________________________________
Figure 3.A. Distribution of participants’ projections for the change in real GDP, 2015–18 and over the longer run
Number of participants
2015
18
16
14
12
10
8
6
4
2
September projections
June projections
1.6 1.7
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
Percent range
Number of participants
2016
18
16
14
12
10
8
6
4
2
1.6 1.7
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
Percent range
Number of participants
2017
18
16
14
12
10
8
6
4
2
1.6 1.7
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
Percent range
Number of participants
2018
18
16
14
12
10
8
6
4
2
1.6 1.7
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
Percent range
Number of participants
Longer run
1.6 1.7
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
Percent range
Note: Definitions of variables are in the general note to table 1.
2.6 2.7
2.8 2.9
3.0 3.1
Summary of Economic Projections of the Meeting of September 16-17, 2015
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_____________________________________________________________________________________________
Figure 3.B. Distribution of participants’ projections for the unemployment rate, 2015–18 and over the longer run
Number of participants
2015
18
16
14
12
10
8
6
4
2
September projections
June 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
2018
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
4.4 4.5
18
16
14
12
10
8
6
4
2
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
Page 8
Federal Open Market Committee
_____________________________________________________________________________________________
Figure 3.C. Distribution of participants’ projections for PCE inflation, 2015–18 and over the longer run
Number of participants
2015
September projections
June projections
0.3 0.4
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
18
16
14
12
10
8
6
4
2
2.3 2.4
Percent range
Number of participants
2016
0.3 0.4
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
0.3 0.4
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
2018
0.3 0.4
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
0.3 0.4
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 September 16-17, 2015
Page 9
_____________________________________________________________________________________________
Figure 3.D. Distribution of participants’ projections for core PCE inflation, 2015–18
Number of participants
2015
September projections
June 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
1.9 2.0
2.1 2.2
2.3 2.4
Percent range
Number of participants
2018
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
Page 10
Federal Open Market Committee
_____________________________________________________________________________________________
they judged the initial increase in the target range for the
federal funds rate would be warranted. All participants
projected that inflation would be below the Committee’s
2 percent objective in 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 2018 and over the longer run. Relative to June,
the median value of the federal funds rate decreased
25 basis points at the end of 2015, 2016, and 2017 to
0.38 percent, 1.38 percent, and 2.63 percent, respectively, and the dispersion of the projections for the federal funds rate widened from 2015 through 2017.
Almost all participants judged that it would be appropriate for the federal funds rate to remain noticeably below
its longer-run normal level over the next two years even
though the unemployment rate was anticipated to be
near its mandate-consistent level and most participants
expected inflation to be close to 2 percent by 2017. The
reasons cited for only gradually increasing the federal
funds rate included an assessment that the headwinds
that have been holding back the economic expansion
will continue to exert some restraint on economic activity, partly because weak activity abroad and the recent
appreciation of the dollar are likely to continue to damp
U.S. net exports for some time. As support for a view
that accommodative monetary policy would remain appropriate over the next few years, some participants also
noted their assessment that residual slack in the labor
market will still be evident in measures of labor utilization other than the unemployment rate, or 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. Most
participants expected the federal funds rate to be at or
only slightly below its longer-run normal level by 2018.
Relative to the June SEP, more than half of the participants revised down their estimates of the longer-run
level of the federal funds rate, with a lower assessment
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” 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.
1
of the economy’s longer-run growth potential generally
cited as a contributing factor. The median estimate of
the longer-run normal federal funds rate declined 25 basis points from June, and the range moved down from
3.25 to 4.25 percent to 3.0 to 4.0 percent. All participants judged that inflation in the longer run would be
equal to the Committee’s 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 2.0 percent.
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, their estimates of the current extent of slack in the labor market,
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 pace at which headwinds that have been restraining
economic activity dissipate and underlying momentum
in the economy strengthens, the desire to minimize potential disruptions in financial markets that could result
from a steep increase in the target federal funds rate following liftoff, and the risks around the outlook for economic activity and inflation. Some participants also
mentioned the prescriptions of various monetary policy
rules as factors they considered in judging the appropriate path for the federal funds rate.
Uncertainty and Risks
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).1 Most
participants continued to see the risks to their outlooks
for real GDP growth as broadly balanced, although a
larger number than in June viewed the risks to real GDP
growth as weighted to the downside. Those participants
who viewed the risks as weighted to the downside cited,
Summary of Economic Projections of the Meeting of September 16-17, 2015
Page 11
_____________________________________________________________________________________________
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, 2015–18 and over the longer run
Number of participants
2015
18
16
14
12
10
8
6
4
2
September projections
June projections
−0.37- −0.12- 0.13 −0.13 0.12
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
−0.37- −0.12- 0.13 −0.13 0.12
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
−0.37- −0.12- 0.13 −0.13 0.12
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
2018
−0.37- −0.12−0.13 0.12
18
16
14
12
10
8
6
4
2
0.13 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
−0.37- −0.12- 0.13 −0.13 0.12
0.37
18
16
14
12
10
8
6
4
2
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.
Page 12
Federal Open Market Committee
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Figure 4. Uncertainty and risks in economic projections
Number of participants
Uncertainty about GDP growth
Risks to GDP growth
September projections
June projections
Lower
Broadly
similar
Number of participants
18
16
14
12
10
8
6
4
2
Higher
September projections
June 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 September 16-17, 2015
Page 13
_____________________________________________________________________________________________
for example, a weaker outlook for economic activity
abroad and the recent appreciation of the dollar. Most
participants judged the risks to the outlook for the unemployment rate to be broadly balanced, though more
participants than in June viewed the risks to the unemployment rate as weighted to the upside.
Table 2. Average historical projection error ranges
As in the June SEP, participants generally agreed that the
levels of uncertainty associated with their inflation forecasts were broadly similar to historical norms. Many participants viewed the risks to their inflation forecast as
balanced. However, the risks were seen as tilted to the
downside by more than half of the participants, an increase since the June SEP. These participants cited the
recent declines in market-based measures of inflation
compensation and commodity prices and the appreciation of the dollar as factors that could place greater
downward pressure on prices than anticipated.
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 fall 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.fed
eralreserve.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.
Percentage points
Variable
Change in real
2015
2016
2017
2018
.....
±1.3
±1.9
±2.1
±2.2
.....
±0.3
±1.0
±1.7
±1.9
±0.8
±1.0
±1.1
±1.0
GDP1
Unemployment
rate1
Total consumer
prices2
....
Page 14
Federal Open Market Committee
_____________________________________________________________________________________________
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 1.7 to 4.3 percent in the
current year, 1.1 to 4.9 percent in the second
year, 0.9 to 5.1 percent in the third year, and
0.8 to 5.2 percent in the fourth year. The corresponding 70 percent confidence intervals for
overall inflation would be 1.2 to 2.8 percent in
the current year, 1.0 to 3.0 percent in the second
year, 0.9 to 3.1 percent in the third year, and
1.0 to 3.0 percent in the fourth year.
Because current conditions may differ from
those that prevailed, on average, over history,
participants provide judgments as to whether
the uncertainty attached to their projections of
each variable is greater than, smaller than, or
broadly similar to typical levels of forecast uncertainty in the past, as shown in table 2. Participants also provide judgments as to whether the
risks to their projections are weighted to the upside, are weighted to the downside, or are
broadly balanced. That is, participants judge
whether each variable is more likely to be above
or below their projections of the most likely outcome. These judgments about the uncertainty
and the risks attending each participant’s projections are distinct from the diversity of participants’ views about the most likely outcomes.
Forecast uncertainty is concerned with the risks
associated with a particular projection rather
than with divergences across a number of different projections.
As with real activity and inflation, the outlook for the future path of the federal funds rate
is subject to considerable uncertainty. This uncertainty arises primarily because each participant’s assessment of the appropriate stance of
monetary policy depends importantly on the
evolution of real activity and inflation over time.
If economic conditions evolve in an unexpected
manner, then assessments of the appropriate
setting of the federal funds rate would change
from that point forward.
Cite this document
Federal Reserve (2015, September 16). FOMC Minutes. Fomc Minutes, Federal Reserve. https://whenthefedspeaks.com/doc/fomc_minutes_20150917
@misc{wtfs_fomc_minutes_20150917,
author = {Federal Reserve},
title = {FOMC Minutes},
year = {2015},
month = {Sep},
howpublished = {Fomc Minutes, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/fomc_minutes_20150917},
note = {Retrieved via When the Fed Speaks corpus}
}