FOMC Minutes

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Minutes of the Federal Open Market Committee

March 15–16, 2016

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 Tuesday, March 15, 2016, at

1:00 p.m. and continued on Wednesday, March 16, 2016,

at 9:00 a.m.1

PRESENT:

Janet L. Yellen, Chair

William C. Dudley, Vice Chairman

Lael Brainard

James Bullard

Stanley Fischer

Esther L. George

Loretta J. Mester

Jerome H. Powell

Eric Rosengren

Daniel K. Tarullo

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, Deputy Director, Division of

Monetary Affairs, Board of Governors

William B. English, Senior Special Adviser to the

Board, Office of Board Members, Board of

Governors

Charles L. Evans, Patrick Harker, Robert S. Kaplan,

Neel Kashkari, and Michael Strine, Alternate

Members of the Federal Open Market Committee

Andrew Figura, Ann McKeehan, David Reifschneider,

and Stacey Tevlin,2 Special Advisers to the Board,

Office of Board Members, Board of Governors

Jeffrey M. Lacker, Dennis P. Lockhart, and John C.

Williams, Presidents of the Federal Reserve Banks

of Richmond, Atlanta, and San Francisco,

respectively

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

of Board Members, Board of Governors

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

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

Lebow, Stephen A. Meyer, Christopher J. Waller,

and William Wascher, Associate Economists

Simon Potter, Manager, System Open Market Account

The Federal Open Market Committee is referenced as the

“FOMC” and the “Committee” in these minutes.

1

Linda Robertson, Assistant to the Board, Office of

Board Members, Board of Governors

Diana Hancock and Michael G. Palumbo, Senior

Associate Directors, Division of Research and

Statistics, Board of Governors; Beth Anne Wilson,

Senior Associate Director, Division of

International Finance, Board of Governors

Ellen E. Meade and Robert J. Tetlow, Senior Advisers,

Division of Monetary Affairs, Board of Governors

Jane E. Ihrig and David López-Salido, Associate

Directors, Division of Monetary Affairs, Board of

Governors

Attended the discussion of the economic and financial situation through the close of the meeting.

2

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Stephanie R. Aaronson and Glenn Follette,3 Assistant

Directors, Division of Research and Statistics,

Board of Governors

Penelope A. Beattie,4 Assistant to the Secretary, Office

of the Secretary, Board of Governors

David H. Small, Project Manager, Division of

Monetary Affairs, Board of Governors

Kurt F. Lewis, Principal Economist, Division of

Monetary Affairs, Board of Governors

Randall A. Williams, Information Manager, Division of

Monetary Affairs, Board of Governors

Kenneth C. Montgomery, First Vice President, Federal

Reserve Bank of Boston

David Altig, Ron Feldman, Alberto G. Musalem,

Glenn D. Rudebusch, and Daniel G. Sullivan,

Executive Vice Presidents, Federal Reserve Banks

of Atlanta, Minneapolis, New York, San Francisco,

and Chicago, respectively

Michael Dotsey, Evan F. Koenig, Paolo A. Pesenti, and

John A. Weinberg, Senior Vice Presidents, Federal

Reserve Banks of Philadelphia, Dallas, New York,

and Richmond, respectively

Edward S. Knotek II, Giovanni Olivei, and Jonathan L.

Willis, Vice Presidents, Federal Reserve Banks of

Cleveland, Boston, and Kansas City, respectively

Developments in Financial Markets and Open

Market Operations

The manager of the System Open Market Account

(SOMA) reported on developments in domestic and foreign financial markets, including recent monetary policy

actions of foreign central banks and the expectations of

market participants for the trajectory of U.S. monetary

policy. 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 Committee met on January 26–27,

2016. Experience during the intermeeting period continued to suggest that the operational framework for

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Attended Wednesday session only.

monetary policy implementation was effective in maintaining control over the federal funds rate. Also, the

transitions in early March to the FR 2420 reporting form

(Report of Selected Money Market Rates) as the underlying source of data for computing the effective federal

funds rate, and to a volume-weighted median as the calculation method, proceeded smoothly. In addition, the

deputy manager reviewed recent and projected trends in

foreign portfolio income of the SOMA, including the

implications for portfolio income of foreign nominal interest rates that were very low, even negative.

The deputy manager also outlined factors that the Committee might consider in determining whether to offer

term reverse repurchase agreements (RRPs) over the end

of the first quarter. In the ensuing discussion of this

question among Committee participants, it was noted

that, in view of the very elevated capacity of the overnight (ON) RRP facility that would remain available for

the time being, offering term RRPs in addition to ON

RRPs would be unlikely to enhance control of the federal funds rate over quarter-end, and offering term RRPs

at an interest rate spread over ON RRPs could marginally increase the Federal Reserve’s interest costs. For

these reasons, Committee participants generally preferred not to offer term RRPs over the end of the first

quarter. Participants noted that it may be appropriate to

offer term RRPs at some point in the future after the

Committee reintroduces an aggregate cap on ON RRP

operations, and the Committee’s decisions regarding

term RRPs over quarter-ends had no implications for

the FOMC’s plan to phase out the ON RRP facility

when it was no longer needed to help control the federal

funds rate.

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.

Staff Review of the Economic Situation

The information reviewed for the March 15–16 meeting

suggested that labor market conditions were continuing

to improve in the first quarter, and that the pace of expansion in real gross domestic product (GDP) was picking up somewhat from the previous quarter. Consumer

price inflation was still running below the Committee’s

longer-run objective of 2 percent, restrained in part by

decreases in both consumer energy prices and the prices

of non-energy imports. Survey-based measures of

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Attended Tuesday session only.

Minutes of the Meeting of March 15–16, 2016

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longer-run inflation expectations were little changed, on

balance, in recent months, while market-based measures

of inflation compensation remained low.

Total nonfarm payroll employment increased in January

and February at a solid average monthly pace. The unemployment rate declined to 4.9 percent in January and

remained at that level in February, while both the labor

force participation rate and the employment-to-population ratio increased over these months. The share of

workers employed part time for economic reasons edged

down in January and February. The rates of private-sector job openings, hires, and quits rose a little in December. The four-week moving average of initial claims for

unemployment insurance benefits moved down in February and early March after increasing a little in January.

Labor compensation continued to rise at a modest pace.

Compensation per hour in the nonfarm business sector

increased 2½ percent over the four quarters of 2015, and

the employment cost index rose nearly 2 percent over

the 12 months ending in December; both increases were

similar to their averages in recent years. Average hourly

earnings for all employees increased 2¼ percent over the

12 months ending in February, about ¼ percentage

point more than over the preceding 12 months.

Industrial production increased in January. Manufacturing output rose, reversing the declines seen in the two

previous months, and the output of utilities moved up

sharply as the demand for heating rebounded after having been held down by unseasonably warm weather in

December. Mining output was unchanged following

four months of sizable declines that resulted from decreases in drilling activity. Automakers’ assembly schedules and broader indicators of manufacturing production, such as the readings on new orders from national

and regional manufacturing surveys, mostly pointed to a

modest pace of gains in factory output over the next few

months. Information on drilling activity for crude oil

and natural gas through early March was consistent with

further declines in mining output.

Growth in real personal consumption expenditures

(PCE) appeared to pick up some in the first quarter. The

components of the nominal retail sales data used by the

Bureau of Economic Analysis to construct its estimate

of PCE were little changed, on net, in January and February, but spending on energy services appeared likely to

increase somewhat and the rate of sales of new light motor vehicles stepped up following a decline in December.

Recent readings on key factors that influence consumer

spending generally pointed toward solid growth in real

PCE over the first half of the year. Gains in real disposable income picked up in December and January.

Households’ net worth was supported both by a rebound in equity prices following declines earlier in the

year and by further increases in home values through

January. Also, consumer sentiment in the University of

Michigan Surveys of Consumers remained at an elevated

level in February.

Recent information on housing activity was consistent

with a continued gradual recovery in this sector. Starts

for new single-family homes moved higher, on balance,

in January and February, and building permits were little

changed. Starts of multifamily units declined on net.

New home sales fell in January, more than reversing an

increase in December. Sales of existing homes increased

further in January following a strong gain in December.

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

only modestly in the first quarter. Nominal shipments

of nondefense capital goods excluding aircraft declined

in January, and forward-looking indicators of equipment

spending, such as new orders for nondefense capital

goods along with recent readings from national and regional surveys of business conditions, were generally

soft. Firms’ nominal spending for nonresidential structures excluding drilling and mining increased somewhat

in January after having declined for two months. Indicators of spending for structures in the drilling and mining sector, such as the number of oil and gas rigs in operation, continued to fall through early March. The limited available data suggested that inventory investment

continued to decline in the early part of the year. Nonetheless, with the exception of the energy sector, inventories generally seemed well aligned with the pace of

sales.

Growth in total real government purchases appeared to

be modest in the first quarter. Federal government

spending for defense was soft in January and February,

while nondefense spending seemed likely to be slightly

boosted early in the year by the effect of the 2015 Bipartisan Budget Act. Nominal construction spending by

state and local governments increased sharply in January,

but the payrolls of these governments were little

changed, on net, over the first two months of the year.

The U.S. international trade deficit widened in both December and January, as exports declined in both months,

continuing a downward trend that began in late 2014,

with particular weakness in exports of capital goods. Imports rose slightly in December before falling back in

January. Net exports subtracted from real GDP growth

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in the fourth quarter, and the January trade data suggested that net exports would continue to weigh on

growth in the first quarter.

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

price index increased 1¼ percent over the 12 months

ending in January, partly restrained by declines in consumer energy prices. Core PCE price inflation, which

excludes changes in food and energy prices, was 1¾ percent over the same 12-month period, held down in part

by decreases in the prices of non-energy imports and the

pass-through of declines in energy prices. Over the

12 months ending in February, total consumer prices as

measured by the consumer price index (CPI) rose 1 percent, while core CPI inflation was around 2¼ percent.

Both readings on core inflation were boosted, in part, by

movements in prices for some categories of goods and

services whose prices tend to be volatile. Survey

measures of longer-run inflation expectations—including those from the Michigan survey, Blue Chip Economic Indicators, Survey of Professional Forecasters,

Survey of Primary Dealers, and Survey of Market Participants—were generally little changed on balance. In

February, the Michigan survey measure of median inflation expectations over the next 5 to 10 years was below

its typical range of the past 15 years, likely reflecting—at

least in part—decreases in energy prices over the past

year and a half.

Foreign real GDP growth slowed in the fourth quarter,

with Canadian activity restrained by declines in oilrelated investment and the Japanese economy contracting amid weakness in consumption. Economic growth

continued to be steady but modest in the euro area and

the United Kingdom, while Brazil remained in recession.

In contrast, some economies in emerging Asia recorded

robust growth. Indicators pointed to a pickup in growth

in most foreign economies in the current quarter but to

a further softening of growth in China. Inflation in the

advanced foreign economies remained low. In contrast,

inflation rose in China because of a rebound in local

food prices, while inflation in much of South America

remained elevated, reflecting weaker currencies. Concerns about persistently low inflation spurred further

monetary policy accommodation by the Bank of Japan

(BOJ) and the European Central Bank (ECB).

Staff Review of the Financial Situation

Financial markets were turbulent over the first month

and a half of the year, apparently reflecting investors’

concerns about global growth prospects and associated

risks to the U.S. outlook. However, these concerns ap-

peared to diminish beginning in mid-February, and domestic financial conditions generally eased, on balance,

since the January FOMC meeting: Stock prices rose, equity price volatility declined, and credit spreads on corporate bonds narrowed. The dollar depreciated against

most foreign currencies, and long-term sovereign bond

yields declined amid easing by central banks in advanced

foreign economies.

Yields on 5- and 10-year nominal Treasury securities declined at the outset of the intermeeting period, reflecting

the continued pullback from risky assets that began early

in the year on concerns about prospects for global economic growth. These yields subsequently increased as

market sentiment improved and were little changed, on

balance, over the intermeeting period. Measures of inflation compensation over the next 5 years rose, on net,

consistent with increases in oil prices, while inflation

compensation 5 to 10 years ahead was little changed on

the period and remained at the lower end of its historical

range.

After becoming considerably flatter early in the intermeeting period, the path of the federal funds rate implied by market quotes on interest rate derivatives steepened subsequently as financial market conditions improved and was little changed, on balance, over the intermeeting period. However, the median respondent to

the Desk’s March Survey of Primary Dealers and to the

Survey of Market Participants expected only two increases in the FOMC’s target range for the federal funds

rate this year, one fewer than they had projected in January.

Broad equity market indexes increased, on balance, over

the intermeeting period and continued to exhibit a high

correlation with crude oil prices. Reflecting the improvement in investor sentiment that started in midFebruary, corporate bond spreads narrowed, with

spreads on investment-grade issues finishing the period

slightly lower while spreads on speculative-grade issues—particularly those for the lowest-rated bonds—

declined appreciably.

Financing conditions for investment-grade nonfinancial

firms continued to be relatively accommodative. Corporate bond issuance by these firms was robust in January and February, while speculative-grade bond issuance

stayed subdued. Commercial and industrial loan growth

at banks was also strong, mostly driven by the origination of large loans to investment-grade borrowers. Refinancings of institutional leveraged loans were near zero

in February, as was equity issuance through initial public

offerings.

Minutes of the Meeting of March 15–16, 2016

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The credit quality of speculative-grade nonfinancial corporations continued to show signs of deterioration.

Market analysts’ earnings forecasts for speculative-grade

companies, including those outside the energy sector,

were revised down for the first quarter of 2016 amid

concerns about a deterioration in the global economic

outlook. In the broader corporate bond market, the volume of downgrades of ratings outpaced that of upgrades, even for investment-grade securities, in January

and February, with energy firms accounting for most of

the downgrades in February. The default rate on nonfinancial bonds remained somewhat elevated compared

with typical levels outside recession periods.

market participants had revised down their expected trajectory of the federal funds rate somewhat, and yields on

medium- and longer-term Treasury securities declined

20 to 30 basis points. Yields on investment- and speculative-grade corporate bonds were down slightly less,

leaving spreads over Treasury securities little changed

over the period between mid-December and midMarch. Similarly, broad equity price indexes ended this

interval only a bit lower, and one-month-ahead optionimplied volatility on the S&P 500 index, the VIX, declined on balance. The broad index of the foreign exchange value of the dollar was also roughly unchanged,

on net, since the December meeting.

Financing conditions for commercial real estate (CRE)

tightened somewhat over the intermeeting period but remained accommodative. Spreads on commercial mortgage-backed securities (CMBS) continued to widen, on

net, despite the narrowing of spreads in broader bond

markets. Reportedly in response, CMBS issuance was

down somewhat over the first two months of the year,

although CRE loans on banks’ balance sheets continued

to increase at a robust pace through February.

Staff Economic Outlook

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

the March FOMC meeting, real GDP in the first half of

the year was projected to increase a little more slowly

than in the forecast prepared for the January meeting,

although estimated real GDP growth in the fourth quarter of last year was revised up. Beyond the near term,

real GDP was expected to increase slightly faster than in

the previous forecast, largely reflecting a somewhat

higher projected path for equity prices and a lower assumed trajectory for the foreign exchange value of the

dollar. The staff continued to project that real GDP

would expand at a somewhat faster pace than potential

output in 2016 through 2018, supported primarily by increases in consumer spending. The unemployment rate

was expected to gradually decline further and to run

somewhat below the staff’s estimate of its longer-run

natural rate over this period; the staff’s estimate of the

natural rate was revised down slightly in this forecast.

Lending conditions in residential real estate markets

were little changed, on balance, over the intermeeting

period. Financing conditions in consumer credit markets generally remained accommodative, and outstanding student and auto debt continued to grow at a robust

pace.

During the intermeeting period, foreign financial conditions improved on net. After deteriorating further early

in the period, foreign equity prices bounced back and

credit spreads on emerging market bonds narrowed, in

both cases returning to December levels in most countries. Since the January FOMC meeting, the dollar depreciated, on net, against most foreign currencies. Longterm sovereign bond yields declined notably in the advanced economies, in part as foreign central banks announced additional monetary policy easing measures.

The BOJ introduced a negative deposit rate. The ECB

announced a comprehensive package of easing

measures, including a further cut in benchmark policy

rates, accelerated and more expansive asset purchases,

and a new round of targeted long-term refinancing operations.

Over the period since mid-December, when the Committee raised the target range for the federal funds rate

¼ percentage point, U.S. financial market conditions

had registered relatively small changes, on balance, amid

significant volatility. Financial derivatives suggested that

The staff’s forecast for inflation over the first half of the

year was revised up somewhat, reflecting recent increases in the price of crude oil as well as stronger-thanexpected data on core consumer prices early in the year.

The staff continued to project that inflation would increase gradually over the next several years, as energy

prices and the prices of non-energy imported goods

were expected to begin steadily rising later this year. Beyond 2016, the forecast was a bit lower than the previous

projection, primarily reflecting a flatter expected path for

crude oil prices. As a result, inflation was projected still

to be slightly below the Committee’s longer-run objective of 2 percent in 2018.

The staff viewed the uncertainty around its March 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 were

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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; in addition, global economic prospects

were still seen as an important downside risk to the forecast. Consistent with the downside risk to aggregate demand, the staff viewed the risks to its outlook for the

unemployment rate as skewed to the upside. The risks

to the projection for inflation were still seen as weighted

to the downside, reflecting the possibility that longerterm inflation expectations may have edged down, and

that the foreign exchange value of the dollar could rise

substantially, which would put additional downward

pressure on inflation.

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

2016 through 2018 and over the longer run. Each participant’s projections were conditioned on his or her

judgment of appropriate monetary policy. The longerrun projections represent each participant’s assessment

of the rate to which each variable would be expected to

converge, over time, under appropriate monetary policy

and in the absence of further shocks to the economy.

These 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 suggesting that

economic activity had been expanding moderately despite the global economic and financial developments of

recent months. Household spending had been increasing at a moderate rate, and the housing sector had improved further; however, business fixed investment and

net exports had been soft. A range of labor market indicators, including strong employment growth and rising

labor force participation, pointed to a further strengthening of the labor market. Participants generally saw the

data on economic activity and labor market conditions

as broadly consistent with their earlier expectations. Inflation picked up in recent months, but it continued to

run below the Committee’s 2 percent longer-run objective. Market-based measures of inflation compensation

remained low, while survey-based measures of longerterm inflation expectations were little changed, on balance, in recent months. Early in the intermeeting period,

concerns among investors about the global economic

outlook appeared to trigger a sharp reduction in their

risk-taking. Financial conditions deteriorated, with equity prices falling and credit spreads on riskier corporate

bonds widening. Subsequently, investor sentiment rebounded, and domestic and global financial conditions

eased on net over the intermeeting period.

With respect to the outlook for economic activity and

the labor market, participants shared the assessment

that, with gradual adjustments in the stance of monetary

policy, real GDP would continue to increase at a moderate rate over the medium term and labor market indicators would continue to strengthen. Participants observed that strong job gains in recent months had reduced concerns about a possible slowing of progress in

the labor market. Many participants, however, anticipated that relative strength in household spending would

be partially offset by weakness in net exports associated

with lackluster foreign growth and the appreciation of

the dollar since mid-2014. In addition, business fixed

investment seemed likely to remain sluggish. Furthermore, participants generally saw global economic and financial developments as continuing to pose risks to the

outlook for economic activity and the labor market in

the United States. In particular, several participants expressed the view that the underlying factors abroad that

led to a sharp, though temporary, deterioration in global

financial conditions earlier this year had not been fully

resolved and thus posed ongoing downside risks. Several participants also noted the possibility that economic

activity or labor market conditions could turn out to be

stronger than anticipated. For example, strong expansion of household demand could result in rapid employment growth and overly tight resource utilization, particularly if productivity gains remained sluggish.

Notwithstanding the downward revisions to recent retail

sales data, participants were encouraged by the moderate

average growth of consumer spending over recent quarters. Continued increases in household spending had

buoyed growth of overall aggregate demand despite the

volatility in financial markets. Among the various categories of household spending, participants noted that

motor vehicle sales remained particularly strong, albeit

with some support from price discounting and other incentives. Looking ahead, participants generally expected

consumer spending to continue to rise moderately. Solid

gains in employment and income, the relatively high ratio of household wealth to income, low gasoline prices,

and a high level of consumer confidence were seen as

factors that should contribute to moderate growth in

consumer spending.

Minutes of the Meeting of March 15–16, 2016

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Reports on the housing sector were mixed, with some

participants noting a weakening of housing activity in regions adversely affected by the decline in energy prices.

Nonetheless, fundamentals for housing activity were

seen as strong except for a reported shortage of buildable lots in some areas. Some participants reported that

contacts were generally upbeat about the outlook for

housing construction in their Districts, and participants

anticipated that activity in the housing sector would continue to expand this year.

In contrast, several participants noted recent softness in

business fixed investment and signs that the sluggish

growth would continue. Orders and shipments for nondefense capital goods had been about flat. Capital expenditures continued to be depressed by the contraction

in the energy sector. Capital spending plans appeared to

remain soft. The possible adverse effects on investment

spending of concerns about global growth and the associated volatility in financial markets were also noted.

District reports on commercial construction activity,

however, were generally positive.

With regard to the external sector, a number of participants said that they expected declines in net exports to

continue to subtract from real GDP growth, reflecting

weak foreign activity as well as the earlier appreciation

of the dollar. The outlook for growth abroad had

dimmed in recent months, suggesting a more persistent

drag on growth of U.S. exports. A couple of participants

commented that emerging market economies faced an

extended period of less rapid export growth, reflecting

slower economic growth in many advanced foreign

economies and in China. It also was noted that weak

growth abroad could lead to further appreciation of the

dollar.

In discussing domestic business conditions, several participants noted that their contacts saw rising sales in the

retail sector and that reports from firms in the services

sector were mostly strong. In some Districts, surveys

suggested that manufacturing activity had bottomed out.

However, a number of participants commented that previous declines in commodity and energy prices, along

with the earlier appreciation of the dollar and weak foreign activity, continued to weigh on manufacturing activity. A few participants also noted that such factors

were reducing farm incomes in their Districts.

During the intermeeting period, the labor market

strengthened further. In their comments on labor market conditions, participants cited strong payroll gains and

a further tick down in the civilian unemployment rate.

Broader measures of labor force underutilization had

also shown progress, including an increase in labor force

participation. The quits rate had returned to its prerecession level, as had households’ perceptions of job

availability and firms’ assessments of the difficulty of filling jobs, providing further evidence of improved labor

market conditions. Some participants judged that current labor market conditions were at or near those consistent with maximum sustainable employment, noting

that the unemployment rate was at or below their estimates of its longer-run normal level and citing anecdotal

reports of labor shortages or increased wage pressures.

In contrast, some other participants judged that the

economy had not yet reached maximum employment.

They noted several indicators other than the unemployment rate that pointed to remaining underutilization of

labor resources; these indicators included the still-high

rate of involuntary part-time employment and the low

level of the employment-to-population ratio for primeage workers. The surprisingly limited extent to which

aggregate data indicated upward pressure on wage

growth also suggested some remaining slack in labor

markets.

Participants commented on the recent increase in inflation. Some participants saw the increase as consistent

with a firming trend in inflation. Some others, however,

expressed the view that the increase was unlikely to be

sustained, in part because it appeared to reflect, to an

appreciable degree, increases in prices that had been relatively volatile in the past. Participants continued to anticipate that inflation would run below the Committee’s

2 percent objective in the near term but that, as the transitory effects of earlier declines in energy and import

prices dissipated and the labor market strengthened further, inflation would rise to 2 percent over the medium

term. Several participants indicated that the persistence

of global disinflationary pressures or the possibility that

inflation expectations were moving lower continued to

pose downside risks to the inflation outlook. A few others expressed the view that there were also risks that

could lead to inflation running higher than anticipated;

for example, overly tight resource utilization could push

inflation above the Committee’s 2 percent goal, particularly if productivity gains remained sluggish.

Participants discussed readings from various marketand survey-based measures of longer-run inflation expectations. Some survey-based measures had edged

down, while others had remained stable and one had

edged up; such measures were little changed, on balance,

in recent months. The market-based measures of inflation compensation that had declined earlier were still at

low levels. Several participants noted that some of the

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softness in the market-based measures likely reflected

changes in risk and liquidity premiums, and that some of

the survey-based measures appeared to be excessively

sensitive to movements in gasoline prices. Some participants concluded that longer-run inflation expectations

remained reasonably stable, but some others expressed

concern that longer-run inflation expectations may have

already moved lower, or that they might do so if inflation

was to persist for much longer at a rate below the Committee’s objective.

also cited wider credit spreads as a factor that was likely

to restrain growth in demand. Accordingly, many participants expressed the view that a somewhat lower path

for the federal funds rate than they had projected in December now seemed most likely to be appropriate for

achieving the Committee’s dual mandate. Many participants also noted that a somewhat lower projected interest rate path was one reason for the relatively small revisions in their medium-term projections for economic activity, unemployment, and inflation.

Participants discussed the implications of the global economic and financial developments of the past few

months for the medium-term outlook, and they offered

different characterizations of the risks to the U.S. economy stemming from these developments. Many participants expressed a view that the global economic and financial situation still posed appreciable downside risks

to the domestic economic outlook. Some noted that recent financial market turbulence provided an important

reminder that the ability of central banks to offset the

effects of adverse economic shocks might be limited,

particularly by the low level of policy interest rates in

most advanced economies. In contrast, a few noted that

the actions taken by several foreign central banks in recent weeks to increase monetary accommodation likely

had helped mitigate downside risks to the global outlook. Nonetheless, many participants indicated that the

heightened global risks and the asymmetric ability of

monetary policy to respond to them warranted caution

in making adjustments to the stance of U.S. monetary

policy.

Several participants also argued for proceeding cautiously in reducing policy accommodation because they

saw the risks to the U.S. economy stemming from developments abroad as tilted to the downside or because

they were concerned that longer-term inflation expectations might be slipping lower, skewing the risks to the

outlook for inflation to the downside. Many participants

noted that, with the target range for the federal funds

rate only slightly above zero, the FOMC continued to

have little room to ease monetary policy through conventional means if economic activity or inflation turned

out to be materially weaker than anticipated, but could

raise rates quickly if the economy appeared to be overheating or if inflation was to increase significantly more

rapidly than anticipated. In their view, this asymmetry

made it prudent to wait for additional information regarding the underlying strength of economic activity and

prospects for inflation before taking another step to reduce policy accommodation.

Participants generally agreed that the incoming information indicated that the U.S. economy had been resilient to recent global economic and financial developments, and that the domestic economic indicators that

had become available in recent weeks had been mostly

consistent with their expectations. Moreover, the sharp

asset price movements that occurred earlier in the year

had been reversed to a large extent, but longer-term interest rates and market participants’ expectations for the

future path of the federal funds rate remained lower.

Taking these developments into account, participants

generally judged that the medium-term outlook for domestic demand was not appreciably different than it had

been when the Committee met in December. However,

most participants, while recognizing the likely positive

effects of recent policy actions abroad, saw foreign economic growth as likely to run at a somewhat slower pace

than previously expected, a development that probably

would further restrain growth in U.S. exports and tend

to damp overall aggregate demand. Several participants

For all of these reasons, most participants judged it appropriate to maintain the target range for the federal

funds rate at ¼ to ½ percent at this meeting while noting

that global economic and financial developments continued to pose risks. These participants saw their judgment as consistent with the Committee’s data-dependent approach to setting monetary policy; it was noted

that, in this context, the relevant data include not only

domestic economic releases, but also information about

developments abroad and changes in financial conditions that bear on the economic outlook. A couple of

participants, however, saw an increase in the target range

to ½ to ¾ percent as appropriate at this meeting, citing

evidence that the economy was continuing to expand at

a moderate rate despite developments abroad and earlier

volatility in financial conditions, continued improvement in labor market conditions, the firming of inflation

over recent months, and the apparent leveling-off of oil

prices. In their judgment, increasing the target range for

the federal funds rate too gradually in the near term

risked having to raise it quickly later, which could cause

economic and financial strains at that time.

Minutes of the Meeting of March 15–16, 2016

Page 9

_____________________________________________________________________________________________

Participants agreed that their ongoing assessments of the

data and the implications for the outlook, rather than

calendar dates, would determine the timing and pace of

future adjustments to the stance of monetary policy.

They expressed a range of views about the likelihood

that incoming information would make an adjustment

appropriate at the time of their next meeting. A number

of participants judged that the headwinds restraining

growth and holding down the neutral rate of interest

were likely to subside only slowly. In light of this expectation and their assessment of the risks to the economic

outlook, several expressed the view that a cautious approach to raising rates would be prudent or noted their

concern that raising the target range as soon as April

would signal a sense of urgency they did not think appropriate. In contrast, some other participants indicated

that an increase in the target range at the Committee’s

next meeting might well be warranted if the incoming

economic data remained consistent with their expectations for moderate growth in output, further strengthening of the labor market, and inflation rising to 2 percent

over the medium term.

Committee Policy Action

In their discussion of monetary policy for the period

ahead, members judged that information received since

the Committee met in January suggested that economic

activity had been expanding at a moderate pace despite

the global economic and financial developments of recent months. They also agreed that household spending

had been increasing at a moderate rate, and that the

housing sector had improved further; however, business

fixed investment and net exports had been soft. Members saw a range of recent indicators, including strong

job gains, as pointing to additional strengthening of the

labor market. Members noted that inflation had picked

up in recent months; however, they also noted that inflation had continued to run below the Committee’s

2 percent longer-run objective, partly reflecting declines

in energy prices and in prices of non-energy imports.

Market-based measures of inflation compensation remained low. Survey-based measures of longer-term inflation expectations were little changed, on balance, in

recent months.

With respect to the economic outlook and its implications for monetary policy, members continued to expect

that, with gradual adjustments in the stance of monetary

policy, economic activity would expand at a moderate

pace and labor market indicators would continue to

strengthen. However, they saw global economic and financial developments as continuing to pose risks. Members also continued to expect inflation to remain low in

the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium

term as the transitory effects of declines in energy and

import prices dissipated and the labor market strengthened further. Members noted the increase in inflation

reported in recent months but expressed a range of

views about the extent to which the increase would

prove persistent. Several members expressed concern

that longer-run inflation expectations may have declined. Members agreed they would continue to monitor

inflation developments closely.

Against the backdrop of its discussion of current conditions, the economic outlook, and the risks and uncertainties surrounding the outlook, the Committee decided

to maintain the target range for the federal funds rate at

¼ to ½ percent at this meeting. This accommodative

stance of monetary policy was expected to support further improvement in labor market conditions and a return to 2 percent inflation. One member, however, preferred to raise the target range for the federal funds rate,

indicating that the current low level of real interest rates

was not appropriate in the context of current economic

conditions and the progress that had been achieved toward the Committee’s objectives.

Members again agreed that, in determining the timing

and size of future adjustments to the target range for the

federal funds rate, the Committee would assess realized

and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation.

This assessment would take into account a wide range of

information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international

developments. In light of the current shortfall of inflation from 2 percent, the Committee agreed that it would

carefully monitor actual and expected progress toward

its inflation goal. The Committee expected that economic conditions would evolve in a manner that would

warrant only gradual increases in the federal funds rate,

and that the federal funds rate was likely to remain, for

some time, below levels that were expected to prevail in

the longer run. Indeed, several members noted that their

current projections of the path for the federal funds rate

that would likely be appropriate this year and next were

lower than they had projected in December. However,

members agreed that future data and developments

could lead to changes in the economic outlook and in

their projections of appropriate monetary policy, and

that the actual path of the federal funds rate would depend on the economic outlook as informed by incoming

data.

Page 10

Federal Open Market Committee

_____________________________________________________________________________________________

The Committee also decided to maintain its existing policy of reinvesting principal payments from its holdings

of agency debt and agency mortgage-backed securities in

agency mortgage-backed securities and of rolling over

maturing Treasury securities at auction, and it anticipated doing so until normalization of the level of the

federal funds rate is well under way. 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, to be released at

2:00 p.m.:

“Effective March 17, 2016, the Federal Open

Market Committee directs the Desk to undertake

open market operations as necessary to maintain

the federal funds rate in a target range of ¼ to

½ percent, including overnight reverse repurchase operations (and reverse repurchase operations with maturities of more than one day when

necessary to accommodate weekend, holiday, or

similar trading conventions) at an offering rate of

0.25 percent, in amounts limited only by the value

of Treasury securities held outright in the System

Open Market Account that are available for such

operations and by a per-counterparty limit of

$30 billion per day.

The Committee directs the Desk to continue rolling over maturing Treasury securities at auction

and to continue 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 vote also encompassed approval of the statement

below to be released at 2:00 p.m.:

“Information received since the Federal Open

Market Committee met in January suggests that

economic activity has been expanding at a moderate pace despite the global economic and financial developments of recent months. Household

spending has been increasing at a moderate rate,

and the housing sector has improved further;

however, business fixed investment and net exports have been soft. A range of recent indicators, including strong job gains, points to additional strengthening of the labor market. Inflation picked up in recent months; however, it continued to run below the Committee’s 2 percent

longer-run objective, partly reflecting declines in

energy prices and in prices of non-energy imports. Market-based measures of inflation compensation remain low; survey-based measures of

longer-term inflation expectations are little

changed, on balance, in recent months.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and

price stability. The Committee currently expects

that, with gradual adjustments in the stance of

monetary policy, economic activity will expand at

a moderate pace and labor market indicators will

continue to strengthen. However, global economic and financial developments continue to

pose risks. Inflation is expected to remain low in

the near term, in part because of earlier declines

in energy prices, but to rise to 2 percent over the

medium term as the transitory effects of declines

in energy and import prices dissipate and the labor market strengthens further. The Committee

continues to monitor inflation developments

closely.

Against this backdrop, the Committee decided to

maintain the target range for the federal funds

rate at ¼ to ½ percent. The stance of monetary

policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.

In determining the timing and size of future adjustments to the target range for the federal funds

rate, the Committee will assess realized and expected economic conditions relative to 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. In

light of the current shortfall of inflation from

2 percent, the Committee will carefully monitor

actual and expected progress toward its inflation

goal. The Committee expects that economic conditions will evolve in a manner that will warrant

only gradual increases in the federal funds rate;

Minutes of the Meeting of March 15–16, 2016

Page 11

_____________________________________________________________________________________________

the federal funds rate is likely to remain, for some

time, below levels that are expected to prevail in

the longer run. However, the actual path of the

federal funds rate will depend on the economic

outlook as informed by incoming data.

The Committee is maintaining its existing policy

of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed

securities in agency mortgage-backed securities

and of rolling over maturing Treasury securities at

auction, and it anticipates doing so until normalization of the level of the federal funds rate is well

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

levels, should help maintain accommodative financial conditions.”

Voting for this action: Janet L. Yellen, William C.

Dudley, Lael Brainard, James Bullard, Stanley Fischer,

Loretta J. Mester, Jerome H. Powell, Eric Rosengren,

and Daniel K. Tarullo.

Voting against this action: Esther L. George.

Ms. George dissented because she believed that a 25 basis point increase in the target range for the federal funds

rate was warranted at this meeting. Although risks to the

global economy had increased in recent months and financial markets were unusually volatile at times, she believed that monetary policy should focus primarily on

progress toward the Committee’s longer-run objectives.

Recently, labor market conditions had continued to

strengthen, with the economy apparently near full employment, and some data had suggested a firming of underlying inflation trends. She believed that monetary

policy should respond to these developments by gradually removing accommodation. She noted that, in such

circumstances, postponing the removal of accommodation could increase financial distortions and risks to the

economy and undermine the achievement of the Committee’s longer-run objectives.

Consistent with the Committee’s decision to leave the

target range for the federal funds rate unchanged, the

Board of Governors took no action to change the

interest rates on reserves or discount rates.

It was agreed that the next meeting of the Committee

would be held on Tuesday–Wednesday, April 26–27,

2016. The meeting adjourned at 10:40 a.m. on

March 16, 2016.

Notation Vote

By notation vote completed on February 16, 2016, the

Committee unanimously approved the minutes of the

Committee meeting held on January 26–27, 2016.

_____________________________

Brian F. Madigan

Secretary

Page 1

_____________________________________________________________________________________________

Summary of Economic Projections

In conjunction with the Federal Open Market Committee (FOMC) meeting held on March 15–16, 2016, 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 2016 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, growth in real gross domestic

product (GDP) would be at or somewhat above their

individual estimates of the longer-run growth rate in

2016 and 2017 and would converge toward the longerrun rate in 2018 (table 1 and figure 1). All participants

projected that by the end of the current year, the unemployment rate would decline to, or fall below, their individual estimates of the longer-run normal unemployment rate—that is, their projected unemployment gaps

would be zero or negative—and that these zero or negative gaps would persist through 2018, even though

many participants reduced their estimates of the longerrun normal rate. All participants projected that inflation,

as measured by the four-quarter change in the price index for personal consumption expenditures (PCE),

would pick up in 2016 and 2017 from the very low rate

seen in 2015. Participants generally projected inflation

to be either at or just slightly below the Committee’s

2 percent objective by the end of 2018.

As shown in figure 2, participants expected that it would

be appropriate to raise the target range for the federal

funds rate gradually over the projection period as headwinds to economic growth dissipate slowly over time

and as inflation rises toward the Committee’s goal of

2 percent. Consistent with this outlook, nearly all par-

ticipants projected that the appropriate level of the federal funds rate would be below their individual estimates

of its longer-run level through 2018.

Almost all participants regarded the levels of uncertainty

associated with their forecasts for economic growth and

the unemployment rate as broadly similar to the norms

of the previous 20 years and shared a similar view regarding the uncertainty surrounding their inflation projections. Participants were about evenly divided as to

whether they judged the risks to their forecasts for real

GDP growth to be weighted to the downside or broadly

balanced; no participant saw risks to real GDP growth

as weighted to the upside. Participants who thought that

risks to their outlook for real GDP growth were skewed

to the downside tended to cite developments in foreign

economies, recent volatility in financial markets, or the

limited capacity of policy to respond to adverse developments as contributing to that view. Risk perceptions regarding the unemployment rate were more dispersed.

Most participants regarded risks to their unemployment

rate forecasts as broadly balanced, but four participants

considered risks as skewed toward a higher unemployment rate, and two viewed risks as weighted toward a

lower unemployment rate. A majority of participants

thought that the risks attending their projections for

PCE price inflation were weighted to the downside; almost all of these participants also saw risks to core PCE

inflation as tilted in the same direction. Among the reasons cited by participants for perceptions of downside

risk to their inflation projections were ongoing developments in overseas economies and their possible implications for U.S. import prices, declines in energy prices

since December, and low readings for some indicators

of long-term inflation expectations.

The Outlook for Economic Activity

A substantial majority of participants expected that, conditional on their individual assumptions about appropriate monetary policy, real GDP in 2016 and 2017 would

increase at a rate above their individual estimates of the

longer-run normal growth rate before decelerating to a

pace at or near their individual estimates of the longerrun normal rate. A number of participants indicated that

they expected domestic factors—including improving

labor market conditions, stronger household and business balance sheets, lower consumer energy prices, and

a still-accommodative stance of monetary policy—to

contribute to strength in aggregate expenditures, while

1.6

1.6

Core PCE inflation4

December projection

1.9

2.4

1.8

1.9

1.9

1.9

4.6

4.7

3.0

3.3

2.0

2.0

2.0

2.0

4.5

4.7

3.3

3.5

2.0

2.0

4.8

4.9

2.0

2.0

1.4 – 2.1 1.6 – 2.0 1.8 – 2.0

1.4 – 2.1 1.6 – 2.0 1.7 – 2.1

1.0 – 1.6 1.6 – 2.0 1.8 – 2.0

1.2 – 2.1 1.7 – 2.0 1.7 – 2.1

2.0

2.0

0.9 – 1.4 1.6 – 2.4 2.5 – 3.3 3.0 – 3.5 0.6 – 1.4 1.6 – 2.8 2.1 – 3.9 3.0 – 4.0

0.9 – 1.4 1.9 – 3.0 2.9 – 3.5 3.3 – 3.5 0.9 – 2.1 1.9 – 3.4 2.1 – 3.9 3.0 – 4.0

1.4 – 1.7 1.7 – 2.0 1.9 – 2.0

1.5 – 1.7 1.7 – 2.0 1.9 – 2.0

1.0 – 1.6 1.7 – 2.0 1.9 – 2.0

1.2 – 1.7 1.8 – 2.0 1.9 – 2.0

4.6 – 4.8 4.5 – 4.7 4.5 – 5.0 4.7 – 5.0 4.5 – 4.9 4.3 – 4.9 4.3 – 5.0 4.7 – 5.8

4.6 – 4.8 4.6 – 4.8 4.6 – 5.0 4.8 – 5.0 4.3 – 4.9 4.5 – 5.0 4.5 – 5.3 4.7 – 5.8

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 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 December projections were made in conjunction with

the meeting of the Federal Open Market Committee on December 15–16, 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

December projection

0.9

1.4

1.2

1.6

PCE inflation

December projection

Memo: Projected

appropriate policy path

4.7

4.7

Unemployment rate

December projection

Median1

Central tendency2

Range3

Variable

2016 2017 2018 Longer 2016

2017

2018

2016

2017

2018

Longer

Longer

run

run

run

Change in real GDP

2.2

2.1

2.0

2.0

2.1 – 2.3 2.0 – 2.3 1.8 – 2.1 1.8 – 2.1 1.9 – 2.5 1.7 – 2.3 1.8 – 2.3 1.8 – 2.4

December projection 2.4

2.2

2.0

2.0

2.3 – 2.5 2.0 – 2.3 1.8 – 2.2 1.8 – 2.2 2.0 – 2.7 1.8 – 2.5 1.7 – 2.4 1.8 – 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, March 2016

Page 2

Federal Open Market Committee

_____________________________________________________________________________________________

Summary of Economic Projections of the Meeting of March 15–16, 2016

Page 3

_____________________________________________________________________________________________

Figure 1. Medians, central tendencies, and ranges of economic projections, 2016–18 and over the longer run

Percent

Change in real GDP

Median of projections

Central tendency of projections

Range of projections

4

3

2

1

Actual

2011

2012

2013

2014

2015

2016

2017

2018

Longer

run

Percent

Unemployment rate

9

8

7

6

5

4

2011

2012

2013

2014

2015

2016

2017

2018

Longer

run

Percent

PCE inflation

3

2

1

2011

2012

2013

2014

2015

2016

2017

2018

Longer

run

Percent

Core PCE inflation

3

2

1

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

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Figure 2. FOMC participants’ assessments of appropriate monetary policy: Midpoint of target range or target level for

the federal funds rate

Percent

5.0

4.5

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

2016

2017

2018

Longer run

Note: 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 March 15–16, 2016

Page 5

_____________________________________________________________________________________________

foreign conditions were projected to be a source of

weakness for some time.

Compared with their forecasts prepared for the Summary of Economic Projections (SEP) in December,

most participants marked down their projections of real

GDP growth in 2016, and several did so for 2017. Overall, the median value of participants’ projections for real

GDP growth in 2016 was revised down a little to 2.2 percent, and that for 2017 was revised down slightly to

2.1 percent.

The median forecast for the unemployment rate was a

bit lower in 2017 and 2018 than in December and

showed a modest downward tilt over the three years of

the forecast. Participants cited stronger-than-expected

labor market data in recent months as a factor explaining

these revisions. Moreover, many participants also reduced their estimates of the longer-run normal rate of

unemployment, resulting in a modest reduction in the

median of the longer-run rate. Thus, while a majority

expected the unemployment rate gap to turn negative by

the end of this year, fewer participants projected a negative gap at that time than was the case in December. For

2017, all participants projected a negative unemployment rate gap, and a substantial majority did so for 2018

as well. All told, however, the medians of the unemployment rate gaps for the three years of the projection were

essentially unchanged from the December SEP.

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 distribution of the projections of

GDP growth shifted toward lower values for 2016; differences from December for 2017 and 2018 were less

noteworthy, but there was a modest narrowing of the

distribution for 2018. The distributions of projections

for the unemployment rate in 2017 and beyond shifted

modestly toward lower values, relative to the December

SEP, on the basis of strong labor market indicators in

recent months.

The Outlook for Inflation

All participants projected PCE price inflation to pick up

in 2016 and to rise further in 2017. For 2018, nearly all

expected PCE price inflation to be at or very close to the

Committee’s 2 percent longer-run objective. However,

relative to the December SEP, almost all participants

marked down their projections for PCE price inflation

in 2016, observing that declines in energy prices since

the end of last year and continued strength in the dollar

were expected to impart additional downward pressure

on inflation this year. Many participants also lowered

their projections for inflation in 2017, although the median value for that year was unchanged. Inflation projections in 2018 were little changed from December. Regarding core PCE price inflation, some participants

marked down their projections for 2016, although almost all still expected core inflation to rise gradually over

the projection period and to be at or very close to 2 percent by the end of 2018. Factors cited by participants as

contributing to their expectation that inflation will rise

over the medium term included recent readings for core

inflation, an anticipation that improvements in labor

markets will continue, the fading effects of recent dollar

appreciation and declines in oil prices, and an assessment

that long-term inflation expectations will remain at levels

consistent with the FOMC’s 2 percent objective, all supported by a stance of monetary policy that participants

generally described as accommodative.

Figures 3.C and 3.D provide information on the distribution of participants’ views about the outlook for inflation. The distribution for PCE price inflation in 2016

shifted notably to the left compared with the December

SEP, while changes in the distributions of projections

for 2017 and 2018 were small. The distributions of participants’ projections for core PCE price inflation shifted

only a touch toward lower values for 2017 and 2018 as

compared with December.

Appropriate Monetary Policy

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

2016 to 2018 and over the longer run. Relative to December, the projections of the appropriate levels of the

federal funds rate over the next three years shifted notably toward lower values. The median projections for the

federal funds rate at the end of 2016 and 2017 both declined 0.50 percentage point, to levels of 0.88 percent

and 1.88 percent, respectively, while the median for the

end of 2018 fell 0.25 percentage point, to 3.0 percent.

The median for the federal funds rate in the longer run

was also reduced 0.25 percentage point, to 3.25 percent.

The view that a lower path of the federal funds rate relative to December would be appropriate for achieving

the Committee’s objectives was broadly shared across

participants, especially for the first two years of their

forecasts. Given their expectations that certain factors

would continue to restrain economic growth for a time,

that inflation will increase only gradually to 2 percent,

and that the economic and policy outlook entails asymmetric risks over the next few years, participants generally projected that a gradual rise in the federal funds rate

Page 6

Federal Open Market Committee

_____________________________________________________________________________________________

Figure 3.A. Distribution of participants’ projections for the change in real GDP, 2016–18 and over the longer run

Number of participants

2016

18

16

14

12

10

8

6

4

2

March projections

December 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

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

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

Percent range

Number of participants

Longer run

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

Percent range

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

2.4 2.5

2.6 2.7

Summary of Economic Projections of the Meeting of March 15–16, 2016

Page 7

_____________________________________________________________________________________________

Figure 3.B. Distribution of participants’ projections for the unemployment rate, 2016–18 and over the longer run

Number of participants

2016

18

16

14

12

10

8

6

4

2

March projections

December projections

4.2 4.3

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

4.2 4.3

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

4.2 4.3

4.4 4.5

4.6 4.7

4.8 4.9

5.0 5.1

5.2 5.3

5.4 5.5

5.6 5.7

5.8 5.9

Percent range

Number of participants

Longer run

18

16

14

12

10

8

6

4

2

4.2 4.3

4.4 4.5

4.6 4.7

4.8 4.9

5.0 5.1

5.2 5.3

Percent range

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

5.4 5.5

5.6 5.7

5.8 5.9

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Federal Open Market Committee

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Figure 3.C. Distribution of participants’ projections for PCE inflation, 2016–18 and over the longer run

Number of participants

2016

18

16

14

12

10

8

6

4

2

March projections

December projections

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

Percent range

Number of participants

2017

18

16

14

12

10

8

6

4

2

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

Percent range

Number of participants

2018

18

16

14

12

10

8

6

4

2

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

Percent range

Number of participants

Longer run

18

16

14

12

10

8

6

4

2

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

Summary of Economic Projections of the Meeting of March 15–16, 2016

Page 9

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Figure 3.D. Distribution of participants’ projections for core PCE inflation, 2016–18

Number of participants

2016

March projections

December projections

18

16

14

12

10

8

6

4

2

1.3 1.4

1.5 1.6

1.7 1.8

1.9 2.0

2.1 2.2

Percent range

Number of participants

2017

18

16

14

12

10

8

6

4

2

1.3 1.4

1.5 1.6

1.7 1.8

1.9 2.0

2.1 2.2

Percent range

Number of participants

2018

18

16

14

12

10

8

6

4

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

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Federal Open Market Committee

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

rate or the appropriate target level for the federal funds rate, 2016–18 and over the longer run

Number of participants

2016

18

16

14

12

10

8

6

4

2

March projections

December projections

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

Percent range

Number of participants

2017

18

16

14

12

10

8

6

4

2

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

Percent range

Number of participants

2018

18

16

14

12

10

8

6

4

2

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

Percent range

Number of participants

Longer run

18

16

14

12

10

8

6

4

2

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

Percent range

Note: The midpoints of the target ranges for the federal funds rate and the target levels for the federal funds rate

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

Summary of Economic Projections of the Meeting of March 15–16, 2016

Page 11

_____________________________________________________________________________________________

over that period would be appropriate; almost all participants judged it advisable for the federal funds rate to

remain below their individual estimates of its longer-run

normal level through the end of 2018.

Although the median of participants’ projections of the

federal funds rate in the longer run moved lower, the

range of estimates for the longer-run rate was unchanged

from December. Hence, with all participants anticipating that inflation would eventually reach the Committee’s objective of 2 percent, the range of participants’

judgments of the longer-run level of the real federal

funds rate was also unchanged from December, at 1 to

2 percent; the median value for the longer-run real rate

was 1.25 percent, down 0.25 percentage point from December.

Participants’ views of the appropriate path for monetary

policy were informed by their judgments about the outlook for economic activity, labor markets, and inflation

as well as the risks and uncertainties associated with that

outlook. One important consideration for many participants was their assessment that several factors—including weak foreign economic conditions, a persistently

high exchange value of the dollar, and tighter financial

conditions—will continue to restrain economic growth

for a time and thus collectively imply a temporarily low

level for the neutral rate of interest. These forces, combined with the current proximity of short-term interest

rates to their effective lower bound and the related asymmetry of risks around the outlook for real GDP growth

and inflation, were noted as reasons why a gradual approach to raising the federal funds rate would be appropriate, provided that the outlook for the economy unfolded about as expected. Another consideration underlying the anticipated gradual removal of policy accommodation involved the prospects for inflation to return

to the Committee’s objective of 2 percent. In assessing

those prospects, participants weighed the implications of

a range of factors, including indicators of longer-run inflation expectations and the magnitude and persistence

of the effects of both low energy prices and the earlier

appreciation of the dollar. Judgments regarding the

likely future strength of the labor market and future

wage gains also figured into participants’ forecasts for

inflation.

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 1996 through 2015.

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

1

Table 2. Average historical projection error ranges

Percentage points

Variable

2016

2017

2018

Change in real GDP1 . . . . . . . . .

±1.6

±2.1

±2.1

Unemployment rate1 . . . . . . . . . .

±0.5

±1.2

±1.7

Total consumer prices2 . . . . . . . .

±0.9

±1.1

±1.1

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

squared error of projections for 1996 through 2015 that were released in the

spring by various private and government forecasters. As described in the

box “Forecast Uncertainty,” under certain assumptions, there is about a

70 percent probability that actual outcomes for real GDP, unemployment,

and consumer prices will be in ranges implied by the average size of projection errors made in the past. For more information, see David Reifschneider

and Peter Tulip (2007), “Gauging the Uncertainty of the Economic Outlook

from Historical Forecasting Errors,” Finance and Economics Discussion Series 2007-60 (Washington: Board of Governors of the Federal Reserve System, November), available at www.federalreserve.gov/pubs/feds/2007/

200760/200760abs.html; and Board of Governors of the Federal Reserve

System, Division of Research and Statistics (2014), “Updated Historical

Forecast Errors,” memorandum, April 9, www.federalreserve.gov/

foia/files/20140409-historical-forecast-errors.pdf.

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

2. Measure is the overall consumer price index, the price measure that

has been most widely used in government and private economic forecasts.

Projection is percent change, fourth quarter of the previous year to the

fourth quarter of the year indicated.

Uncertainty and Risks

As in the December SEP, nearly all participants judged

the levels of uncertainty around their projections for real

GDP growth, the unemployment rate, and both headline

and core PCE price inflation as broadly similar to the

average levels of the past 20 years (as shown in the lefthand column of figure 4).1 In contrast, participants revised appreciably their assessments of the risks to real

GDP growth, the unemployment rate, and both headline

and core inflation since December (as shown in the

right-hand column). Eight participants saw the risks to

real GDP growth as weighted to the downside—up

from three in December. Four participants saw risks to

the unemployment rate as skewed toward higher unemployment—two more than in December—while two

continued to see risks weighted toward lower unemployment. Explanations for the less marked shift in risks to

the outlook for the unemployment rate versus the outlook for real GDP growth included favorable labor market news over the past three months. More generally,

participants cited financial market and global economic

conditions, either on their own or coupled with the limited capacity of policymakers to respond to possible adverse economic conditions, as reasons for the downward

tilt to their perceptions of the risks to growth. Turning

discusses the sources and interpretation of uncertainty in the

economic forecasts and explains the approach used to assess

the uncertainty and risks attending the participants’ projections.

Page 12

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

March projections

December projections

Lower

Broadly

similar

Number of participants

18

16

14

12

10

8

6

4

2

Higher

March projections

December projections

Weighted to

downside

Broadly

balanced

Number of participants

Uncertainty about the unemployment rate

18

16

14

12

10

8

6

4

2

Weighted to

upside

Number of participants

Risks to the unemployment rate

18

16

14

12

10

8

6

4

2

Lower

Broadly

similar

Higher

18

16

14

12

10

8

6

4

2

Weighted to

downside

Broadly

balanced

Number of participants

Uncertainty about PCE inflation

Weighted to

upside

Number of participants

Risks to PCE inflation

18

16

14

12

10

8

6

4

2

Lower

Broadly

similar

Higher

18

16

14

12

10

8

6

4

2

Weighted to

downside

Broadly

balanced

Number of participants

Uncertainty about core PCE inflation

Weighted to

upside

Number of participants

Risks to core PCE inflation

18

16

14

12

10

8

6

4

2

Lower

Broadly

similar

Higher

18

16

14

12

10

8

6

4

2

Weighted to

downside

Broadly

balanced

Weighted to

upside

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

Summary of Economic Projections of the Meeting of March 15–16, 2016

Page 13

_____________________________________________________________________________________________

to inflation, 11 participants indicated that the risks to

their headline inflation forecasts were skewed to the

downside, up from 7 in December, and nearly all of

these participants saw the same tilt to the risks for core

inflation. Many participants noted some recent evidence

of a deterioration, or an absence of improvement, in indicators of long-term inflation expectations as contributing to increased downside risks for inflation, while

some pointed to the further declines in energy prices.

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Federal Open Market Committee

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Forecast Uncertainty

The economic projections provided by the

members of the Board of Governors and the

presidents of the Federal Reserve Banks inform

discussions of monetary policy among policymakers and can aid public understanding of the

basis for policy actions. Considerable uncertainty attends these projections, however. The

economic and statistical models and relationships used to help produce economic forecasts

are necessarily imperfect descriptions of the

real world, and the future path of the economy

can be affected by myriad unforeseen developments and events. Thus, in setting the stance

of monetary policy, participants consider not

only what appears to be the most likely economic outcome as embodied in their projections, but also the range of alternative possibilities, the likelihood of their occurring, and the

potential costs to the economy should they occur.

Table 2 summarizes the average historical

accuracy of a range of forecasts, including

those reported in past Monetary Policy Reports

and those prepared by the Federal Reserve

Board’s staff in advance of meetings of the

Federal Open Market Committee. The projection error ranges shown in the table illustrate

the considerable uncertainty associated with

economic forecasts. For example, suppose a

participant projects that real gross domestic

product (GDP) and total consumer prices will

rise steadily at annual rates of, respectively,

3 percent and 2 percent. If the uncertainty attending those projections is similar to that experienced in the past and the risks around the

projections are broadly balanced, the numbers

reported in table 2 would imply a probability of

about 70 percent that actual GDP would ex-

pand within a range of 1.4 to 4.6 percent in the

current year and 0.9 to 5.1 percent in the second

and third years. The corresponding 70 percent

confidence intervals for overall inflation would

be 1.1 to 2.9 percent in the current year and 0.9

to 3.1 percent in the second and third years.

Because current conditions may differ from

those that prevailed, on average, over history,

participants provide judgments as to whether

the uncertainty attached to their projections of

each variable is greater than, smaller than, or

broadly similar to typical levels of forecast uncertainty in the past, as shown in table 2. Participants also provide judgments as to whether the

risks to their projections are weighted to the upside, are weighted to the downside, or are

broadly balanced. That is, participants judge

whether each variable is more likely to be above

or below their projections of the most likely outcome. These judgments about the uncertainty

and the risks attending each participant’s projections are distinct from the diversity of participants’ views about the most likely outcomes.

Forecast uncertainty is concerned with the risks

associated with a particular projection rather

than with divergences across a number of different projections.

As with real activity and inflation, the outlook for the future path of the federal funds rate

is subject to considerable uncertainty. This uncertainty arises primarily because each participant’s assessment of the appropriate stance of

monetary policy depends importantly on the

evolution of real activity and inflation over time.

If economic conditions evolve in an unexpected

manner, then assessments of the appropriate

setting of the federal funds rate would change

from that point forward.