FOMC Minutes
Page 1
_____________________________________________________________________________________________
Minutes of the Federal Open Market Committee
January 31–February 1, 2017
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, January 31, 2017, at
1:00 p.m. and continued on Wednesday, February 1,
2017, at 9:00 a.m. 1
PRESENT:
Janet L. Yellen, Chair
William C. Dudley, Vice Chairman
Lael Brainard
Charles L. Evans
Stanley Fischer
Patrick Harker
Robert S. Kaplan
Neel Kashkari
Jerome H. Powell
Daniel K. Tarullo
Marie Gooding, Jeffrey M. Lacker, Loretta J. Mester,
Michael Strine, 2 and John C. Williams, Alternate
Members of the Federal Open Market Committee
James Bullard, Esther L. George, and Eric Rosengren,
Presidents of the Federal Reserve Banks of St.
Louis, Kansas City, and Boston, 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
Michael Held, Deputy General Counsel
Steven B. Kamin, Economist
Thomas Laubach, Economist
David W. Wilcox, Economist
James A. Clouse, Thomas A. Connors, Michael Dotsey,
Eric M. Engen, Evan F. Koenig, Jonathan P.
McCarthy, Daniel G. Sullivan, William Wascher,
and Beth Anne Wilson, Associate Economists
Simon Potter, Manager, System Open Market Account
1 The Federal Open Market Committee is referenced as the
“FOMC” and the “Committee” in these minutes.
2 Attended Tuesday session only.
Lorie K. Logan, Deputy Manager, System Open
Market Account
Robert deV. Frierson, Secretary, Office of the
Secretary, Board of Governors
Matthew J. Eichner, 3 Director, Division of Reserve
Bank Operations and Payment Systems, Board of
Governors; Michael S. Gibson, 4 Director, Division
of Supervision and Regulation, Board of
Governors; Andreas Lehnert, Director, Division of
Financial Stability, Board of Governors
Michael T. Kiley, Deputy Director, Division of
Financial Stability, Board of Governors; Stephen
A. Meyer, Deputy Director, Division of Monetary
Affairs, Board of Governors
Trevor A. Reeve, Senior Special Adviser to the Chair,
Office of Board Members, Board of Governors
Andrew Figura, Joseph W. Gruber, Ann McKeehan,
and David Reifschneider, Special Advisers to the
Board, Office of Board Members, Board of
Governors
Linda Robertson, Assistant to the Board, Office of
Board Members, Board of Governors
Antulio N. Bomfim, Ellen E. Meade, and Joyce K.
Zickler, Senior Advisers, Division of Monetary
Affairs, Board of Governors; Jeremy B. Rudd,
Senior Adviser, Division of Research and Statistics,
Board of Governors
Shaghil Ahmed,2 Associate Director, Division of
International Finance, Board of Governors; Jane E.
Ihrig, Associate Director, Division of Monetary
Affairs, Board of Governors
Min Wei, Deputy Associate Director, Division of
Monetary Affairs, Board of Governors
Attended through the discussion of financial developments
and open market operations.
4 Attended Wednesday session only.
3
Page 2
Federal Open Market Committee
_____________________________________________________________________________________________
Glenn Follette, John M. Roberts, and Paul A. Smith,2
Assistant Directors, Division of Research and
Statistics, Board of Governors
Eric C. Engstrom, Adviser, Division of Monetary
Affairs, and Adviser, Division of Research and
Statistics, Board of Governors
Penelope A. Beattie,2 Assistant to the Secretary, Office
of the Secretary, Board of Governors
Dana L. Burnett, Section Chief, Division of Monetary
Affairs, Board of Governors
David H. Small, Project Manager, Division of
Monetary Affairs, Board of Governors
Laurie DeMarco, Principal Economist, Division of
International Finance, Board of Governors; Naomi
Feldman, Principal Economist, Division of
Research and Statistics, Board of Governors; Yuriy
Kitsul and Zeynep Senyuz, Principal Economists,
Division of Monetary Affairs, Board of Governors
Anna Orlik, Senior Economist, Division of Monetary
Affairs, Board of Governors
Kenneth C. Montgomery, First Vice President, Federal
Reserve Bank of Boston
David Altig, Ron Feldman, and Christopher J. Waller,
Executive Vice Presidents, Federal Reserve Banks
of Atlanta, Minneapolis, and St. Louis, respectively
Troy Davig and John A. Weinberg, Senior Vice
Presidents, Federal Reserve Banks of Kansas City
and Richmond, respectively
Bruce Fallick, Giovanni Olivei, and Robert G. Valletta,
Vice Presidents, Federal Reserve Banks of
Cleveland, Boston, and San Francisco, respectively
Annual Organizational Matters 5
In the agenda for this meeting, it was reported that advices of the election of the following members and alternate members of the Federal Open Market Committee
for a term beginning January 31, 2017, had been received
Committee organizational documents are available at
www.federalreserve.gov/monetarypolicy/rules_authorizations.htm.
5
and that these individuals had executed their oaths of office.
The elected members and alternate members were as follows:
William C. Dudley, President of the Federal Reserve
Bank of New York, with Michael Strine, First Vice President of the Federal Reserve Bank of New York, as alternate
Patrick Harker, President of the Federal Reserve Bank
of Philadelphia, with Jeffrey M. Lacker, President of the
Federal Reserve Bank of Richmond, as alternate
Charles L. Evans, President of the Federal Reserve Bank
of Chicago, with Loretta J. Mester, President of the Federal Reserve Bank of Cleveland, as alternate
Robert S. Kaplan, President of the Federal Reserve Bank
of Dallas, with Marie Gooding, First Vice President of
the Federal Reserve Bank of Atlanta, as alternate
Neel Kashkari, President of the Federal Reserve Bank of
Minneapolis, with John C. Williams, President of the
Federal Reserve Bank of San Francisco, as alternate
By unanimous vote, the following officers of the Committee were selected to serve until the selection of their
successors at the first regularly scheduled meeting of the
Committee in 2018:
Janet L. Yellen
William C. Dudley
Brian F. Madigan
Matthew M. Luecke
David W. Skidmore
Michelle A. Smith
Scott G. Alvarez
Michael Held
Richard M. Ashton
Steven B. Kamin
Thomas Laubach
David W. Wilcox
James A. Clouse
Thomas A. Connors
Michael Dotsey
Eric M. Engen
Evan F. Koenig
Jonathan P. McCarthy
Daniel G. Sullivan
Chairman
Vice Chairman
Secretary
Deputy Secretary
Assistant Secretary
Assistant Secretary
General Counsel
Deputy General Counsel
Assistant General Counsel
Economist
Economist
Economist
Minutes of the Meeting of January 31–February 1, 2017
Page 3
_____________________________________________________________________________________________
William Wascher
Beth Anne Wilson
Associate Economists
Secretary’s note: It was noted that President
Kashkari intends to nominate an associate
economist from the Federal Reserve Bank of
Minneapolis when the recently named research director officially joins that Bank.
By unanimous vote, the Federal Reserve Bank of New
York was selected to execute transactions for the System Open Market Account (SOMA).
By unanimous vote, the Committee selected Simon Potter and Lorie K. Logan to serve at the pleasure of the
Committee as manager and deputy manager of the
SOMA, respectively, on the understanding that these selections were subject to their being satisfactory to the
Federal Reserve Bank of New York.
Secretary’s note: Advice subsequently was received that the manager and deputy manager
selections indicated above were satisfactory to
the Federal Reserve Bank of New York.
By unanimous vote, the Committee voted to reaffirm
without change the Authorization for Domestic Open
Market Operations, the Authorization for Foreign Currency Operations, and the Foreign Currency Directive as
shown below. The Guidelines for the Conduct of System Open Market Operations in Federal-Agency Issues
remained suspended.
AUTHORIZATION FOR DOMESTIC OPEN
MARKET OPERATIONS
(As reaffirmed effective January 31, 2017)
1. The Federal Open Market Committee (the “Committee”) authorizes and directs the Federal Reserve Bank
selected by the Committee to execute open market transactions (the “Selected Bank”), to the extent necessary to
carry out the most recent domestic policy directive
adopted by the Committee:
A. To buy or sell in the open market securities that
are direct obligations of, or fully guaranteed as to principal and interest by, the United States, and securities
that are direct obligations of, or fully guaranteed as to
principal and interest by, any agency of the United
States, that are eligible for purchase or sale under Section 14(b) of the Federal Reserve Act (“Eligible Securities”) for the System Open Market Account
(“SOMA”):
i.
As an outright operation with securities dealers
and foreign and international accounts maintained
at the Selected Bank: on a same-day or deferred delivery basis (including such transactions as are commonly referred to as dollar rolls and coupon swaps)
at market prices; or
ii. As a temporary operation: on a same-day or
deferred delivery basis, to purchase such Eligible Securities subject to an agreement to resell (“repo
transactions”) or to sell such Eligible Securities subject to an agreement to repurchase (“reverse repo
transactions”) for a term of 65 business days or less,
at rates that, unless otherwise authorized by the
Committee, are determined by competitive bidding,
after applying reasonable limitations on the volume
of agreements with individual counterparties;
B. To allow Eligible Securities in the SOMA to mature without replacement;
C. To exchange, at market prices, in connection
with a Treasury auction, maturing Eligible Securities in
the SOMA with the Treasury, in the case of Eligible
Securities that are direct obligations of the United
States or that are fully guaranteed as to principal and
interest by the United States; and
D. To exchange, at market prices, maturing Eligible
Securities in the SOMA with an agency of the United
States, in the case of Eligible Securities that are direct
obligations of that agency or that are fully guaranteed
as to principal and interest by that agency.
2. The Committee authorizes the Selected Bank to
undertake transactions of the type described in paragraph 1 from time to time for the purpose of testing operational readiness, subject to the following limitations:
A. All transactions authorized in this paragraph 2
shall be conducted with prior notice to the Committee;
B. The aggregate par value of the transactions authorized in this paragraph 2 that are of the type described in paragraph 1.A.i shall not exceed $5 billion
per calendar year; and
C. The outstanding amount of the transactions described in paragraph 1.A.ii shall not exceed $5 billion
at any given time.
3. In order to ensure the effective conduct of open
market operations, the Committee authorizes the Selected Bank to operate a program to lend Eligible Securities held in the SOMA to dealers on an overnight basis
(except that the Selected Bank may lend Eligible Securities for longer than an overnight term to accommodate
weekend, holiday, and similar trading conventions).
A. Such securities lending must be:
i.
At rates determined by competitive bidding;
ii. At a minimum lending fee consistent with the
objectives of the program;
Page 4
Federal Open Market Committee
_____________________________________________________________________________________________
iii. Subject to reasonable limitations on the total
amount of a specific issue of Eligible Securities that
may be auctioned; and
iv. Subject to reasonable limitations on the
amount of Eligible Securities that each borrower
may borrow.
B. The Selected Bank may:
i.
Reject bids that, as determined in its sole discretion, could facilitate a bidder’s ability to control a
single issue;
ii. Accept Treasury securities or cash as collateral
for any loan of securities authorized in this paragraph 3; and
iii. Accept agency securities as collateral only for a
loan of agency securities authorized in this paragraph 3.
4. In order to ensure the effective conduct of open
market operations, while assisting in the provision of
short-term investments or other authorized services for
foreign central bank and international accounts maintained at a Federal Reserve Bank (the “Foreign Accounts”) and accounts maintained at a Federal Reserve
Bank as fiscal agent of the United States pursuant to section 15 of the Federal Reserve Act (together with the
Foreign Accounts, the “Customer Accounts”), the Committee authorizes the following when undertaken on
terms comparable to those available in the open market:
A. The Selected Bank, for the SOMA, to undertake
reverse repo transactions in Eligible Securities held in
the SOMA with the Customer Accounts for a term of
65 business days or less; and
B. Any Federal Reserve Bank that maintains Customer Accounts, for any such Customer Account,
when appropriate and subject to all other necessary
authorization and approvals, to:
i.
Undertake repo transactions in Eligible Securities with dealers with a corresponding reverse repo
transaction in such Eligible Securities with the Customer Accounts; and
ii. Undertake intra-day repo transactions in Eligible Securities with Foreign Accounts.
Transactions undertaken with Customer Accounts under the provisions of this paragraph 4 may provide for a
service fee when appropriate. Transactions undertaken
with Customer Accounts are also subject to the authorization or approval of other entities, including the Board
of Governors of the Federal Reserve System and, when
involving accounts maintained at a Federal Reserve
Bank as fiscal agent of the United States, the United
States Department of the Treasury.
5. The Committee authorizes the Chairman of the
Committee, in fostering the Committee’s objectives during any period between meetings of the Committee, to
instruct the Selected Bank to act on behalf of the Committee to:
A. Adjust somewhat in exceptional circumstances
the stance of monetary policy and to take actions that
may result in material changes in the composition and
size of the assets in the SOMA; or
B. Undertake transactions with respect to Eligible
Securities in order to appropriately address temporary
disruptions of an operational or highly unusual nature
in U.S. dollar funding markets.
Any such adjustment described in subparagraph A of
this paragraph 5 shall be made in the context of the
Committee’s discussion and decision about the stance of
policy at its most recent meeting and the Committee’s
long-run objectives to foster maximum employment and
price stability, and shall be based on economic, financial,
and monetary developments since the most recent meeting of the Committee. The Chairman, whenever feasible, will consult with the Committee before making any
instruction under this paragraph 5.
AUTHORIZATION FOR FOREIGN CURRENCY
OPERATIONS
(As reaffirmed effective January 31, 2017)
IN GENERAL
1. The Federal Open Market Committee (the “Committee”) authorizes the Federal Reserve Bank selected by
the Committee (the “Selected Bank”) to execute open
market transactions for the System Open Market Account as provided in this Authorization, to the extent
necessary to carry out any foreign currency directive of
the Committee:
A. To purchase and sell foreign currencies (also
known as cable transfers) at home and abroad in the
open market, including with the United States Treasury, with foreign monetary authorities, with the Bank
for International Settlements, and with other entities
in the open market. This authorization to purchase
and sell foreign currencies encompasses purchases and
sales through standalone spot or forward transactions
and through foreign exchange swap transactions. For
purposes of this Authorization, foreign exchange
swap transactions are: swap transactions with the
United States Treasury (also known as warehousing
transactions), swap transactions with other central
banks under reciprocal currency arrangements, swap
transactions with other central banks under standing
Minutes of the Meeting of January 31–February 1, 2017
Page 5
_____________________________________________________________________________________________
dollar liquidity and foreign currency liquidity swap arrangements, and swap transactions with other entities
in the open market.
B. To hold balances of, and to have outstanding forward contracts to receive or to deliver, foreign currencies.
2. All transactions in foreign currencies undertaken
pursuant to paragraph 1 above shall, unless otherwise
authorized by the Committee, be conducted:
A. In a manner consistent with the obligations regarding exchange arrangements under Article IV of
the Articles of Agreement of the International Monetary Fund (IMF).1
B. In close and continuous cooperation and consultation, as appropriate, with the United States Treasury.
C. In consultation, as appropriate, with foreign
monetary authorities, foreign central banks, and international monetary institutions.
D. At prevailing market rates.
STANDALONE SPOT AND FORWARD
TRANSACTIONS
3. For any operation that involves standalone spot or
forward transactions in foreign currencies:
A. Approval of such operation is required as follows:
i.
The Committee must direct the Selected Bank
in advance to execute the operation if it would result
in the overall volume of standalone spot and forward transactions in foreign currencies, as defined
in paragraph 3.C of this Authorization, exceeding
$5 billion since the close of the most recent regular
meeting of the Committee. The Foreign Currency
Subcommittee (the “Subcommittee”) must direct
the Selected Bank in advance to execute the operation if the Subcommittee believes that consultation
with the Committee is not feasible in the time available.
ii. The Committee authorizes the Subcommittee
to direct the Selected Bank in advance to execute the
operation if it would result in the overall volume of
standalone spot and forward transactions in foreign
currencies, as defined in paragraph 3.C of this Authorization, totaling $5 billion or less since the close
of the most recent regular meeting of the Committee.
B. Such an operation also shall be:
i.
Generally directed at countering disorderly
market conditions; or
ii. Undertaken to adjust System balances in light
of probable future needs for currencies; or
iii. Conducted for such other purposes as may be
determined by the Committee.
C. For purposes of this Authorization, the overall
volume of standalone spot and forward transactions
in foreign currencies is defined as the sum (disregarding signs) of the dollar values of individual foreign currencies purchased and sold, valued at the time of the
transaction.
WAREHOUSING
4. The Committee authorizes the Selected Bank, with
the prior approval of the Subcommittee and at the request of the United States Treasury, to conduct swap
transactions with the United States Exchange Stabilization Fund established by section 10 of the Gold Reserve
Act of 1934 under agreements in which the Selected
Bank purchases foreign currencies from the Exchange
Stabilization Fund and the Exchange Stabilization Fund
repurchases the foreign currencies from the Selected
Bank at a later date (such purchases and sales also known
as warehousing).
RECIPROCAL CURRENCY ARRANGEMENTS,
AND STANDING DOLLAR AND FOREIGN
CURRENCY LIQUIDITY SWAPS
5. The Committee authorizes the Selected Bank to
maintain reciprocal currency arrangements established
under the North American Framework Agreement,
standing dollar liquidity swap arrangements, and standing foreign currency liquidity swap arrangements as provided in this Authorization and to the extent necessary
to carry out any foreign currency directive of the Committee.
A. For reciprocal currency arrangements all drawings must be approved in advance by the Committee
(or by the Subcommittee, if the Subcommittee believes that consultation with the Committee is not feasible in the time available).
B. For standing dollar liquidity swap arrangements
all drawings must be approved in advance by the
Chairman. The Chairman may approve a schedule of
potential drawings, and may delegate to the manager,
System Open Market Account, the authority to approve individual drawings that occur according to the
schedule approved by the Chairman.
C. For standing foreign currency liquidity swap arrangements all drawings must be approved in advance
by the Committee (or by the Subcommittee, if the
Subcommittee believes that consultation with the
Committee is not feasible in the time available).
Page 6
Federal Open Market Committee
_____________________________________________________________________________________________
D. Operations involving standing dollar liquidity
swap arrangements and standing foreign currency liquidity swap arrangements shall generally be directed
at countering strains in financial markets in the United
States or abroad, or reducing the risk that they could
emerge, so as to mitigate their effects on economic
and financial conditions in the United States.
E. For reciprocal currency arrangements, standing
dollar liquidity swap arrangements, and standing foreign currency liquidity swap arrangements:
i.
All arrangements are subject to annual review
and approval by the Committee;
ii.
Any new arrangements must be approved by
the Committee; and
iii. Any changes in the terms of existing arrangements must be approved in advance by the Chairman. The Chairman shall keep the Committee informed of any changes in terms, and the terms shall
be consistent with principles discussed with and
guidance provided by the Committee.
OTHER OPERATIONS IN FOREIGN
CURRENCIES
6. Any other operations in foreign currencies for
which governance is not otherwise specified in this Authorization (such as foreign exchange swap transactions
with private-sector counterparties) must be authorized
and directed in advance by the Committee.
FOREIGN CURRENCY HOLDINGS
7. The Committee authorizes the Selected Bank to
hold foreign currencies for the System Open Market Account in accounts maintained at foreign central banks,
the Bank for International Settlements, and such other
foreign institutions as approved by the Board of Governors under Section 214.5 of Regulation N, to the extent
necessary to carry out any foreign currency directive of
the Committee.
A. The Selected Bank shall manage all holdings of
foreign currencies for the System Open Market Account:
i.
Primarily, to ensure sufficient liquidity to enable the Selected Bank to conduct foreign currency
operations as directed by the Committee;
ii. Secondarily, to maintain a high degree of
safety;
iii. Subject to paragraphs 7.A.i and 7.A.ii, to provide the highest rate of return possible in each currency; and
iv. To achieve such other objectives as may be authorized by the Committee.
B. The Selected Bank may manage such foreign currency holdings by:
i.
Purchasing and selling obligations of, or fully
guaranteed as to principal and interest by, a foreign
government or agency thereof (“Permitted Foreign
Securities”) through outright purchases and sales;
ii. Purchasing Permitted Foreign Securities under
agreements for repurchase of such Permitted Foreign Securities and selling such securities under
agreements for the resale of such securities; and
iii. Managing balances in various time and other
deposit accounts at foreign institutions approved by
the Board of Governors under Regulation N.
C. The Subcommittee, in consultation with the
Committee, may provide additional instructions to the
Selected Bank regarding holdings of foreign currencies.
ADDITIONAL MATTERS
8.
The Committee authorizes the Chairman:
A. With the prior approval of the Committee, to enter into any needed agreement or understanding with
the Secretary of the United States Treasury about the
division of responsibility for foreign currency operations between the System and the United States Treasury;
B. To advise the Secretary of the United States
Treasury concerning System foreign currency operations, and to consult with the Secretary on policy matters relating to foreign currency operations;
C. To designate Federal Reserve System persons authorized to communicate with the United States
Treasury concerning System Open Market Account
foreign currency operations; and
D. From time to time, to transmit appropriate reports and information to the National Advisory Council on International Monetary and Financial Policies.
9. The Committee authorizes the Selected Bank to
undertake transactions of the type described in this Authorization, and foreign exchange and investment
transactions that it may be otherwise authorized to
undertake, from time to time for the purpose of testing
operational readiness. The aggregate amount of such
transactions shall not exceed $2.5 billion per calendar
year. These transactions shall be conducted with prior
notice to the Committee.
10. All Federal Reserve banks shall participate in the
foreign currency operations for System Open Market
Account in accordance with paragraph 3G(1) of the
Minutes of the Meeting of January 31–February 1, 2017
Page 7
_____________________________________________________________________________________________
Board of Governors’ Statement of Procedure with Respect to Foreign Relationships of Federal Reserve Banks
dated January 1, 1944.
11. Any authority of the Subcommittee pursuant to
this Authorization may be exercised by the Chairman if
the Chairman believes that consultation with the Subcommittee is not feasible in the time available. The
Chairman shall promptly report to the Subcommittee
any action approved by the Chairman pursuant to this
paragraph.
12. The Committee authorizes the Chairman, in exceptional circumstances where it would not be feasible to
convene the Committee, to foster the Committee’s objectives by instructing the Selected Bank to engage in
foreign currency operations not otherwise authorized
pursuant to this Authorization. Any such action shall be
made in the context of the Committee’s discussion and
decisions regarding foreign currency operations. The
Chairman, whenever feasible, will consult with the Committee before making any instruction under this paragraph.
________________________
In general, as specified in Article IV, each member of
the IMF undertakes to collaborate with the IMF and
other members to assure orderly exchange arrangements
and to promote a stable system of exchange rates. These
obligations include seeking to direct the member’s economic and financial policies toward the objective of fostering orderly economic growth with reasonable price
stability. These obligations also include avoiding manipulating exchange rates or the international monetary system in such a way that would impede effective balance
of payments adjustment or to give an unfair competitive
advantage over other members.
1
FOREIGN CURRENCY DIRECTIVE
(As reaffirmed effective January 31, 2017)
1. The Committee directs the Federal Reserve Bank
selected by the Committee (the “Selected Bank”) to execute open market transactions, for the System Open
Market Account, in accordance with the provisions of
the Authorization for Foreign Currency Operations (the
“Authorization”) and subject to the limits in this Directive.
2. The Committee directs the Selected Bank to execute warehousing transactions, if so requested by the
United States Treasury and if approved by the Foreign
Currency Subcommittee (the “Subcommittee”), subject
to the limitation that the outstanding balance of United
States dollars provided to the United States Treasury as
a result of these transactions not at any time exceed
$5 billion.
3. The Committee directs the Selected Bank to maintain, for the System Open Market Account:
A. Reciprocal currency arrangements with the following foreign central banks:
Foreign central bank Maximum amount
(millions of dollars
or equivalent)
Bank of Canada
Bank of Mexico
2,000
3,000
B. Standing dollar liquidity swap arrangements with
the following foreign central banks:
Bank of Canada
Bank of England
Bank of Japan
European Central Bank
Swiss National Bank
C. Standing foreign currency liquidity swap arrangements with the following foreign central banks:
Bank of Canada
Bank of England
Bank of Japan
European Central Bank
Swiss National Bank
4. The Committee directs the Selected Bank to hold
and to invest foreign currencies in the portfolio in accordance with the provisions of paragraph 7 of the Authorization.
5. The Committee directs the Selected Bank to report
to the Committee, at each regular meeting of the Committee, on transactions undertaken pursuant to paragraphs 1 and 6 of the Authorization. The Selected Bank
is also directed to provide quarterly reports to the Committee regarding the management of the foreign currency holdings pursuant to paragraph 7 of the Authorization.
6. The Committee directs the Selected Bank to conduct testing of transactions for the purpose of operational readiness in accordance with the provisions of
paragraph 9 of the Authorization.
By unanimous vote, the Committee amended its Program for Security of FOMC Information (Program) with
Page 8
Federal Open Market Committee
_____________________________________________________________________________________________
(1) minor changes that provide some additional flexibility in the classification of FOMC information and (2) the
removal of language concerning communication with
the Treasury Department regarding SOMA foreign currency operations that was no longer necessary in the Program because similar language was inserted into the Authorization for Foreign Currency Operations in September 2016.
In the Committee’s annual reconsideration of the Statement on Longer-Run Goals and Monetary Policy Strategy, participants agreed that only a minor revision was
required at this meeting, which was to update the reference to participants’ estimates of the longer-run normal
rate of unemployment from 4.9 percent to 4.8 percent.
All participants supported the statement with the revision, and the Committee voted unanimously to approve
the updated statement.
STATEMENT ON LONGER-RUN GOALS AND
MONETARY POLICY STRATEGY
(As amended effective January 31, 2017)
“The Federal Open Market Committee (FOMC) is
firmly committed to fulfilling its statutory mandate from
the Congress of promoting maximum employment, stable prices, and moderate long-term interest rates. The
Committee seeks to explain its monetary policy decisions to the public as clearly as possible. Such clarity
facilitates well-informed decisionmaking by households
and businesses, reduces economic and financial uncertainty, increases the effectiveness of monetary policy,
and enhances transparency and accountability, which are
essential in a democratic society.
Inflation, employment, and long-term interest rates
fluctuate over time in response to economic and financial disturbances. Moreover, monetary policy actions
tend to influence economic activity and prices with a lag.
Therefore, the Committee’s policy decisions reflect its
longer-run goals, its medium-term outlook, and its assessments of the balance of risks, including risks to the
financial system that could impede the attainment of the
Committee’s goals.
The inflation rate over the longer run is primarily determined by monetary policy, and hence the Committee
has the ability to specify a longer-run goal for inflation.
The Committee reaffirms its judgment that inflation at
the rate of 2 percent, as measured by the annual change
in the price index for personal consumption expenditures, is most consistent over the longer run with the
Federal Reserve’s statutory mandate. The Committee
would be concerned if inflation were running persistently above or below this objective. Communicating
this symmetric inflation goal clearly to the public helps
keep longer-term inflation expectations firmly anchored,
thereby fostering price stability and moderate long-term
interest rates and enhancing the Committee’s ability to
promote maximum employment in the face of significant economic disturbances. The maximum level of employment is largely determined by nonmonetary factors
that affect the structure and dynamics of the labor market. These factors may change over time and may not
be directly measurable. Consequently, it would not be
appropriate to specify a fixed goal for employment; rather, the Committee’s policy decisions must be informed
by assessments of the maximum level of employment,
recognizing that such assessments are necessarily uncertain and subject to revision. The Committee considers a
wide range of indicators in making these assessments.
Information about Committee participants’ estimates of
the longer-run normal rates of output growth and unemployment is published four times per year in the
FOMC’s Summary of Economic Projections. For example, in the most recent projections, the median of
FOMC participants’ estimates of the longer-run normal
rate of unemployment was 4.8 percent.
In setting monetary policy, the Committee seeks to
mitigate deviations of inflation from its longer-run goal
and deviations of employment from the Committee’s assessments of its maximum level. These objectives are
generally complementary. However, under circumstances in which the Committee judges that the objectives are not complementary, it follows a balanced approach in promoting them, taking into account the magnitude of the deviations and the potentially different
time horizons over which employment and inflation are
projected to return to levels judged consistent with its
mandate.
The Committee intends to reaffirm these principles
and to make adjustments as appropriate at its annual organizational meeting each January.”
The Committee considered amendments to its Policy on
External Communications of Committee Participants
and its Policy on External Communications of Federal
Reserve System Staff. The amendments consisted of (1)
starting the communication blackout earlier (the second
Saturday before Committee meetings); (2) revising the
treatment of staff presentations during the blackout period; (3) revising provisions regarding regularly published System releases of data, survey results, statistical
Minutes of the Meeting of January 31–February 1, 2017
Page 9
_____________________________________________________________________________________________
indexes, and model results during the blackout period;
(4) explicitly recognizing the need for ongoing communications with the public by staff members during the
blackout period for operational or informationgathering purposes; and (5) making several miscellaneous changes, generally to improve clarity.
All participants supported the revisions, and the Committee voted unanimously to approve the revised policies.
Illustration of Uncertainty in the Summary of Economic Projections
Participants considered a revised proposal from the subcommittee on communications to add to the Summary
of Economic Projections (SEP) a number of charts
(sometimes called fan charts) that would illustrate the
uncertainty that attends participants’ macroeconomic
projections. The revised proposal was based on further
analysis and consultations following Committee discussion of a proposal at the January 2016 meeting. Participants generally supported the revised approach and
agreed that fan charts would be incorporated in the SEP
to be released with the minutes of the March 14–15,
2017, FOMC meeting. The Chair noted that a staff paper on measures of forecast uncertainty in the SEP, including those that would be used as the basis for fan
charts in the SEP, would be made available to the public
soon after the minutes of the current meeting were published, and that examples of the new charts using previously published data would be released in advance of the
March meeting.
Developments in Financial Markets and Open
Market Operations
The SOMA manager reported on developments in U.S.
and global financial markets during the period since the
Committee met on December 13–14, 2016. Financial
asset prices were little changed since the December
meeting. Market participants continued to report substantial uncertainty about potential changes in fiscal, regulatory, and other government policies. Nonetheless,
measures of implied volatility of various asset prices remained low. Emerging market currencies were generally
resilient in recent weeks, reportedly benefiting from investors’ anticipation of stronger global economic
growth, after depreciating significantly against the dollar
during the previous intermeeting period. Market expectations for the path of the federal funds rate were little
changed over the intermeeting period.
The deputy manager followed with a briefing on developments in money markets, market expectations for the
System’s balance sheet, and open market operations. In
money markets, interest rates smoothly shifted higher
following the Committee’s decision at its December
meeting to increase the target range for the federal funds
rate by 25 basis points, and federal funds subsequently
traded near the center of the new range except on yearend. Although year-end pressures in U.S. money markets were similar to past quarter-ends, some notable, albeit temporary, strains appeared over the turn of the year
in foreign exchange swap markets and European markets for repurchase agreements. The Open Market
Desk’s surveys of dealers and market participants
pointed to some change in expectations for FOMC reinvestment policy, with more respondents than in previous surveys anticipating a change in policy when the federal funds rate reaches 1 to 1½ percent. The higher level
of take-up at the System’s overnight reverse repurchase
agreement facility that developed following the implementation of money market fund reform last fall generally persisted. The staff also briefed the Committee on
plans for small-value tests of various System operations
and facilities during 2017 and for quarterly tests of the
Term Deposit Facility.
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 during the intermeeting period.
Staff Review of the Economic Situation
The information reviewed for the January 31–February 1 meeting indicated that real gross domestic product
(GDP) expanded at a moderate rate in the fourth quarter
of last year and that labor market conditions continued
to strengthen. Consumer price inflation rose further
above the slow pace seen during the first half of last year,
but it was still running below the Committee’s longerrun objective of 2 percent.
Recent indicators generally showed that labor market
conditions continued to improve in late 2016. Total
nonfarm payroll employment increased at a solid pace in
December. The unemployment rate edged up to
4.7 percent but remained near its recent low, while the
labor force participation rate rose slightly. The share of
workers employed part time for economic reasons decreased further. The rates of private-sector job openings
and of hiring were unchanged in November, while the
rate of quits edged up. The four-week moving average
of initial claims for unemployment insurance benefits
was still low in December and early January. Measures
of labor compensation continued to rise at a moderate
rate. The employment cost index for private industry
Page 10
Federal Open Market Committee
_____________________________________________________________________________________________
workers rose 2¼ percent over the 12 months ending in
December, and average hourly earnings for all employees increased almost 3 percent over the same 12-month
period. The unemployment rates for African Americans, for Hispanics, and for whites were close to the levels seen just before the most recent recession, but the
unemployment rates for African Americans and for Hispanics remained above the rate for whites.
Total industrial production edged down in the fourth
quarter as a whole. Mining output expanded markedly,
but manufacturing production advanced only modestly.
The output of utilities declined, as the weather was unseasonably warm, on average, during the fourth quarter.
Automakers’ assembly schedules suggested that motor
vehicle production would be a little lower early this year,
but broader indicators of manufacturing production,
such as the new orders indexes from national and regional manufacturing surveys, were consistent with
modest gains in factory output in the near term.
Real personal consumption expenditures (PCE) rose at
a moderate pace in the fourth quarter. Consumer expenditures for durable goods, particularly motor vehicles, increased considerably. However, consumer
spending for energy services declined markedly, reflecting unseasonably warm weather. Recent readings on
some key factors that influence consumer spending—
including further gains in employment, real disposable
personal income, and households’ net worth—were
consistent with moderate increases in real PCE in early
2017. In addition, consumer sentiment, as measured by
the University of Michigan Surveys of Consumers,
moved up to an elevated level in December and January.
Real residential investment spending rose at a brisk pace
in the fourth quarter after decreasing in the previous two
quarters. Building permit issuance for new single-family
homes—which tends to be a reliable indicator of the underlying trend in construction—advanced solidly. Sales
of existing homes increased modestly in the fourth quarter, although new home sales declined.
Real private expenditures for business equipment and intellectual property (E&I) expanded at a moderate pace
in the fourth quarter after declining, on net, over the preceding three quarters. Recent increases in nominal new
orders of nondefense capital goods excluding aircraft,
along with improvements in indicators of business sentiment, pointed to further moderate increases in real
E&I spending in the near term. Real business expenditures for nonresidential structures declined in the fourth
quarter after rising in the previous quarter. The number
of crude oil and natural gas rigs in operation, an indicator
of spending for structures in the drilling and mining sector, continued to increase through late January. The
change in real inventory investment was estimated to
have made an appreciable positive contribution to real
GDP growth in the fourth quarter.
Real total government purchases rose somewhat in the
fourth quarter. Federal government purchases for defense decreased while nondefense expenditures increased. State and local government purchases increased
modestly, as the payrolls of these governments expanded slightly and their construction spending advanced somewhat.
The U.S. international trade deficit widened in November for the second consecutive month. After declining
in October, nominal exports fell again in November as
decreases in exports of capital goods more than offset
increases in exports of industrial supplies. Nominal imports in November rose to their highest level of the year,
led by imports of industrial supplies and materials. The
Census Bureau’s advance trade estimates for December
suggested a narrowing of the trade deficit in goods, as
imports increased less than exports. Altogether, the
change in real net exports was estimated to have made a
substantial negative contribution to real GDP growth in
the fourth quarter.
Total U.S. consumer prices, as measured by the PCE
price index, increased a little more than 1½ percent over
the 12 months ending in December, partly restrained by
decreases in consumer food prices last year. Core PCE
price inflation, which excludes changes in food and energy prices, was 1¾ percent over those same 12 months,
held down in part by decreases in the prices of nonenergy imports over part of this period. Over the same
12-month period, total consumer prices as measured by
the consumer price index (CPI) rose a bit more than
2 percent, while core CPI inflation was 2¼ percent.
Survey-based measures of median longer-run inflation
expectations—such as those from the Michigan survey
and from the Desk’s Survey of Primary Dealers and Survey of Market Participants—were unchanged, on net,
over December and January.
Foreign real GDP growth appeared to slow somewhat
in the fourth quarter from its relatively strong thirdquarter pace. Nevertheless, recent data on foreign industrial production and trade seemed to be stronger than
private analysts had anticipated and were consistent with
moderate economic growth abroad. Economic growth
in both the euro area and the United Kingdom continued at relatively solid rates. In the emerging market
economies (EMEs), GDP growth remained robust in
Minutes of the Meeting of January 31–February 1, 2017
Page 11
_____________________________________________________________________________________________
China but slowed elsewhere in the Asian EMEs and in
Mexico, while the pace of economic contraction appeared to lessen in South America. Inflation in the advanced foreign economies (AFEs) continued to rise,
largely reflecting the pass-through of earlier increases in
crude oil prices into retail energy prices. Inflation also
rose in many EMEs, in part because of rising food and
fuel prices; however, inflation fell notably in much of
South America.
Staff Review of the Financial Situation
Domestic financial conditions were mostly little
changed, on balance, since the December FOMC meeting. Broad equity price indexes fluctuated in a relatively
narrow range and ended the intermeeting period about
unchanged. Nominal Treasury yields moved up across
most maturities in the days following the December
FOMC meeting but subsequently reversed and ended
the period little changed on net. Measures of inflation
compensation based on Treasury Inflation-Protected
Securities (TIPS) rose somewhat on balance. Amid notable volatility, the broad dollar index declined slightly
on net. Meanwhile, financing conditions for nonfinancial businesses and households remained generally accommodative.
Although the FOMC’s decision to raise the target range
for the federal funds rate to ½ to ¾ percent at the December meeting was widely anticipated in financial markets, contacts generally characterized some of the communications associated with the FOMC meeting as less
accommodative than expected. In particular, market
commentaries highlighted the upward revision of 25 basis points to the median projection for the federal funds
rate at the end of 2017 in the SEP. Nonetheless, the
expected path of the federal funds rate implied by futures quotes was little changed, on net, since the December meeting. Market-based estimates indicated that investors saw the probability of an increase in the target
range for the federal funds rate at the January 31–
February 1 FOMC meeting as very low, and the estimated probability of an increase in the target range at or
before the March meeting was about 25 percent. Consistent with readings based on market quotes, results
from the Desk’s January Survey of Primary Dealers and
Survey of Market Participants indicated that the median
respondent assigned a probability of about 25 percent to
the next increase in the target range occurring at or before the March FOMC meeting. Market-based estimates
of the probability of an increase in the target range at or
before the June meeting were about 70 percent.
Yields on nominal Treasury securities increased across
most maturities following the December FOMC meeting, but they fell, on balance, over the remainder of the
intermeeting period. While market commentary suggested that a number of factors contributed to the decline, a clear catalyst was difficult to identify. Treasury
yields ended the period about unchanged and remained
significantly higher than just before the U.S. elections in
November. TIPS-based measures of inflation compensation edged up over the intermeeting period.
Broad U.S. equity price indexes fluctuated in a relatively
narrow range and were little changed, on net, over the
intermeeting period. However, equity prices remained
notably higher than just before the November elections,
apparently reflecting investors’ expectations that fiscal
and other policy changes would boost corporate profits
and economic activity in the medium term. Implied volatility on the S&P 500 index edged down since the December meeting and remained relatively low. Corporate
bond spreads for both investment- and speculativegrade firms continued to narrow over the intermeeting
period and were near the bottom of their ranges of the
past several years.
Money market rates responded as expected to the
change in the target range for the federal funds rate. The
effective federal funds rate was 66 basis points—25 basis
points higher than previously—every day following the
change, except at year-end. Conditions in other domestic short-term funding markets were generally stable
over the intermeeting period. Assets under management
by money market funds changed little, with government
funds experiencing modest net outflows and prime fund
assets remaining about flat.
Financing conditions for nonfinancial businesses continued to be accommodative overall. Corporate bond issuance by nonfinancial firms rebounded in December to
about its robust average pace of the past few years, and
issuance of syndicated leveraged loans was strong.
Gross equity issuance was solid in November and December. Meanwhile, after a slowdown in the third quarter, the growth of commercial and industrial (C&I) loans
on banks’ books picked up in the fourth quarter, although the pace remained slower than earlier in the year.
The January Senior Loan Officer Opinion Survey on
Bank Lending Practices (SLOOS) indicated that banks
left C&I lending standards for large and middle-market
firms and for small firms unchanged, on balance, in the
fourth quarter. On net, banks expected to ease their
standards for C&I loans somewhat in 2017.
Page 12
Federal Open Market Committee
_____________________________________________________________________________________________
Credit continued to be broadly available in the commercial real estate (CRE) sector, although results from the
January SLOOS indicated that banks continued to
tighten their lending standards in the fourth quarter and
expected to tighten them somewhat further in 2017.
CRE loans on banks’ balance sheets continued to grow
in the fourth quarter, although at a somewhat slower rate
than earlier in the year, while issuance of commercial
mortgage-backed securities (CMBS) was solid over the
period, in part because issuers tried to complete deals
before the implementation of new risk retention rules in
late December. The delinquency rate on CMBS moved
up further in November and December; the increase
largely reflected delinquencies on loans originated before
the financial crisis.
kets. Importantly, a large euro-area bank reached a settlement with the U.S. Department of Justice on issues
related to mortgage-backed securities, and the Italian
government approved a funding package and other
measures to support struggling banks. Reflecting the improved sentiment and positive economic news, global
equity prices and longer-term sovereign yields in most
AFEs increased moderately over the period. Yield
spreads on EME sovereign bonds narrowed somewhat,
and flows into EME mutual funds turned positive. The
broad dollar index increased immediately after the December FOMC meeting but subsequently retraced its
gains and ended the period slightly lower. In contrast,
the dollar strengthened further against the Mexican peso
over the intermeeting period.
Credit conditions for residential mortgages were little
changed, on net, over the intermeeting period. Mortgage
credit was broadly available to households with average
to high credit scores, while credit remained tight for borrowers with low credit scores, hard-to-document income, or high debt-to-income ratios. According to the
January SLOOS, banks reportedly left lending standards
unchanged, on net, on most categories of homepurchase loans. The interest rate on 30-year fixed-rate
mortgages moved about in line with rates on
comparable-maturity Treasury securities, rising notably
after the November elections but retracing part of that
increase since mid-December. The pace of purchase
originations was little changed in recent months despite
higher mortgage rates, while refinance originations fell
sharply. Bank lending for residential mortgages was
solid in the fourth quarter, and the issuance of mortgagebacked securities was robust.
The staff provided its latest report on potential risks to
financial stability, indicating that it continued to judge
the vulnerabilities of the U.S. financial system as moderate on balance. The staff’s assessment took into account
the increase in asset valuation pressures since the November elections, the overall low level of financial leverage, the strong capital positions at banks, and the subdued growth of debt among households and businesses.
In addition, with money market fund reforms in place,
the vulnerabilities from maturity and liquidity transformation were viewed as being somewhat below their
longer-run average.
Financing conditions in consumer credit markets remained generally accommodative, although lending
standards for credit cards continued to be tight for subprime borrowers. Respondents to the January SLOOS
indicated that, over the previous three months, they had
tightened standards and terms on auto and credit card
loans, and that they expected to tighten standards further
in 2017. Consumer loan balances increased at a robust
rate through November, with credit card loans, student
loans, and auto loans all expanding at a similar pace.
Measures of consumer credit quality were little changed,
on net, in the fourth quarter.
Foreign economic data that were better than expected
and perceptions of an ebbing of some potential downside risks in Europe appeared to contribute to an improvement in investor sentiment in global financial mar-
Staff Economic Outlook
In the U.S. economic projection prepared by the staff
for this FOMC meeting, the near-term forecast was little
changed from the December meeting. Real GDP
growth in the fourth quarter of last year was estimated
to have been a little faster than the staff had expected in
December, and the pace of economic growth in the first
half of this year was projected to be essentially the same
as in the fourth quarter. The staff’s forecast for real
GDP growth over the next several years was little
changed. The staff continued to project that real GDP
would expand at a modestly faster pace than potential
output in 2017 through 2019. The unemployment rate
was forecast to edge down gradually through the end of
2019 and to run below the staff’s estimate of its longerrun natural rate; the path for the unemployment rate was
little changed from the previous projection.
The staff’s forecast for consumer price inflation was unchanged on balance. The staff continued to project that
inflation would increase over the next several years, as
food and energy prices, along with the prices of nonenergy imports, were expected to begin steadily rising either this year or next. However, inflation was projected
Minutes of the Meeting of January 31–February 1, 2017
Page 13
_____________________________________________________________________________________________
to be marginally below the Committee’s longer-run objective of 2 percent in 2019.
The staff viewed the uncertainty around its 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 seen as tilted to
the downside, primarily reflecting the staff’s assessment
that monetary policy appeared to be better positioned to
offset large positive shocks than substantial adverse
ones. However, the staff viewed the risks to the forecast
from developments abroad as less pronounced than in
the recent past. Consistent with the downside risks to
aggregate demand, the staff viewed the risks to its outlook for the unemployment rate as tilted to the upside.
The risks to the projection for inflation were seen as
roughly balanced. The downside risks from the possibility that longer-term inflation expectations may have
edged down or that the dollar could appreciate substantially further were seen as roughly counterbalanced by
the upside risk that inflation could increase more than
expected in an economy that was projected to continue
operating above its longer-run potential.
Participants’ Views on Current Conditions and the
Economic Outlook
In their discussion of the economic situation and the
outlook, meeting participants agreed that information
received over the intermeeting period indicated that the
labor market had continued to strengthen and that economic activity had continued to expand at a moderate
pace. Job gains had remained solid, and the unemployment rate had stayed near its recent low. Household
spending had continued to rise moderately, while business fixed investment had remained soft. Measures of
consumer and business sentiment had improved of late.
Inflation had increased in recent quarters but was still
below the Committee’s 2 percent longer-run objective.
Market-based measures of inflation compensation remained low; most survey-based measures of inflation
compensation were little changed on balance.
Participants generally indicated that their economic forecasts had changed little since the December FOMC
meeting. They continued to anticipate that, with gradual
adjustments in the stance of monetary policy, economic
activity would expand at a moderate pace, labor market
conditions would strengthen somewhat further, and inflation would rise to 2 percent over the medium term.
They also judged that near-term risks to the economic
outlook appeared roughly balanced. Participants again
emphasized their considerable uncertainty about the
prospects for changes in fiscal and other government
policies as well as about the timing and magnitude of the
net effects of such changes on economic activity. In discussing the risks to the economic outlook, participants
continued to view the possibility of more expansionary
fiscal policy as having increased the upside risks to their
economic forecasts, although some noted that several
potential changes in government policies could pose
downside risks. In addition, several viewed the downside risks from weaker economic activity abroad as having diminished somewhat. But several indicated that
they continued to be concerned about the downside
risks to economic activity associated with the possibility
of additional appreciation of the foreign exchange value
of the dollar or financial vulnerabilities in some foreign
economies, together with the proximity of the federal
funds rate to the effective lower bound. Regarding the
outlook for inflation, some participants continued to be
concerned that faster-than-expected economic growth
or a substantial undershooting of the longer-run normal
unemployment rate posed upside risks to inflation.
However, several others continued to see downside risks
to the inflation outlook, citing still-low measures of inflation compensation and inflation expectations or the
possibility of further appreciation of the dollar. Participants generally agreed that the Committee should continue to closely monitor inflation indicators and global
economic and financial developments.
Regarding the household sector, consumer spending
posted a moderate increase in the fourth quarter, and
participants generally anticipated that further gains in
consumer spending would contribute importantly to
economic growth in 2017. They expected that, although
interest rates had moved higher, household spending
would continue to be supported by rising employment
and income as well as high levels of household wealth.
The recent improvement in consumer sentiment was
also viewed as a potentially positive factor in the outlook
for spending, although several participants cautioned
that an elevated level of sentiment, even if it was sustained, was likely to make only a small contribution to
household spending beyond those from income, wealth,
and credit conditions.
Recent indicators of activity in the housing sector were
generally positive. Starts and permits for single-family
housing and sales of existing homes rose moderately in
the fourth quarter, and real residential investment
bounced back after two quarterly declines. A couple of
participants commented that supply constraints might
be holding back new homebuilding. In addition, a few
participants noted that prospects for residential invest-
Page 14
Federal Open Market Committee
_____________________________________________________________________________________________
ment would also depend on whether household formation picked up and how housing market activity responded to the recent rise in mortgage interest rates.
The outlook for the business sector improved further
over the intermeeting period. Business investment in
E&I, which had been contracting earlier in 2016, increased at a moderate rate in the fourth quarter. In addition, new orders for nondefense capital goods posted
widespread gains in recent months. The available reports from District surveys of activity and revenues in
the manufacturing and services industries were very positive. Moreover, a number of national surveys of sentiment among corporate executives and small business
owners as well as information from participants’ District
contacts indicated a high level of optimism about the
economic outlook. Many participants indicated that
their business contacts attributed the improvement in
business sentiment to the expectation that firms would
benefit from possible changes in federal spending, tax,
and regulatory policies. A few participants indicated that
some of their contacts had already increased their
planned capital expenditures. However, participants’
contacts in some Districts, while optimistic, intended to
wait for more clarity about federal policy initiatives before adjusting their capital spending and hiring. In addition, contacts in some industries remained concerned
that their businesses might be adversely affected by
some of the government policy changes being considered. Activity in the energy sector continued to improve,
with District contacts reporting an increase in capital
spending, better access to credit, and a pickup in hiring.
However, reports from a couple of Districts indicated
that the agricultural sector was still weak, with low commodity prices continuing to put financial pressure on
farm-related businesses.
The labor market continued to strengthen in recent
months. Monthly gains in nonfarm payroll employment
averaged 165,000 over the period from October to December, a pace that, if it continued, would be expected
to increase labor utilization over time. At 4.7 percent in
December, the unemployment rate remained close to
levels that most participants judged to be consistent with
the Committee’s maximum-employment objective.
Some participants cited other indicators confirming the
strengthening in the labor market, such as a decline in
the broader measures of labor underutilization that include workers marginally attached to the labor force, the
rise in the quits rate, and faster increases in some
measures of labor compensation. Moreover, several
participants’ business contacts reported shortages of
workers in some occupations or the need for training
programs to expand the supply of skilled workers. Several other participants thought that some margins of labor underutilization remained, citing the still-high rate of
prime-age workers outside the labor force, the elevated
share of workers who were employed part time for economic reasons, or the potential for further firming in labor force participation. However, a couple of participants pointed out that the uncertainty attending estimates of longer-run trends in part-time employment and
labor force participation made it difficult to assess the
scope for additional increases in labor utilization. Most
participants still expected that if economic growth remained moderate, labor markets would continue to
tighten gradually, with the unemployment rate running
only modestly below their estimates of the longer-run
normal rate. However, several participants projected a
more substantial undershooting.
Information on inflation received over the intermeeting
period was broadly in line with participants’ expectations
and was consistent with a view that PCE inflation was
moving closer to the Committee’s 2 percent objective.
The 12-month change in headline PCE prices increased
further, to 1.6 percent in December, as the effects of the
earlier declines in consumer energy prices waned. The
12-month change in core PCE prices stayed near 1.7 percent for a fifth consecutive month. A few participants
noted that other measures provided additional evidence
that inflation was approaching the Committee’s objective; for example, the 12-month changes in the headline
and core CPI, the median CPI, and the trimmed mean
PCE price index had also moved up from year-earlier
levels. The available information on pricing from District business contacts varied, with a couple of participants reporting that firms were experiencing rising cost
pressures from input costs or had been able to raise their
prices, while a few other participants said that firms in
their Districts were not experiencing price pressures or
that the appreciation of the dollar was continuing to hold
down import prices. Most survey-based measures of
longer-term inflation expectations had been little
changed in recent months. The median response to the
Michigan survey of longer-run inflation expectations
moved back up to 2.6 percent in January, in line with the
average of readings during 2016, and the measure at the
three-year horizon from the Federal Reserve Bank of
New York’s survey rose slightly in December; the
measures calculated by the Federal Reserve Bank of
Cleveland had been stable over the preceding three
months. Some market-based measures of inflation compensation had turned up noticeably in late 2016, but a
Minutes of the Meeting of January 31–February 1, 2017
Page 15
_____________________________________________________________________________________________
number of participants noted that they remained relatively low. Most participants continued to expect that
inflation would rise to the Committee’s 2 percent objective over the medium term. Some saw a risk that inflationary pressures might develop more rapidly than currently anticipated as resource utilization tightened, while
several others thought that progress in achieving the
Committee’s inflation objective might lag if further appreciation of the dollar continued to depress non-energy
commodity prices or if inflation was slow to respond to
tighter resource utilization.
Financial conditions appeared to have changed little, on
net, in recent months: Equity prices had risen and credit
spreads had narrowed, but longer-term interest rates had
increased and the dollar had appreciated further. In their
discussion, participants considered how recent developments had affected their assessment of the stability of
the U.S. financial system. Overall, valuation pressures
appeared to have risen for some types of assets, while
financial-sector leverage remained low and risks associated with maturity and liquidity transformation had declined. A few participants commented that the recent
increase in equity prices might in part reflect investors’
anticipation of a boost to earnings from a cut in corporate taxes or more expansionary fiscal policy, which
might not materialize. They also expressed concern that
the low level of implied volatility in equity markets appeared inconsistent with the considerable uncertainty attending the outlook for such policy initiatives.
Recent reforms had diminished the risk of runs on or by
prime money market funds. However, it was noted that
other risks to financial stability might arise as the structure of funding markets evolved or if real estate asset
values declined sharply. More broadly, it was pointed
out that an environment of low interest rates and a relatively flat yield curve, if it persisted, had the potential to
boost incentives to take on leverage and risk. Several
participants emphasized that the increased resilience of
the financial system since the financial crisis had importantly been the result of the key safety and soundness
reforms put in place in recent years. However, having
additional macroprudential tools could prove useful in
addressing problems that could arise in real estate financing or in the shadow banking sector.
Participants discussed whether their current assessments
of economic conditions and the medium-term outlook
warranted altering their earlier views of the appropriate
path for the target range for the federal funds rate. Participants generally characterized their economic forecasts and their judgments about monetary policy as little
changed since the December meeting. Against this
backdrop, they thought it appropriate to maintain the
target range for the federal funds rate at ½ to ¾ percent
at this meeting.
Most participants continued to judge that, while the outlook was subject to considerable uncertainty, a gradual
pace of rate increases over time was likely to be appropriate to promote the Committee’s objectives of maximum employment and 2 percent inflation. Some participants viewed a gradual pace as likely to be warranted
because inflation was still running below the Committee’s objective or because the proximity of the federal
funds rate to the effective lower bound placed constraints on the ability of monetary policy to respond to
adverse shocks to the aggregate demand for goods and
services. In addition, it was noted that the downward
pressure on longer-term interest rates exerted by the
Federal Reserve’s asset holdings was expected to diminish in the years ahead in light of an anticipated gradual
reduction in the size and duration of the Federal Reserve’s balance sheet. Finally, the view that gradual increases in the federal funds rate were likely to be appropriate also reflected the assessment that the neutral real
rate—defined as the real interest rate that is neither expansionary nor contractionary when the economy is operating at or near its potential—was currently quite low
and was likely to rise only slowly over time.
Participants emphasized that the Committee might need
to change its communications regarding the anticipated
path for the policy rate if economic conditions evolved
differently than the Committee expected or if the economic outlook changed. They pointed to a number of
risks that, if realized, might call for a different policy trajectory than they currently thought most likely to be appropriate. These included upside risks such as appreciably more expansionary fiscal policy or a more rapid
buildup of inflationary pressures, as well as downside
risks associated with a possible further appreciation of
the dollar or financial vulnerabilities in some foreign
economies, together with the proximity of the federal
funds rate to the effective lower bound. Moreover, most
participants continued to see heightened uncertainty regarding the size, composition, and timing of possible
changes to fiscal and other government policies, and
about their net effects on the economy and inflation
over the medium term, and they thought some time
would likely be required for the outlook to become
clearer. A couple of participants argued that such uncertainty should not deter the Committee from taking further steps in the near term to remove monetary policy
accommodation, because fiscal and other policies were
Page 16
Federal Open Market Committee
_____________________________________________________________________________________________
only some of the many factors that were likely to influence progress toward the Committee’s dual-mandate objectives and thus the appropriate course of monetary
policy. However, other participants cautioned against
adjusting monetary policy in anticipation of policy proposals that might not be enacted or that, if enacted,
might turn out to have different consequences for economic activity and inflation than currently anticipated.
In discussing the outlook for monetary policy over the
period ahead, many participants expressed the view that
it might be appropriate to raise the federal funds rate
again fairly soon if incoming information on the labor
market and inflation was in line with or stronger than
their current expectations or if the risks of overshooting
the Committee’s maximum-employment and inflation
objectives increased. A few participants noted that continuing to remove policy accommodation in a timely
manner, potentially at an upcoming meeting, would allow the Committee greater flexibility in responding to
subsequent changes in economic conditions. Several
judged that the risk of a sizable undershooting of the
longer-run normal unemployment rate was high, particularly if economic growth was faster than currently expected. If that situation developed, the Committee
might need to raise the federal funds rate more quickly
than most participants currently anticipated to limit the
buildup of inflationary pressures. However, with inflation still short of the Committee’s objective and inflation
expectations remaining low, a few others continued to
see downside risks to inflation or anticipated only a gradual return of inflation to the 2 percent objective as the
labor market strengthened further. A couple of participants expressed concern that the Committee’s communications about a gradual pace of policy firming might
be misunderstood as a commitment to only one or two
rate hikes per year and stressed the importance of communicating that policy will respond to the evolving economic outlook as appropriate to achieve the Committee’s objectives. Participants also generally agreed that
the Committee should begin discussions at upcoming
meetings about the economic conditions that could warrant changes in the existing policy of reinvesting proceeds from maturing Treasury securities and principal
payments from agency debt and mortgage-backed securities, as well as how those changes would be implemented and communicated.
Committee Policy Action
In their discussion of monetary policy for the period
ahead, members judged that the information received
since the Committee met in December indicated that the
labor market had continued to strengthen and that economic activity had continued to expand at a moderate
pace. Job gains had remained solid, and the unemployment rate had stayed near its recent low. Household
spending had continued to rise moderately, while business fixed investment had remained soft. Measures of
consumer and business sentiment had improved of late.
Inflation had increased in recent quarters but was still
below the Committee’s 2 percent longer-run objective.
Market-based measures of inflation compensation remained low; most survey-based measures of longer-term
inflation expectations were little changed on balance.
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 conditions would strengthen
somewhat further. Members agreed that there was
heightened uncertainty about the effects of possible
changes in fiscal and other government policies, but that
near-term risks to the economic outlook appeared
roughly balanced. Many members continued to see only
a modest risk of a scenario in which the unemployment
rate would substantially undershoot its longer-run normal level and inflation pressures would increase significantly. These members expressed the view that inflation
was likely to rise toward 2 percent gradually, and that
policymakers would likely have ample time to respond if
signs of rising inflationary pressures did begin to emerge.
Other members indicated that if the labor market appeared to be tightening significantly more than anticipated or if inflation pressures appeared to be developing
more rapidly than expected as resource utilization tightened, it might become necessary to adjust the Committee’s communications about the expected path of the
federal funds rate. One member noted that, even if incoming data on the economy and inflation were consistent with expectations, taking the next step in reducing policy accommodation relatively soon would give the
Committee greater flexibility in calibrating policy to
evolving economic conditions.
At this meeting, members continued to expect that, with
gradual adjustments in the stance of monetary policy, inflation would rise to the Committee’s 2 percent objective
over the medium term. This view was reinforced by the
rise in inflation and increases in inflation compensation
in recent months. Against this backdrop and in light of
the current shortfall in inflation from 2 percent, members agreed that they would continue to closely monitor
actual and expected progress toward the Committee’s inflation goal.
Minutes of the Meeting of January 31–February 1, 2017
Page 17
_____________________________________________________________________________________________
After assessing current conditions and the outlook for
economic activity, the labor market, and inflation, members agreed to maintain the target range for the federal
funds rate at ½ to ¾ percent. They judged that the
stance of monetary policy remained accommodative,
thereby supporting some further strengthening in labor
market conditions and a return to 2 percent inflation.
The Committee agreed that, in determining the timing
and size of future adjustments to the target range for the
federal funds rate, it 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. 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 expected to prevail in the longer run.
However, members emphasized that the actual path of
the federal funds rate would depend on the evolution of
the economic outlook as informed by incoming data.
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. Members noted
that 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 February 2, 2017, 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 ½ to ¾ 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 0.50 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 percounterparty 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 mortgagebacked 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 December indicates
that the labor market has continued to
strengthen and that economic activity has continued to expand at a moderate pace. Job gains
remained solid and the unemployment rate
stayed near its recent low. Household spending
has continued to rise moderately while business
fixed investment has remained soft. Measures
of consumer and business sentiment have improved of late. Inflation increased in recent
quarters but is still below the Committee’s
2 percent longer-run objective. Market-based
measures of inflation compensation remain low;
most survey-based measures of longer-term inflation expectations are little changed, on balance.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment
and price stability. The Committee expects that,
with gradual adjustments in the stance of monetary policy, economic activity will expand at a
moderate pace, labor market conditions will
strengthen somewhat further, and inflation will
rise to 2 percent over the medium term. Nearterm risks to the economic outlook appear
roughly balanced. The Committee continues to
closely monitor inflation indicators and global
economic and financial developments.
In view of realized and expected labor market
conditions and inflation, the Committee decided to maintain the target range for the federal
funds rate at ½ to ¾ percent. The stance of
Page 18
Federal Open Market Committee
_____________________________________________________________________________________________
monetary policy remains accommodative,
thereby supporting some further strengthening
in labor market conditions and a return to 2 percent inflation.
funds rate is well under way. This policy, by
keeping the Committee’s holdings of longerterm securities at sizable levels, should help
maintain accommodative financial conditions.”
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; 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.
Voting for this action: Janet L. Yellen, William C.
Dudley, Lael Brainard, Charles L. Evans, Stanley Fischer,
Patrick Harker, Robert S. Kaplan, Neel Kashkari, Jerome
H. Powell, and Daniel K. Tarullo.
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, and it anticipates doing so
until normalization of the level of the federal
The second vote of the Board also encompassed approval
of the establishment of the interest rates for secondary and
6
Voting against this action: None.
Consistent with the Committee’s decision to leave the
target range for the federal funds rate unchanged, the
Board of Governors voted unanimously to leave the interest rates on required and excess reserve balances unchanged at 0.75 percent and voted unanimously to approve establishment of the primary credit rate (discount
rate) at the existing level of 1.25 percent. 6
It was agreed that the next meeting of the Committee
would be held on Tuesday–Wednesday, March 14–15,
2017. The meeting adjourned at 10:05 a.m. on February 1, 2017.
Notation Vote
By notation vote completed on January 3, 2017, the
Committee unanimously approved the minutes of the
Committee meeting held on December 13–14, 2016.
_____________________________
Brian F. Madigan
Secretary
seasonal credit under the existing formulas for computing
such rates.
Cite this document
Federal Reserve (2017, January 31). FOMC Minutes. Fomc Minutes, Federal Reserve. https://whenthefedspeaks.com/doc/fomc_minutes_20170201
@misc{wtfs_fomc_minutes_20170201,
author = {Federal Reserve},
title = {FOMC Minutes},
year = {2017},
month = {Jan},
howpublished = {Fomc Minutes, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/fomc_minutes_20170201},
note = {Retrieved via When the Fed Speaks corpus}
}