FOMC Minutes

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Minutes of the Federal Open Market Committee

June 13–14, 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, June 13, 2017, at

1:00 p.m. and continued on Wednesday, June 14, 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

Raphael W. Bostic, Loretta J. Mester, Mark L. Mullinix,

Michael Strine, 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

Beth Anne Wilson, James A. Clouse, Thomas A.

Connors, Eric M. Engen, Evan F. Koenig,

Jonathan P. McCarthy, William Wascher, and Mark

L.J. Wright, Associate Economists

Ann E. Misback, Secretary, Office of the Secretary,

Board of Governors

Matthew J. Eichner, 2 Director, Division of Reserve

Bank Operations and Payment Systems, Board of

Governors; Michael S. Gibson, Director, Division

of Supervision and Regulation, 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

William B. English, Senior Special Adviser to the

Board, Office of Board Members, Board of

Governors

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

Office of Board Members, Board of Governors

David Bowman, Joseph W. Gruber, David

Reifschneider, and John M. Roberts, 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

Christopher J. Erceg, Senior Associate Director,

Division of International Finance, Board of

Governors; Joshua Gallin, Senior Associate

Director, Division of Research and Statistics,

Board of Governors; Gretchen C. Weinbach,2

Senior Associate Director, Division of Monetary

Affairs, Board of Governors

Simon Potter, Manager, System Open Market Account

Antulio N. Bomfim, Ellen E. Meade, and Edward

Nelson, Senior Advisers, Division of Monetary

Affairs, Board of Governors; Jeremy B. Rudd,

Senior Adviser, Division of Research and Statistics,

Board of Governors

Lorie K. Logan, Deputy Manager, System Open

Market Account

Rochelle M. Edge, Associate Director, Division of

Financial Stability, Board of Governors;

The Federal Open Market Committee is referenced as the

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

2

1

Attended through the discussion of System Open Market

Account reinvestment policy.

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Jane E. Ihrig, Associate Director, Division of

Monetary Affairs, Board of Governors; Stacey

Tevlin, Associate Director, Division of Research

and Statistics, Board of Governors

Min Wei, Deputy Associate Director, Division of

Monetary Affairs, Board of Governors

Christopher J. Gust, Assistant Director, Division of

Monetary Affairs, Board of Governors; Norman J.

Morin and Karen M. Pence, Assistant Directors,

Division of Research and Statistics, Board of

Governors

Don Kim, Adviser, Division of Monetary Affairs,

Board of Governors

Penelope A. Beattie, Assistant to the Secretary, Office

of the Secretary, Board of Governors

Giovanni Favara and Rebecca Zarutskie, Section

Chiefs, Division of Monetary Affairs, Board of

Governors

David H. Small, Project Manager, Division of

Monetary Affairs, Board of Governors

Kimberly Bayard, Group Manager, Division of

Research and Statistics, Board of Governors

Stephen Lin, Principal Economist, Division of

International Finance, Board of Governors;

Lubomir Petrasek, Principal Economist, Division

of Monetary Affairs, Board of Governors

Achilles Sangster II, Information Management Analyst,

Division of Monetary Affairs, Board of Governors

Marie Gooding, First Vice President, Federal Reserve

Bank of Atlanta

David Altig, Kartik B. Athreya, Mary Daly, Jeff Fuhrer,

and Christopher J. Waller, Executive Vice

Presidents, Federal Reserve Banks of Atlanta,

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

respectively

Attended through the staff report on the economic and financial situation.

3

Spencer Krane and Ellis W. Tallman, Senior Vice

Presidents, Federal Reserve Banks of Chicago and

Cleveland, respectively

Roc Armenter and Kathryn B. Chen, 3 Vice Presidents,

Federal Reserve Banks of Philadelphia and New

York, respectively

Andrew T. Foerster, Senior Economist, Federal

Reserve Bank of Kansas City

Selection of Committee Officer

By unanimous vote, the Committee selected Mark L.J.

Wright to serve as Associate Economist, effective

June 13, 2017, until the selection of his successor at the

first regularly scheduled meeting of the Committee in

2018.

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 over the period since the May

FOMC meeting. Yields on Treasury securities and the

foreign exchange value of the dollar had declined modestly, while equity prices had continued to rise, contributing to a further easing of financial conditions according to some measures. Moreover, realized and implied

volatility in financial markets remained low. Meanwhile,

inflation compensation edged lower. Survey results and

market pricing suggested that market participants saw a

high probability of an increase in the FOMC’s target

range for the federal funds rate at this meeting.

The deputy manager reviewed survey results on market

expectations for SOMA reinvestment policy and for the

evolution of the System’s balance sheet over coming

years. The deputy manager also commented on money

market developments. Over the intermeeting period,

the federal funds rate remained well within the FOMC’s

target range, and take-up at the System’s overnight reverse repurchase agreement facility was little changed

from the previous period. The spread between the

three-month London interbank offered rate and the

overnight index swap (OIS) rate had narrowed markedly

in recent months after rising noticeably in advance of the

implementation of money market fund reform in the fall

of 2016. The deputy manager also summarized details

of the operational approach that the Open Market Desk

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planned to follow if the Committee adopted the proposal for SOMA reinvestment policy to be considered at

this meeting.

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.

System Open Market Account Reinvestment Policy

The Chair observed that, starting with the March 2017

FOMC meeting, Committee participants had been discussing approaches to reducing the Federal Reserve’s securities holdings in a gradual and predictable manner.

She noted that participants appeared to have reached a

consensus on an approach that involved specifying caps

on the monthly amount of principal payments from securities holdings that would not be reinvested; these caps

would rise over the period of a year, after which they

would remain constant. Given this consensus, the Chair

proposed that participants approve the plan and that it

be published as an addendum to the Committee’s Policy

Normalization Principles and Plans; the addendum

would be released at the conclusion of this meeting so as

to inform the public well in advance of implementing the

reinvestment policy. It was anticipated that when the

Committee determined that economic conditions warranted implementation of the program, that step would

be communicated through the Committee’s postmeeting

statement. Participants unanimously supported the proposal.

POLICY NORMALIZATION PRINCIPLES AND

PLANS

(Addendum adopted June 13, 2017)

All participants agreed to augment the Committee’s Policy Normalization Principles and Plans by providing the

following additional details regarding the approach the

FOMC intends to use to reduce the Federal Reserve’s

holdings of Treasury and agency securities once normalization of the level of the federal funds rate is well under

way.1

•

The Committee intends to gradually reduce the

Federal Reserve’s securities holdings by decreasing its

reinvestment of the principal payments it receives

from securities held in the System Open Market Account. Specifically, such payments will be reinvested

only to the extent that they exceed gradually rising

caps.

○ For payments of principal that the Federal Reserve receives from maturing Treasury securities,

the Committee anticipates that the cap will be $6 billion per month initially and will increase in steps of

$6 billion at three-month intervals over 12 months

until it reaches $30 billion per month.

○ For payments of principal that the Federal Reserve receives from its holdings of agency debt and

mortgage-backed securities, the Committee anticipates that the cap will be $4 billion per month initially and will increase in steps of $4 billion at threemonth intervals over 12 months until it reaches

$20 billion per month.

○ The Committee also anticipates that the caps

will remain in place once they reach their respective

maximums so that the Federal Reserve’s securities

holdings will continue to decline in a gradual and

predictable manner until the Committee judges that

the Federal Reserve is holding no more securities

than necessary to implement monetary policy efficiently and effectively.

•

Gradually reducing the Federal Reserve’s securities holdings will result in a declining supply of reserve

balances. The Committee currently anticipates reducing the quantity of reserve balances, over time, to a

level appreciably below that seen in recent years but

larger than before the financial crisis; the level will reflect the banking system’s demand for reserve balances

and the Committee’s decisions about how to implement monetary policy most efficiently and effectively

in the future. The Committee expects to learn more

about the underlying demand for reserves during the

process of balance sheet normalization.

•

The Committee affirms that changing the target

range for the federal funds rate is its primary means of

adjusting the stance of monetary policy. However, the

Committee would be prepared to resume reinvestment of principal payments received on securities held

by the Federal Reserve if a material deterioration in the

economic outlook were to warrant a sizable reduction

in the Committee’s target for the federal funds rate.

Moreover, the Committee would be prepared to use

its full range of tools, including altering the size and

composition of its balance sheet, if future economic

conditions were to warrant a more accommodative

monetary policy than can be achieved solely by reducing the federal funds rate.

________________________

1 The

Committee’s Policy Normalization Principles and

Plans were adopted on September 16, 2014, and are

available at www.federalreserve.gov/monetarypolicy/files/FOMC_PolicyNormalization.pdf. On March

18, 2015, the Committee adopted an addendum to the

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Policy Normalization Principles and Plans, which is

available at www.federalreserve.gov/monetarypolicy/files/FOMC_PolicyNormalization.20150318.pdf.

Staff Review of the Economic Situation

The information reviewed for the June 13–14 meeting

showed that labor market conditions continued to

strengthen in recent months and suggested that real

gross domestic product (GDP) was expanding at a faster

pace in the second quarter than in the first quarter. The

12-month change in overall consumer prices, as measured by the price index for personal consumption expenditures (PCE), slowed a bit further in April; total

consumer price inflation and core inflation, which excludes consumer food and energy prices, were both running somewhat below 2 percent. Survey-based measures

of longer-run inflation expectations were little changed

on balance.

Total nonfarm payroll employment expanded further in

April and May, and the average pace of job gains over

the first five months of the year was solid. The unemployment rate moved down to 4.3 percent in May; the

unemployment rates for African Americans and for Hispanics stepped down but remained above the unemployment rates for Asians and for whites. The overall labor

force participation rate declined somewhat, and the

share of workers employed part time for economic reasons decreased a little. The rate of private-sector job

openings increased in March and April, while the quits

rate was little changed and the hiring rate moved down.

The four-week moving average of initial claims for unemployment insurance benefits remained at a very low

level through early June. Measures of labor compensation continued to rise at moderate rates. Compensation

per hour in the nonfarm business sector increased

2¼ percent over the four quarters ending in the first

quarter, a bit slower than over the same period a year

earlier. Average hourly earnings for all employees increased 2½ percent over the 12 months ending in May,

about the same as over the comparable period a year earlier.

Total industrial production rose considerably in April,

reflecting gains in manufacturing, mining, and utilities

output. Automakers’ assembly schedules suggested that

motor vehicle production would slow in subsequent

months, but broader indicators of manufacturing production, such as the new orders indexes from national

and regional manufacturing surveys, pointed to modest

gains in factory output over the near term.

Real PCE rose solidly in April after increasing only modestly in the first quarter. Light motor vehicle sales picked

up in April but then moved down somewhat in May.

The components of the nominal retail sales data used by

the Bureau of Economic Analysis to construct its estimate of PCE were flat in May, but estimated increases in

these components of sales for the previous two months

were revised up. In addition, recent readings on key factors that influence consumer spending pointed to further solid growth in total real PCE in the near term, including continued gains in employment, real disposable

personal income, and households’ net worth. Moreover,

consumer sentiment, as measured by the University of

Michigan Surveys of Consumers, remained upbeat in

May.

Residential investment appeared to be slowing after increasing briskly in the first quarter. The first-quarter

strength may have reflected housing activity shifting earlier in response to unseasonably warm weather last quarter, to an anticipation of higher future interest rates, or

to both. Starts of new single-family homes edged up in

April, but the issuance of building permits for these

homes declined somewhat. Meanwhile, starts of multifamily units fell. Moreover, sales of both new and existing homes decreased in April.

Real private expenditures for business equipment and intellectual property seemed to be increasing further after

rising at a solid pace in the first quarter. Both nominal

shipments and new orders of nondefense capital goods

excluding aircraft rose in April, and new orders continued to exceed shipments, pointing to further gains in

shipments in the near term. In addition, indicators of

business sentiment were upbeat in recent months. Although firms’ nominal spending for nonresidential

structures excluding drilling and mining declined in

April, the number of oil and gas rigs in operation, an indicator of spending for structures in the drilling and mining sector, continued to rise through early June.

Nominal federal government spending data for April

and May pointed to essentially flat real federal purchases

in the second quarter. Real state and local government

purchases appeared to be moving down, as state and local government payrolls declined, on net, in April and

May, and nominal construction expenditures by these

governments decreased in April.

The nominal U.S. international trade deficit widened

slightly in March, with a small decline in exports and a

small increase in imports. The March data, together with

revised estimates for earlier months, indicated that real

exports grew briskly in the first quarter and at a faster

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pace than in the second half of 2016. Real imports also

increased in the first quarter but at a slower pace than in

the second half of 2016. In April, the nominal trade deficit widened, as imports picked up while exports declined slightly. Net exports were estimated to have made

a small positive contribution to real GDP growth in the

first quarter. However, the April trade data suggested

that net exports might be a slight drag on real GDP

growth in the second quarter.

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

price index, increased 1¾ percent over the 12 months

ending in April. Core PCE price inflation was 1½ percent over those same 12 months. Over the 12 months

ending in May, the consumer price index (CPI) rose a

little less than 2 percent, while core CPI inflation was

1¾ percent. The median of inflation expectations over

the next 5 to 10 years from the Michigan survey was unchanged in May, and the median expectation for PCE

price inflation over the next 10 years from the Survey of

Professional Forecasters also held steady in the second

quarter. Likewise, the medians of longer-run inflation

expectations from the Desk’s Survey of Primary Dealers

and Survey of Market Participants were essentially unchanged in June.

The economic expansions in Canada and the euro area

as well as in China and many other emerging market

economies (EMEs) continued to firm in the first quarter.

In contrast, economic growth in the United Kingdom

slowed sharply. Recent indicators suggested that real

GDP growth in most foreign economies remained solid

in the second quarter. Headline inflation across the advanced foreign economies (AFEs) generally appeared to

moderate from the pace registered over the first quarter,

as the effects of earlier increases in energy prices started

to fade; core inflation continued to be subdued in many

AFEs. Among the EMEs, inflation in China rose while

inflation in Latin America fell. In Mexico, the effects of

fuel price hikes in January and the pass-through from

earlier currency depreciation to prices started to wane,

but inflation remained above the central bank’s target.

Staff Review of the Financial Situation

Domestic financial market conditions remained generally accommodative over the intermeeting period. U.S.

equity prices increased over the period, longer-term

Treasury yields declined, and the dollar depreciated. A

decline in the perceived likelihood of a significant fiscal

expansion and the below-expectations reading on the

April CPI reportedly contributed to lower yields on

longer-tenor Treasury securities. Market participants’

perceptions of an improved global economic outlook

appeared to provide some support to prices of risk assets.

FOMC communications over the intermeeting period

were viewed as broadly in line with investors’ expectations that the Committee would continue to remove policy accommodation at a gradual pace. Market participants interpreted the May FOMC statement and the

meeting minutes as indicating that the Committee had

not materially changed its economic outlook. In response to the discussion of SOMA reinvestment policy

in the minutes, a number of market participants reportedly pulled forward their expectations for the most likely

timing of a change to the Committee’s reinvestment policy, a shift that was evident in the responses to the

Desk’s Survey of Primary Dealers and Survey of Market

Participants. However, investors also reportedly viewed

the Committee’s planning as mitigating the risk that the

process of reducing the size of the Federal Reserve’s balance sheet would lead to outsized movements in interest

rates or have adverse effects on market functioning.

The probability of an increase in the target range for the

federal funds rate occurring at the June meeting, as implied by quotes on federal funds futures contracts, rose

to a high level. However, the expected federal funds rate

from late 2018 to the end of 2020 implied by OIS quotes

declined slightly. Immediately following the May

FOMC meeting, nominal Treasury yields rose at short

and intermediate maturities, reportedly reflecting the response of investors to a passage in the postmeeting

statement indicating the Committee’s view that the slowing in real GDP growth during the first quarter was likely

to be transitory. Later in the intermeeting period, yields

declined in reaction to the release of weaker-thanexpected April CPI data and the somewhat disappointing May employment report. On balance, the Treasury

yield curve flattened, with short-term yields rising modestly and the 10-year yield declining. Both 5-year and

5-to-10-year-forward TIPS-based inflation compensation declined, in part reflecting the below-expectations

inflation data.

Broad U.S. equity price indexes increased. One-monthahead option-implied volatility on the S&P 500 index—

the VIX—was little changed, on net, and remained near

the lower end of its historical range.

Conditions in short-term funding markets were stable

over the intermeeting period. Yields on a broad set of

money market instruments remained in the ranges observed since the FOMC increased the target range for

the federal funds rate in March. Term OIS rates rose as

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expectations firmed for an increase in the federal funds

rate target at this meeting.

Financing conditions for nonfinancial businesses continued to be accommodative. Commercial and industrial

loans outstanding increased in April and May after being

weak in the first quarter, although the growth of these

loans remained well below the pace seen a year ago. Issuance of both corporate debt and equity was strong.

Gross issuance of institutional leveraged loans was solid

in April and May, although it receded from the near-record levels seen over the previous two months.

Commercial real estate (CRE) loans on banks’ books

grew robustly in April and May, with nonfarm nonresidential loans leading the expansion. However, recent

CRE loan growth was a bit slower than that during the

first quarter, in part reflecting a slowdown in lending for

both construction and multifamily units. Issuance of

commercial mortgage-backed securities (CMBS)

through the first five months of this year was similar to

the issuance over the same period a year earlier. While

delinquency rates on CRE loans held by banks edged

down further in the first quarter, the delinquency rates

on loans in CMBS pools continued to increase. The rise

in CMBS delinquency rates was mostly confined to loans

that were originated during the period of weak underwriting before the financial crisis. The increase in those

delinquencies had generally been expected by market

participants and was not anticipated to have a material

effect on credit availability or market conditions.

Residential mortgage rates declined slightly, in line with

yields on longer-term Treasury and mortgage-backed securities, but remained elevated relative to the third quarter of 2016. Despite the higher level of mortgage rates,

growth in mortgage lending for home purchases remained near the upper end of its recent range during the

first quarter. Delinquency rates on residential mortgage

loans continued to edge down amid robust house price

growth and still-tight lending standards for households

with low credit scores and hard-to-document incomes.

Financing conditions in consumer credit markets remained generally accommodative, although some indicators pointed to modest reductions in credit availability

in recent months. Tighter conditions for credit card borrowing were especially apparent within the subprime

segment, where there had been some further deterioration of credit performance. On a year-over-year basis,

overall credit card balances continued to grow in April

at a robust rate, although the pace had moderated a bit

from that of 2016.

Growth in auto loans remained solid through the first

quarter. Overall delinquency rates on auto loans continued to be relatively low, but the delinquency rate among

subprime borrowers remained elevated, reflecting easier

lending standards in 2015 and 2016. Recent evidence

suggested that these lending standards had tightened; the

credit rating of the average borrower had trended higher,

and new extensions of subprime auto loans had declined.

Over the period since the May FOMC meeting, foreign

financial markets were influenced by incoming economic data and by political developments both abroad

and in the United States. Most AFE and EME equity

indexes edged higher, supported by robust first-quarter

earnings reports and generally positive data releases

overseas. The broad U.S. dollar depreciated about

1¾ percent over the intermeeting period, weakening

against both AFE and EME currencies. In particular,

the dollar depreciated against the Canadian dollar following communications by the Bank of Canada suggesting that the removal of policy accommodation could occur sooner than previously expected by market participants. The dollar also depreciated against the euro,

which was supported by the results of the French presidential election and by stronger-than-expected macroeconomic releases. Those data releases prompted the

European Central Bank at its June 8 meeting to change

its assessment of risks to the economic outlook from

“tilted to the downside” to “balanced.” U.S. developments, including mixed economic data reports, also

weighed on the dollar. In contrast, the dollar strengthened against sterling following the U.K. parliamentary

election. Changes in longer-dated AFE sovereign bond

yields were mixed, while shorter-dated yields moved

slightly higher. EME sovereign spreads were little

changed, while flows into EME mutual funds remained

robust. However, Brazilian sovereign spreads widened

and the Brazilian real depreciated notably amid increased

political uncertainty.

Staff Economic Outlook

In the U.S. economic projection prepared by the staff

for the June FOMC meeting, real GDP growth was forecast to step up to a solid pace in the second quarter following its weak reading in the first quarter, primarily reflecting faster real PCE growth. On balance, the incoming data on aggregate spending were a little stronger than

the staff had expected, and the forecast of real GDP

growth for the current year was a bit higher than in the

previous projection. Beyond this year, the projection for

real GDP growth was essentially unchanged. The staff

continued to project that real GDP would expand at a

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modestly faster pace than potential output in 2017

through 2019, supported in part by the staff’s maintained assumption that fiscal policy would become more

expansionary in the coming years. The unemployment

rate was projected to decline gradually over the next couple of years and to continue running below the staff’s

estimate of its longer-run natural rate over this period.

The staff’s forecast for consumer price inflation, as

measured by the change in the PCE price index, was revised down slightly for 2017 because of the weaker-thanexpected incoming data for inflation. However, the projection was little changed thereafter, as the recent weakness in inflation was viewed as transitory. Inflation was

still expected to be somewhat higher this year than last

year, largely reflecting an upturn in the prices for food

and non-energy imports. The staff projected that inflation would increase further in the next couple of years,

and that it would be close to the Committee’s longer-run

objective in 2018 and at 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. Many

financial market indicators of uncertainty were subdued,

and the uncertainty associated with the foreign outlook

appeared to have subsided further, on balance, since late

last year; these developments were judged as counterweights to elevated measures of economic policy uncertainty. The staff saw the risks to the forecasts for real

GDP and the unemployment rate as balanced; the staff’s

assessment was that the downside risks associated with

monetary policy not being well positioned to respond to

adverse shocks had diminished since its previous forecast. The risks to the projection for inflation also 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 were seen as essentially 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 conjunction with this FOMC meeting, members of

the Board of Governors and Federal Reserve Bank presFour members of the Board of Governors, one fewer than

in March 2017, were in office at the time of the June 2017

meeting and submitted economic projections. The office of

the president of the Federal Reserve Bank of Richmond was

4

idents submitted their projections of the most likely outcomes for real output growth, the unemployment rate,

and inflation for each year from 2017 through 2019 and

over the longer run, based on their individual assessments of the appropriate path for the federal funds rate. 4

The longer-run projections represented 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. 5 These projections and policy

assessments are described in the Summary of Economic

Projections (SEP), which is an addendum to these

minutes.

In their discussion of the economic situation and the

outlook, meeting participants agreed that the information received over the intermeeting period indicated

that the labor market had continued to strengthen and

that economic activity had been rising moderately, on

average, so far this year. Job gains had moderated since

the beginning of the year but had remained solid, on average, and the unemployment rate had declined. Household spending had picked up in recent months, and business fixed investment had continued to expand. Inflation measured on a 12-month basis had declined recently

and, like the measure excluding food and energy prices,

had been running somewhat below 2 percent. Marketbased measures of inflation compensation remained

low; survey-based measures of longer-term inflation expectations were little changed on balance.

Participants generally saw the incoming information on

spending and labor market indicators as consistent,

overall, with their expectations and indicated that their

views of the outlook for economic growth and the labor

market had changed only slightly since the May FOMC

meeting. As anticipated, growth in consumer spending

seemed to have bounced back from a weak first quarter,

and participants continued to expect that, with further

gradual adjustments in the stance of monetary policy,

economic activity would expand at a moderate pace and

labor market conditions would strengthen somewhat

further. In light of surprisingly low recent readings on

inflation, participants expected that inflation on a

12-month basis would remain somewhat below 2 percent in the near term. However, participants judged that

vacant at the time of this FOMC meeting; First Vice President

Mark L. Mullinix submitted economic projections.

5 One participant did not submit longer-run projections for

real output growth, the unemployment rate, or the federal

funds rate.

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inflation would stabilize around the Committee’s 2 percent objective over the medium term.

Growth in consumer spending appeared to be rebounding after slowing in the first quarter of this year. Participants generally continued to expect that ongoing job

gains, rising household income and wealth, and improved household balance sheets would support moderate growth in household spending over the medium

term. However, District contacts reported that automobile sales had slowed recently; some contacts expected

sales to slow further, while others believed that sales

were leveling out.

Participants generally agreed that business fixed investment had continued to expand in recent months, supported in particular by a rebound in the energy sector.

District contacts suggested that an expansion in oil production capacity was likely to continue in the near term,

though the longer-term outlook was more uncertain.

Conditions in the manufacturing sector in several Districts were reportedly strong, but activity in a couple of

them had slowed in recent months from a high level, and

some contacts in the automobile industry reported declines in production that they expected to continue in

the near term. District reports regarding the service sector were generally positive. In contrast, contacts in a

couple of Districts indicated that conditions in the agricultural sector remained weak. Contacts in many Districts remained optimistic about business prospects,

which were supported in part by improving global conditions. However, this optimism appeared to have recently abated somewhat, partly because contacts viewed

the likelihood of significant fiscal stimulus as having diminished. Contacts at some large firms indicated that

they had curtailed their capital spending, in part because

of uncertainty about changes in fiscal and other government policies; some contacts at smaller firms, however,

indicated that their capital spending plans had not been

appreciably affected by news about government policy.

Reports regarding housing construction from District

contacts were mixed.

Labor market conditions continued to strengthen in recent months. The unemployment rate fell from 4.5 percent in March to 4.3 percent in May and was below levels

that participants judged likely to be normal over the

longer run. Monthly increases in nonfarm payrolls averaged 160,000 since the beginning of the year, down from

187,000 per month in 2016 but still well above estimates

of the pace necessary to absorb new entrants in the labor

force. A few participants interpreted this slowing in payroll growth as an expected development that reflected a

tight labor market. Other labor market indicators, such

as the number of job openings and broader measures of

unemployment, were also seen as consistent with labor

market conditions having strengthened in recent

months. Moreover, contacts in several Districts reported shortages of workers in selected occupations and

in some cases indicated that firms were significantly increasing salaries and benefits in order to attract or keep

workers. However, other contacts reported only modest

wage gains, and participants observed that measures of

labor compensation for the overall economy continued

to rise only moderately despite strengthening labor market conditions. A couple of participants saw the restrained increases in labor compensation as consistent

with the low productivity growth and moderate inflation

experienced in recent years. In light of the recent behavior of labor compensation and consumer prices as well

as demographic trends, a number of participants lowered their estimate of the longer-run normal level of the

unemployment rate.

Recent readings on headline and core PCE price inflation had come in lower than participants had expected.

On a 12-month basis, headline PCE price inflation was

running somewhat below the Committee’s 2 percent objective in April, partly because of factors that appeared

to be transitory. Core PCE price inflation—which historically has been a more useful predictor of future inflation, although it, too, can be affected by transitory factors—moved down from 1.8 percent in March to

1.5 percent in April. In addition, CPI inflation in May

came in lower than expected. Most participants viewed

the recent softness in these price data as largely reflecting

idiosyncratic factors, including sharp declines in prices

of wireless telephone services and prescription drugs,

and expected these developments to have little bearing

on inflation over the medium run. Participants continued to expect that, as the effects of transitory factors

waned and labor market conditions strengthened further, inflation would stabilize around the Committee’s

2 percent objective over the medium term. Several participants suggested that recent increases in import prices

were consistent with this expectation. However, several

participants expressed concern that progress toward the

Committee’s 2 percent longer-run inflation objective

might have slowed and that the recent softness in inflation might persist. Such persistence might occur in part

because upward pressure on inflation from resource utilization may be limited, as the relationship between these

two variables appeared to be weaker than in previous

decades. However, a couple of other participants raised

the concern that a tighter relationship between inflation

Minutes of the Meeting of June 13–14, 2017

Page 9

_____________________________________________________________________________________________

and resource utilization could reemerge if the unemployment rate ran significantly below its longer-run normal

level, which could result in inflation running persistently

above the Committee’s 2 percent objective.

Overall, participants continued to see the near-term risks

to the economic outlook as roughly balanced. Participants again noted the uncertainty regarding the possible

enactment, timing, and nature of changes to fiscal and

other government policies and saw both upside and

downside risks to the economic outlook associated with

such changes. A number of participants, pointing to improved prospects for foreign economic growth, viewed

the downside risks to the U.S. economic outlook stemming from international developments as having receded further over the intermeeting period. With regard

to the outlook for inflation, some participants emphasized downside risks, particularly in light of the recent

low readings on inflation along with measures of inflation compensation and some survey measures of inflation expectations that were still low. However, a couple

of participants expressed concern that a substantial undershooting of the longer-run normal rate of unemployment could pose an appreciable upside risk to inflation

or give rise to macroeconomic or financial imbalances

that eventually could lead to a significant economic

downturn. Participants agreed that the Committee

should continue to monitor inflation developments

closely.

In their discussion of recent developments in financial

markets, participants observed that, over the intermeeting period, equity prices rose, longer-term interest rates

declined, and volatility in financial markets was generally

low. They also noted that, according to some measures,

financial conditions had eased even as the Committee

reduced policy accommodation and market participants

continued to expect further steps to tighten monetary

policy. Participants discussed possible reasons why financial conditions had not tightened. Corporate earnings growth had been robust; nevertheless, in the assessment of a few participants, equity prices were high when

judged against standard valuation measures. Longerterm Treasury yields had declined since earlier in the year

and remained low. Participants offered various explanations for low bond yields, including the prospect of sluggish longer-term economic growth as well as the elevated level of the Federal Reserve’s longer-term asset

holdings. Some participants suggested that increased

risk tolerance among investors might be contributing to

elevated asset prices more broadly; a few participants expressed concern that subdued market volatility, coupled

with a low equity premium, could lead to a buildup of

risks to financial stability.

In their discussion of monetary policy, participants generally saw the outlook for economic activity and the

medium-term outlook for inflation as little changed and

viewed a continued gradual removal of monetary policy

accommodation as being appropriate. Based on this assessment, almost all participants expressed the view that

it would be appropriate for the Committee to raise the

target range for the federal funds rate 25 basis points at

this meeting. These participants agreed that, even after

an increase in the target range for the federal funds rate

at this meeting, the stance of monetary policy would remain accommodative, supporting additional strengthening in labor market conditions and a sustained return to

2 percent inflation. A few participants also judged that

the case for a policy rate increase at this meeting was

strengthened by the easing, by some measures, in overall

financial conditions over the previous six months. One

participant did not believe it was appropriate to raise the

federal funds rate target range at this meeting; this participant suggested that the Committee should maintain

the target range for the federal funds rate at ¾ to 1 percent until the inflation rate was actually moving toward

the Committee’s 2 percent longer-run objective.

Participants noted that, with the process of normalization of the level of the federal funds rate continuing, it

would likely become appropriate this year for the Committee to announce and implement a specific timetable

for its program of reducing reinvestment of the Federal

Reserve’s securities holdings. It was observed that the

ensuing reduction in securities holdings would be gradual and would follow an extended period of Committee

communications on balance sheet normalization policy,

including the information that would be released at the

conclusion of this meeting. Consequently, the effect on

financial market conditions of the eventual announcement of the beginning of the Federal Reserve’s balance

sheet normalization was expected to be limited.

Participants expressed a range of views about the appropriate timing of a change in reinvestment policy. Several

preferred to announce a start to the process within a

couple of months; in support of this approach, it was

noted that the Committee’s communications had helped

prepare the public for such a step. However, some others emphasized that deferring the decision until later in

the year would permit additional time to assess the outlook for economic activity and inflation. A few of these

participants also suggested that a near-term change to

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Federal Open Market Committee

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reinvestment policy could be misinterpreted as signifying that the Committee had shifted toward a less gradual

approach to overall policy normalization.

Several participants indicated that the reduction in policy

accommodation arising from the commencement of balance sheet normalization was one basis for believing

that, if economic conditions evolved broadly as anticipated, the target range for the federal funds rate would

follow a less steep path than it otherwise would. However, some other participants suggested that they did not

see the balance sheet normalization program as a factor

likely to figure heavily in decisions about the target range

for the federal funds rate. A few of these participants

judged that the degree of additional policy firming that

would result from the balance sheet normalization program was modest.

Participants generally reiterated their support for continuing a gradual approach to raising the federal funds rate.

Several participants expressed confidence that a series of

further increases in the federal funds rate in coming

years, along the lines implied by the medians of the projections for the federal funds rate in the June SEP, would

contribute to a stabilization, over the medium term, of

the inflation rate around the Committee’s 2 percent objective, especially as this tightening of monetary policy

would affect the economy only with a lag and would start

from a point at which policy was still accommodative.

However, a few participants who supported an increase

in the target range at the present meeting indicated that

they were less comfortable with the degree of additional

policy tightening through the end of 2018 implied by the

June SEP median federal funds rate projections. These

participants expressed concern that such a path of increases in the policy rate, while gradual, might prove inconsistent with a sustained return of inflation to 2 percent.

Several participants endorsed a policy approach, such as

that embedded in many participants’ projections, in

which the unemployment rate would undershoot their

current estimates of the longer-term normal rate for a

sustained period. They noted that the longer-run normal

rate of unemployment is difficult to measure and that

recent evidence suggested resource pressures generated

only modest responses of nominal wage growth and inflation. Against this backdrop, possible benefits cited by

policymakers of a period of tight labor markets included

a further rise in nominal wage growth that would bolster

inflation expectations and help push the inflation rate

closer to the Committee’s 2 percent longer-run goal, as

well as a stimulus to labor market participation and business fixed investment. It was also suggested that the

symmetry of the Committee’s inflation goal might be underscored if inflation modestly exceeded 2 percent for a

time, as such an outcome would follow a long period in

which inflation had undershot the 2 percent longer-term

objective. Several participants expressed concern that a

substantial and sustained unemployment undershooting

might make the economy more likely to experience financial instability or could lead to a sharp rise in inflation

that would require a rapid policy tightening that, in turn,

could raise the risk of an economic downturn. However,

other participants noted that if a sharp rise in inflation

or inflation expectations did occur, the Committee could

readily respond using conventional monetary policy

tools. With regard to financial stability, one participant

emphasized the importance of remaining vigilant about

financial developments but observed that previous episodes of elevated financial imbalances and low unemployment had limited relevance for the present situation,

as the current system of financial regulation was likely

more robust than that prevailing before the financial crisis.

Committee Policy Action

In their discussion of monetary policy for the period

ahead, members judged that information received since

the Federal Open Market Committee met in May indicated that the labor market had continued to strengthen

and that economic activity had been rising moderately so

far this year. Job gains had moderated but had been

solid, on average, since the beginning of the year, and

the unemployment rate had declined. Household spending had picked up in recent months, and business fixed

investment had continued to expand.

Inflation on a 12-month basis had declined recently and

was running somewhat below 2 percent. The measure

of inflation excluding food and energy prices was likewise running somewhat below 2 percent. Market-based

measures of inflation compensation remained low;

survey-based measures of longer-term inflation expectations had changed little 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. Inflation on a 12-month basis was

expected to remain somewhat below 2 percent in the

near term, but almost all members expected it to stabilize

around 2 percent over the medium term, although they

Minutes of the Meeting of June 13–14, 2017

Page 11

_____________________________________________________________________________________________

were monitoring inflation developments closely. Members continued to judge that there was significant 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, especially

as risks related to foreign economic and financial developments had diminished.

After assessing current conditions and the outlook for

economic activity, the labor market, and inflation, all but

one member agreed to raise the target range for the federal funds rate to 1 to 1¼ percent. They noted that the

stance of monetary policy remained accommodative,

thereby supporting some further strengthening in labor

market conditions and a sustained return to 2 percent

inflation.

Members 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. Members also agreed that they would carefully

monitor actual and expected developments in inflation

in relation to the Committee’s symmetric inflation goal.

They expected that economic conditions would evolve

in a manner that would warrant gradual increases in the

federal funds rate, and they agreed that the federal funds

rate was 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 would depend on

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. The Committee

expected to begin implementing a balance sheet normalization program in 2017, provided that the economy

evolves broadly as anticipated. This program, which

would gradually reduce the Federal Reserve’s securities

holdings by decreasing reinvestment of principal payments from those securities, was described in an addendum to the Committee’s Policy Normalization Principles and Plans to be released after this meeting.

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 June 15, 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 1 to 1¼ 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 1.00 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 May indicates that

the labor market has continued to strengthen

and that economic activity has been rising moderately so far this year. Job gains have moderated but have been solid, on average, since the

beginning of the year, and the unemployment

rate has declined. Household spending has

picked up in recent months, and business fixed

investment has continued to expand. On a

12-month basis, inflation has declined recently

and, like the measure excluding food and energy

prices, is running somewhat below 2 percent.

Market-based measures of inflation compensation remain low; 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

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and price stability. The Committee continues to

expect that, with gradual adjustments in the

stance of monetary policy, economic activity

will expand at a moderate pace, and labor market conditions will strengthen somewhat further. Inflation on a 12-month basis is expected

to remain somewhat below 2 percent in the near

term but to stabilize around the Committee’s

2 percent objective over the medium term.

Near-term risks to the economic outlook appear roughly balanced, but the Committee is

monitoring inflation developments closely.

In view of realized and expected labor market

conditions and inflation, the Committee decided to raise the target range for the federal

funds rate to 1 to 1¼ percent. The stance of

monetary policy remains accommodative,

thereby supporting some further strengthening

in labor market conditions and a sustained 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. The Committee will carefully

monitor actual and expected inflation developments relative to its symmetric inflation goal.

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

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.

In taking this action, the Board approved requests submitted

by the boards of directors of the Federal Reserve Banks of

Boston, Philadelphia, Cleveland, Richmond, Atlanta, Chicago,

Kansas City, Dallas, and San Francisco. This vote also encompassed approval by the Board of Governors of the establishment of a 1¾ percent primary credit rate by the remaining

6

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. The Committee currently

expects to begin implementing a balance sheet

normalization program this year, provided that

the economy evolves broadly as anticipated.

This program, which would gradually reduce

the Federal Reserve’s securities holdings by decreasing reinvestment of principal payments

from those securities, is described in the accompanying addendum to the Committee’s Policy

Normalization Principles and Plans.”

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

Dudley, Lael Brainard, Charles L. Evans, Stanley

Fischer, Patrick Harker, Robert S. Kaplan, and Jerome

H. Powell.

Voting against this action: Neel Kashkari.

Mr. Kashkari dissented because he preferred to maintain

the existing target range for the federal funds rate at this

meeting. In his view, recent data, while suggesting that

the labor market had improved further, had increased

doubts about achievement of the Committee’s 2 percent

longer-run inflation objective and thus had not provided

a compelling basis on which to firm monetary policy at

this meeting. He preferred to await additional evidence

that the recent decline in inflation was temporary and

that inflation was moving toward the Committee’s symmetric 2 percent inflation objective. He was concerned

that raising the federal funds rate target range too soon

increased the likelihood that inflation expectations

would decline and that inflation would continue to run

below 2 percent.

To support the Committee’s decision to raise the target

range for the federal funds rate, the Board of Governors

voted unanimously to raise the interest rates on required

and excess reserve balances ¼ percentage point, to

1¼ percent, effective June 15, 2017. The Board of Governors also voted unanimously to approve a ¼ percentage point increase in the primary credit rate (discount

rate) to 1¾ percent, effective June 15, 2017. 6

Federal Reserve Banks, effective on the later of June 15, 2017,

and the date such Reserve Banks informed the Secretary of

the Board of such a request. (Secretary’s note: Subsequently,

the Federal Reserve Banks of New York, St. Louis, and Minneapolis were informed by the Secretary of the Board of the

Minutes of the Meeting of June 13–14, 2017

Page 13

_____________________________________________________________________________________________

It was agreed that the next meeting of the Committee

would be held on Tuesday–Wednesday, July 25–26,

2017. The meeting adjourned at 10:35 a.m. on June 14,

2017.

Notation Vote

By notation vote completed on May 23, 2017, the Committee unanimously approved the minutes of the Committee meeting held on May 2–3, 2017.

_____________________________

Brian F. Madigan

Secretary

Board’s approval of their establishment of a primary credit

rate of 1¾ percent, effective June 15, 2017.) The second vote

of the Board also encompassed approval of the establishment

of the interest rates for secondary and seasonal credit under

the existing formulas for computing such rates.

Page 1

_____________________________________________________________________________________________

Summary of Economic Projections

In conjunction with the Federal Open Market Committee (FOMC) meeting held on June 13–14, 2017, meeting

participants submitted their projections of the most

likely outcomes for real output growth, the unemployment rate, and inflation for each year from 2017 to 2019

and over the longer run. 1 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, including a path for the federal

funds rate and its longer-run value, and assumptions

about other factors likely to affect economic outcomes. 2

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. 3 “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.

All participants who submitted longer-run projections

expected that, under appropriate monetary policy,

growth in real gross domestic product (GDP) this year

would run somewhat above their individual estimates of

its longer-run rate. Over half of these participants expected that economic growth would slow a bit in 2018,

and almost all of them expected that in 2019 economic

growth would run at or near its longer-run level. All participants who submitted longer-run projections expected

that the unemployment rate would run below their estimates of its longer-run normal level in 2017 and remain

below that level through 2019. The majority of participants also lowered their estimates of the longer-run normal rate of unemployment by 0.1 to 0.2 percentage

point. All participants projected that inflation, as measured by the four-quarter percentage change in the price

index for personal consumption expenditures (PCE),

would run below 2 percent in 2017 and then step up in

the next two years; over half of them projected that inflation would be at the Committee’s 2 percent objective

Four members of the Board of Governors, one fewer than

in March 2017, were in office at the time of the June 2017

meeting and submitted economic projections. The office of

the president of the Federal Reserve Bank of Richmond was

vacant at the time of this FOMC meeting; First Vice President

Mark L. Mullinix submitted economic projections.

1

in 2019, and all judged that inflation would be within a

couple of tenths of a percentage point of the objective

in that year. Table 1 and figure 1 provide summary statistics for the projections.

As shown in figure 2, participants generally expected

that evolving economic conditions would likely warrant

further gradual increases in the federal funds rate to

achieve and sustain maximum employment and 2 percent inflation. Although some participants raised or

lowered their federal funds rate projections since March,

the median projections for the federal funds rate in 2017

and 2018 were essentially unchanged, and the median

projection in 2019 was slightly lower; the median projection for the longer-run federal funds rate was unchanged. However, the economic outlook is uncertain,

and participants noted that their economic projections

and assessments of appropriate monetary policy could

change in response to incoming information.

In general, participants viewed the uncertainty attached

to their projections as broadly similar to the average of

the past 20 years, although a couple of participants saw

the uncertainty associated with their real GDP growth

forecasts as higher than average. Most participants

judged the risks around their projections for economic

growth, the unemployment rate, and inflation as broadly

balanced.

Figures 4.A through 4.C for real GDP growth, the unemployment rate, and inflation, respectively, present

“fan charts” as well as charts of participants’ current assessments of the uncertainty and risks surrounding the

economic projections. The fan charts (the panels at the

top of these three figures) show the median projections

surrounded by confidence intervals that are computed

from the forecast errors of various private and government projections made over the past 20 years. The

width of the confidence interval for each variable at a

given point is a measure of forecast uncertainty at that

horizon. For all three macroeconomic variables, these

charts illustrate that forecast uncertainty is substantial

and generally increases as the forecast horizon lengthens.

All participants submitted their projections in advance of the

FOMC meeting; no projections were revised following the release of economic data on the morning of June 14.

3 One participant did not submit longer-run projections for

real output growth, the unemployment rate, or the federal

funds rate.

2

1.4

1.4

2.1

2.1

2.0

2.0

2.9

3.0

2.0

2.0

2.0

2.0

3.0

3.0

2.0

2.0

2.0

2.0

1.6 – 1.8 1.7 – 2.1 1.8 – 2.2

1.7 – 2.0 1.8 – 2.1 1.8 – 2.2

1.5 – 1.8 1.7 – 2.1 1.8 – 2.2

1.7 – 2.1 1.8 – 2.1 1.8 – 2.2

2.0

2.0

1.1 – 1.6 1.9 – 2.6 2.6 – 3.1 2.8 – 3.0 1.1 – 1.6 1.1 – 3.1 1.1 – 4.1 2.5 – 3.5

1.4 – 1.6 2.1 – 2.9 2.6 – 3.3 2.8 – 3.0 0.9 – 2.1 0.9 – 3.4 0.9 – 3.9 2.5 – 3.8

1.6 – 1.7 1.8 – 2.0 2.0 – 2.1

1.8 – 1.9 1.9 – 2.0 2.0 – 2.1

1.6 – 1.7 1.8 – 2.0 2.0 – 2.1

1.8 – 2.0 1.9 – 2.0 2.0 – 2.1

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 March projections were made in conjunction with

the meeting of the Federal Open Market Committee on March 14–15, 2017. One participant did not submit longer-run projections for the change in real

GDP, the unemployment rate, or the federal funds rate in conjunction with the March 14–15, 2017, meeting, and one participant did not submit such

projections in conjunction with the June 13–14, 2017, meeting.

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

March projection

Memo: Projected

appropriate policy path

1.7

1.9

Core PCE inflation4

March projection

2.0

2.0

4.2 – 4.3 4.0 – 4.3 4.1 – 4.4 4.5 – 4.8 4.1 – 4.5 3.9 – 4.5 3.8 – 4.5 4.5 – 5.0

4.5 – 4.6 4.3 – 4.6 4.3 – 4.7 4.7 – 5.0 4.4 – 4.7 4.2 – 4.7 4.1 – 4.8 4.5 – 5.0

1.6

1.9

4.6

4.7

PCE inflation

March projection

4.2

4.5

Unemployment rate

March projection

4.2

4.5

4.3

4.5

Change in real GDP

March projection

Variable

Median1

Central tendency2

Range3

2017 2018 2019 Longer 2017

2018

2019

2017

2018

2019

Longer

Longer

run

run

run

2.2

2.1

1.9

1.8

2.1 – 2.2 1.8 – 2.2 1.8 – 2.0 1.8 – 2.0 2.0 – 2.5 1.7 – 2.3 1.4 – 2.3 1.5 – 2.2

2.1

2.1

1.9

1.8

2.0 – 2.2 1.8 – 2.3 1.8 – 2.0 1.8 – 2.0 1.7 – 2.3 1.7 – 2.4 1.5 – 2.2 1.6 – 2.2

Percent

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

under their individual assessments of projected appropriate monetary policy, June 2017

Page 2

Federal Open Market Committee

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Summary of Economic Projections of the Meeting of June 13–14, 2017

Page 3

_____________________________________________________________________________________________

Figure 1. Medians, central tendencies, and ranges of economic projections, 2017–19 and over the longer run

Percent

Change in real GDP

Median of projections

Central tendency of projections

Range of projections

3

2

1

Actual

2012

2013

2014

2015

2016

2017

2018

2019

Longer

run

Percent

Unemployment rate

8

7

6

5

4

2012

2013

2014

2015

2016

2017

2018

2019

Longer

run

Percent

PCE inflation

3

2

1

2012

2013

2014

2015

2016

2017

2018

2019

Longer

run

Percent

Core PCE inflation

3

2

1

2012

2013

2014

2015

2016

2017

2018

2019

Longer

run

Note: Definitions of variables and other explanations are in the notes 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

2017

2018

2019

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. One participant did not

submit longer-run projections for the federal funds rate.

Summary of Economic Projections of the Meeting of June 13–14, 2017

Page 5

_____________________________________________________________________________________________

Reflecting, in part, the uncertainty about the future evolution of GDP growth, the unemployment rate, and inflation, participants’ assessments of appropriate monetary policy are also subject to considerable uncertainty.

To illustrate the uncertainty regarding the appropriate

path for monetary policy, figure 5 shows a comparable

fan chart around the median projections for the federal

funds rate. 4 As with the macroeconomic variables, forecast uncertainty for the federal funds rate is substantial

and increases at longer horizons.

The Outlook for Economic Activity

The median of participants’ projections for the growth

rate of real GDP, conditional on their individual assumptions about appropriate monetary policy, was

2.2 percent in 2017, 2.1 percent in 2018, and 1.9 percent

in 2019; the median of projections for the longer-run

normal rate of real GDP growth was 1.8 percent. Compared with the March Summary of Economic Projections (SEP), the medians of the forecasts for real GDP

growth over the period from 2017 to 2019, as well as the

median assessment of the longer-run growth rate, were

mostly unchanged. Fewer than half of the participants

incorporated expectations of fiscal stimulus into their

projections, and a couple indicated that they had marked

down the magnitude of expected fiscal stimulus relative

to March.

All participants revised down their projections for the

unemployment rate in the fourth quarter of 2017 and of

2018, and almost all also revised down their projections

for the unemployment rate in the fourth quarter of 2019.

Many who did so cited recent lower-than-expected readings on unemployment. The median of the projections

for the unemployment rate was 4.3 percent in 2017 and

4.2 percent in each of 2018 and 2019, 0.2 percentage

point and 0.3 percentage point lower than in the March

projections, respectively. The majority of participants

also revised down their estimates of the longer-run normal rate of unemployment by 0.1 or 0.2 percentage

point, and the median longer-run level was 4.6 percent,

down 0.1 percentage point from March.

Figures 3.A and 3.B show the distributions of participants’ projections for real GDP growth and the unemployment rate from 2017 to 2019 and in the longer run.

The distribution of individual projections for real GDP

growth for this year shifted up, with some participants

now expecting real GDP growth between 2.4 and

4 The fan chart for the federal funds rate depicts the uncertainty about the future path of appropriate monetary policy

and is closely connected with the uncertainty about the future

value of economic variables. In contrast, the dot plot shown

2.5 percent and none seeing it below 2 percent. The distributions of projected real GDP growth in 2018, 2019,

and in the longer run were broadly similar to the distributions of the March projections. The distributions of

individual projections for the unemployment rate shifted

down noticeably for 2017 and 2018. Most participants

projected an unemployment rate of 4.2 or 4.3 percent at

the end of this year, and the majority anticipated an unemployment rate between 4.0 and 4.3 percent at the end

of 2018. Participants’ projections also shifted down in

2019 but were more dispersed than the distributions of

their projected unemployment rates in the two earlier

years. The distribution of projections for the longer-run

normal unemployment rate shifted down modestly.

The Outlook for Inflation

The median of projections for headline PCE price inflation this year was 1.6 percent, down 0.3 percentage point

from March. As in March, median projected inflation

was 2.0 percent in 2018 and 2019. About half of the

participants anticipated that inflation would continue to

run a bit below 2 percent in 2018, while only one participant expected inflation above 2 percent in that year—

and, in that case, just modestly so. More than half projected that inflation would be equal to the Committee’s

objective in 2019. A few participants projected that inflation would run slightly below 2 percent in that year,

while several projected that it would run a little above

2 percent. The median of projections for core PCE

price inflation was 1.7 percent in 2017, a decline of

0.2 percentage point from March; the median projection

for 2018 and 2019 was 2.0 percent, as in the March projections.

Figures 3.C and 3.D provide information on the distributions of participants’ views about the outlook for inflation. The distributions of projections for headline

PCE price inflation and for core PCE price inflation in

2017 shifted down noticeably from March, while the distributions for both measures of inflation in 2018 shifted

down slightly. Many participants cited recent surprisingly low readings on inflation as a factor contributing

to the revisions in their inflation forecasts.

Appropriate Monetary Policy

Figure 3.E provides the distribution of participants’

judgments regarding the appropriate target or midpoint

of the target range for the federal funds rate at the end

in figure 2 displays the dispersion of views across individual

participants about the appropriate level of the federal funds

rate.

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Federal Open Market Committee

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Figure 3.A. Distribution of participants’ projections for the change in real GDP, 2017–19 and over the longer run

Number of participants

2017

18

16

14

12

10

8

6

4

2

June projections

March projections

1.2 1.3

1.4 1.5

1.6 1.7

1.8 1.9

2.0 2.1

2.2 2.3

2.4 2.5

Percent range

Number of participants

2018

18

16

14

12

10

8

6

4

2

1.2 1.3

1.4 1.5

1.6 1.7

1.8 1.9

2.0 2.1

2.2 2.3

2.4 2.5

Percent range

Number of participants

2019

18

16

14

12

10

8

6

4

2

1.2 1.3

1.4 1.5

1.6 1.7

1.8 1.9

2.0 2.1

2.2 2.3

2.4 2.5

Percent range

Number of participants

Longer run

18

16

14

12

10

8

6

4

2

1.2 1.3

1.4 1.5

1.6 1.7

1.8 1.9

2.0 2.1

Percent range

Note: Definitions of variables and other explanations are in the notes to table 1.

2.2 2.3

2.4 2.5

Summary of Economic Projections of the Meeting of June 13–14, 2017

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Figure 3.B. Distribution of participants’ projections for the unemployment rate, 2017–19 and over the longer run

Number of participants

2017

18

16

14

12

10

8

6

4

2

June projections

March projections

3.6 3.7

3.8 3.9

4.0 4.1

4.2 4.3

4.4 4.5

4.6 4.7

4.8 4.9

5.0 5.1

Percent range

Number of participants

2018

18

16

14

12

10

8

6

4

2

3.6 3.7

3.8 3.9

4.0 4.1

4.2 4.3

4.4 4.5

4.6 4.7

4.8 4.9

5.0 5.1

Percent range

Number of participants

2019

18

16

14

12

10

8

6

4

2

3.6 3.7

3.8 3.9

4.0 4.1

4.2 4.3

4.4 4.5

4.6 4.7

4.8 4.9

5.0 5.1

Percent range

Number of participants

Longer run

18

16

14

12

10

8

6

4

2

3.6 3.7

3.8 3.9

4.0 4.1

4.2 4.3

4.4 4.5

4.6 4.7

Percent range

Note: Definitions of variables and other explanations are in the notes to table 1.

4.8 4.9

5.0 5.1

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Federal Open Market Committee

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Figure 3.C. Distribution of participants’ projections for PCE inflation, 2017–19 and over the longer run

Number of participants

2017

18

16

14

12

10

8

6

4

2

June projections

March projections

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

1.5 1.6

1.7 1.8

1.9 2.0

2.1 2.2

Percent range

Number of participants

2019

18

16

14

12

10

8

6

4

2

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

1.5 1.6

1.7 1.8

1.9 2.0

Percent range

Note: Definitions of variables and other explanations are in the notes to table 1.

2.1 2.2

Summary of Economic Projections of the Meeting of June 13–14, 2017

Page 9

_____________________________________________________________________________________________

Figure 3.D. Distribution of participants’ projections for core PCE inflation, 2017–19

Number of participants

2017

June projections

March projections

18

16

14

12

10

8

6

4

2

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

1.5 1.6

1.7 1.8

1.9 2.0

2.1 2.2

Percent range

Number of participants

2019

18

16

14

12

10

8

6

4

2

1.5 1.6

1.7 1.8

1.9 2.0

Percent range

Note: Definitions of variables and other explanations are in the notes to table 1.

2.1 2.2

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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, 2017–19 and over the longer run

Number of participants

2017

18

16

14

12

10

8

6

4

2

June projections

March projections

0.88 1.12

1.13 1.37

1.38 1.62

1.63 1.87

1.88 2.12

2.13 2.37

2.38 2.62

2.63 2.87

2.88 3.12

3.13 3.37

3.38 3.62

3.63 3.87

3.88 4.12

4.13 4.37

Percent range

Number of participants

2018

18

16

14

12

10

8

6

4

2

0.88 1.12

1.13 1.37

1.38 1.62

1.63 1.87

1.88 2.12

2.13 2.37

2.38 2.62

2.63 2.87

2.88 3.12

3.13 3.37

3.38 3.62

3.63 3.87

3.88 4.12

4.13 4.37

Percent range

Number of participants

2019

18

16

14

12

10

8

6

4

2

0.88 1.12

1.13 1.37

1.38 1.62

1.63 1.87

1.88 2.12

2.13 2.37

2.38 2.62

2.63 2.87

2.88 3.12

3.13 3.37

3.38 3.62

3.63 3.87

3.88 4.12

4.13 4.37

Percent range

Number of participants

Longer run

18

16

14

12

10

8

6

4

2

0.88 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

Percent range

Note: Definitions of variables and other explanations are in the notes to table 1.

3.63 3.87

3.88 4.12

4.13 4.37

Summary of Economic Projections of the Meeting of June 13–14, 2017

Page 11

_____________________________________________________________________________________________

Table 2. Average historical projection error ranges

Percentage points

Variable

2017

2018

2019

Change in real GDP1 . . . . . . .

±1.4

±2.0

±2.2

±0.4

±1.2

±1.8

±0.8

±1.0

±1.0

±0.7

±2.0

±2.2

Unemployment

rate1

Total consumer

prices2

Short-term interest

.......

.....

rates3

....

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

mean squared error of projections for 1997 through 2016 that were released in the summer 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, consumer prices, and the federal funds rate 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

(2017), “Gauging the Uncertainty of the Economic Outlook Using Historical Forecasting Errors: The Federal Reserve’s Approach,” Finance

and Economics Discussion Series 2017-020 (Washington: Board of

Governors of the Federal Reserve System, February), available

at www.federalreserve.gov/econresdata/feds/2017/files/2017020pap.

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.

3. For Federal Reserve staff forecasts, measure is the federal funds

rate. For other forecasts, measure is the rate on 3-month Treasury bills.

Historical projections are the average level, in percent, in the fourth

quarter of the year indicated.

of each year from 2017 to 2019 and over the longer run. 5

The distribution for 2017 was less dispersed than that in

March, while the distribution for 2018 was slightly less

dispersed. The distributions in 2019 and in the longer

run were broadly similar to those in March. The median

projections of the federal funds rate continued to show

gradual increases, with the median assessment for 2017

standing at 1.38 percent, consistent with three 25 basis

point increases this year. Thereafter, the medians of the

projections were 2.13 percent at the end of 2018 and

2.94 percent at the end of 2019; the median of the

longer-run projections of the federal funds rate was

3.00 percent.

In discussing their June projections, many participants

continued to express the view that the appropriate upward trajectory of the federal funds rate over the next

few years would likely be gradual. That anticipated pace

reflected a few factors, such as a neutral real interest rate

that was currently low and was expected to move up only

One participant’s projections for the federal funds rate, real

GDP growth, the unemployment rate, and inflation were informed by the view that there are multiple possible mediumterm regimes for the U.S. economy, that these regimes are persistent, and that the economy shifts between regimes in a way

5

slowly as well as a gradual return of inflation to the Committee’s 2 percent objective. Several participants judged

that a slightly more accommodative path of monetary

policy than in their previous projections would likely be

appropriate, citing an apparently slower rate of progress

toward the Committee’s 2 percent inflation objective. In

their discussions of appropriate monetary policy, half of

the participants commented on the Committee’s reinvestment policy; all of those who did so expected a

change in reinvestment policy before the end of this

year.

Uncertainty and Risks

Projections of economic variables are subject to considerable uncertainty. In assessing the path of monetary

policy that, in their view, is likely to be most appropriate,

FOMC participants take account of the range of possible

outcomes, the likelihood of those outcomes, and the potential benefits and costs to the economy should they

occur. Table 2 provides one measure of forecast uncertainty for the change in real GDP, the unemployment

rate, and total consumer price inflation—the root mean

squared error (RMSE) for forecasts made over the past

20 years. This measure of forecast uncertainty is incorporated graphically in the top panels of figures 4.A, 4.B,

and 4.C, which display fan charts plotting the median

SEP projections for the three variables surrounded by

symmetric confidence intervals derived from the

RMSEs presented in table 2. If the degree of uncertainty

attending these projections is similar to the typical magnitude of past forecast errors and if the risks around the

projections are broadly balanced, future outcomes of

these variables would have about a 70 percent probability of occurring within these confidence intervals. For

all three variables, this measure of forecast uncertainty is

substantial and generally increases as the forecast horizon lengthens.

FOMC participants may judge that the width of the historical fan charts shown in figures 4.A through 4.C does

not adequately capture their current assessments of the

degree of uncertainty that surrounds their economic

projections. Participants’ assessments of the current

level of uncertainty surrounding their economic projections are shown in the bottom-left panels of figures 4.A,

4.B, and 4.C. All or nearly all participants viewed the

that cannot be forecast. Under this view, the economy currently is in a regime characterized by expansion of economic

activity with low productivity growth and a low short-term real

interest rate, but longer-term outcomes for variables other

than inflation cannot be usefully projected.

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Figure 4.A. Uncertainty and risks in projections of GDP growth

Median projection and confidence interval based on historical forecast errors

Percent

Change in real GDP

Median of projections

70% confidence interval

4

3

2

1

Actual

0

2012

2013

2014

2015

2016

2017

2018

2019

FOMC participants’ assessments of uncertainty and risks around their economic projections

Number of participants

Uncertainty about GDP growth

Risks to GDP growth

June projections

March projections

Lower

18

16

14

12

10

8

6

4

2

Broadly

similar

Number of participants

Higher

June projections

March projections

Weighted to

downside

18

16

14

12

10

8

6

4

2

Broadly

balanced

Weighted to

upside

Note: The blue and red lines in the top panel show actual values and median projected values, respectively, of the

percent change in real gross domestic product (GDP) from the fourth quarter of the previous year to the fourth quarter

of the year indicated. The confidence interval around the median projected values is assumed to be symmetric and is

based on root mean squared errors of various private and government forecasts made over the previous 20 years; more

information about these data is available in table 2. Because current conditions may differ from those that prevailed,

on average, over the previous 20 years, the width and shape of the confidence interval estimated on the basis of the

historical forecast errors may not reflect FOMC participants’ current assessments of the uncertainty and risks around

their projections; these current assessments are summarized in the lower panels. Generally speaking, participants who

judge the uncertainty about their projections as “broadly similar” to the average levels of the past 20 years would view

the width of the confidence interval shown in the historical fan chart as largely consistent with their assessments of

the uncertainty about their projections. Likewise, participants who judge the risks to their projections as “broadly

balanced” would view the confidence interval around their projections as approximately symmetric. For definitions of

uncertainty and risks in economic projections, see the box “Forecast Uncertainty.”

Summary of Economic Projections of the Meeting of June 13–14, 2017

Page 13

_____________________________________________________________________________________________

Figure 4.B. Uncertainty and risks in projections of the unemployment rate

Median projection and confidence interval based on historical forecast errors

Percent

Unemployment rate

10

Median of projections

70% confidence interval

9

8

7

6

Actual

5

4

3

2

1

2012

2013

2014

2015

2016

2017

2018

2019

FOMC participants’ assessments of uncertainty and risks around their economic projections

Number of participants

Uncertainty about the unemployment rate

June projections

March projections

Lower

Risks to the unemployment rate

18

16

14

12

10

8

6

4

2

Broadly

similar

Higher

Number of participants

June projections

March projections

Weighted to

downside

18

16

14

12

10

8

6

4

2

Broadly

balanced

Weighted to

upside

Note: The blue and red lines in the top panel show actual values and median projected values, respectively, of

the average civilian unemployment rate in the fourth quarter of the year indicated. The confidence interval around

the median projected values is assumed to be symmetric and is based on root mean squared errors of various private

and government forecasts made over the previous 20 years; more information about these data is available in table 2.

Because current conditions may differ from those that prevailed, on average, over the previous 20 years, the width

and shape of the confidence interval estimated on the basis of the historical forecast errors may not reflect FOMC

participants’ current assessments of the uncertainty and risks around their projections; these current assessments are

summarized in the lower panels. Generally speaking, participants who judge the uncertainty about their projections as

“broadly similar” to the average levels of the past 20 years would view the width of the confidence interval shown in the

historical fan chart as largely consistent with their assessments of the uncertainty about their projections. Likewise,

participants who judge the risks to their projections as “broadly balanced” would view the confidence interval around

their projections as approximately symmetric. For definitions of uncertainty and risks in economic projections, see the

box “Forecast Uncertainty.”

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Federal Open Market Committee

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Figure 4.C. Uncertainty and risks in projections of PCE inflation

Median projection and confidence interval based on historical forecast errors

Percent

PCE inflation

Median of projections

70% confidence interval

3

2

1

Actual

0

2012

2013

2014

2015

2016

2017

2018

2019

FOMC participants’ assessments of uncertainty and risks around their economic projections

Number of participants

Uncertainty about PCE inflation

Risks to PCE inflation

June projections

March projections

Lower

18

16

14

12

10

8

6

4

2

Broadly

similar

Number of participants

Higher

June projections

March projections

Weighted to

downside

18

16

14

12

10

8

6

4

2

Broadly

balanced

Number of participants

Uncertainty about core PCE inflation

18

16

14

12

10

8

6

4

2

Broadly

similar

Number of participants

Risks to core PCE inflation

June projections

March projections

Lower

Weighted to

upside

Higher

June projections

March projections

Weighted to

downside

18

16

14

12

10

8

6

4

2

Broadly

balanced

Weighted to

upside

Note: The blue and red lines in the top panel show actual values and median projected values, respectively, of the

percent change in the price index for personal consumption expenditures (PCE) from the fourth quarter of the previous

year to the fourth quarter of the year indicated. The confidence interval around the median projected values is assumed

to be symmetric and is based on root mean squared errors of various private and government forecasts made over the

previous 20 years; more information about these data is available in table 2. Because current conditions may differ from

those that prevailed, on average, over the previous 20 years, the width and shape of the confidence interval estimated

on the basis of the historical forecast errors may not reflect FOMC participants’ current assessments of the uncertainty

and risks around their projections; these current assessments are summarized in the lower panels. Generally speaking,

participants who judge the uncertainty about their projections as “broadly similar” to the average levels of the past

20 years would view the width of the confidence interval shown in the historical fan chart as largely consistent with their

assessments of the uncertainty about their projections. Likewise, participants who judge the risks to their projections

as “broadly balanced” would view the confidence interval around their projections as approximately symmetric. For

definitions of uncertainty and risks in economic projections, see the box “Forecast Uncertainty.”

Summary of Economic Projections of the Meeting of June 13–14, 2017

Page 15

_____________________________________________________________________________________________

uncertainty attached to their economic projections as

broadly similar to the average of the past 20 years, with

three fewer participants than in March seeing uncertainty

about GDP growth, the unemployment rate, and inflation as higher than its historical average. 6 In their discussion of the uncertainty attached to their current projections, most participants again expressed the view that,

at this point, uncertainty surrounding prospective

changes in fiscal and other government policies is very

large or that there is not yet enough information to make

reasonable assumptions about the timing, nature, and

magnitude of the changes.

The fan charts—which are constructed so as to be symmetric around the median projections—also may not

fully reflect participants’ current assessments of the balance of risks to their economic projections. Participants’

assessments of the balance of risks to their economic

projections are shown in the bottom-right panels of figures 4.A, 4.B, and 4.C. As in March, most participants

judged the risks to their projections of real GDP growth,

the unemployment rate, headline inflation, and core inflation as broadly balanced—in other words, as broadly

consistent with a symmetric fan chart. Three participants judged the risks to the unemployment rate as

weighted to the downside, and one participant judged

the risks as weighted to the upside (as shown in the

lower-right panel of figure 4.B). In addition, the balance

of risks to participants’ inflation projections shifted

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

discusses the sources and interpretation of uncertainty in the

economic forecasts and explains the approach used to assess

the uncertainty and risks attending the participants’ projections.

7 If at some point in the future the confidence interval around

the federal funds rate were to extend below zero, it would be

truncated at zero for purposes of the chart shown in figure 5;

6

down slightly from March (shown in the lower-right

panels of figure 4.C), as two fewer participants judged

the risks to inflation to be weighted to the upside and

two more viewed the risks as weighted to the downside.

Participants’ assessments of the future path of the federal funds rate consistent with appropriate policy are also

subject to considerable uncertainty, reflecting in part uncertainty about the evolution of GDP growth, the unemployment rate, and inflation over time. The final line

in table 2 shows the RMSEs for forecasts of short-term

interest rates. These RMSEs are not strictly consistent

with the SEP projections for the federal funds rate, in

part because the SEP projections are not forecasts of the

likeliest outcomes but rather reflect each participant’s individual assessment of appropriate monetary policy.

However, the associated confidence intervals provide a

sense of the likely uncertainty around the future path of

the federal funds rate generated by the uncertainty about

the macroeconomic variables and additional adjustments to monetary policy that may be appropriate to offset the effects of shocks to the economy.

Figure 5 shows a fan chart plotting the median SEP projections for the appropriate path of the federal funds rate

surrounded by confidence intervals derived from the results presented in table 2. As with the macroeconomic

variables, forecast uncertainty is substantial and increases at longer horizons. 7

zero is the bottom of the lowest target range for the federal

funds rate that has been adopted by the Committee in the past.

This approach to the construction of the federal funds rate fan

chart would be merely a convention and would not have any

implication for possible future policy decisions regarding the

use of negative interest rates to provide additional monetary

policy accommodation if doing so were appropriate.

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Federal Open Market Committee

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Figure 5. Uncertainty in projections of the federal funds rate

Median projection and confidence interval based on historical forecast errors

Percent

Federal funds rate

Midpoint of target range

Median of projections

70% confidence interval*

6

5

4

3

2

1

Actual

0

2012

2013

2014

2015

2016

2017

2018

2019

Note: The blue and red lines are based on actual values and median projected values, respectively, of the Committee’s target for the federal funds rate at the end of the year indicated. The actual values are the midpoint of the

target range; the median projected values are based on either the midpoint of the target range or the target level.

The confidence interval around the median projected values is based on root mean squared errors of various private

and government forecasts made over the previous 20 years. The confidence interval is not strictly consistent with the

projections for the federal funds rate, primarily because these projections are not forecasts of the likeliest outcomes for

the federal funds rate, but rather projections of participants’ individual assessments of appropriate monetary policy.

Still, historical forecast errors provide a broad sense of the uncertainty around the future path of the federal funds rate

generated by the uncertainty about the macroeconomic variables as well as additional adjustments to monetary policy

that may be appropriate to offset the effects of shocks to the economy.

The confidence interval is assumed to be symmetric except when it is truncated at zero—the bottom of the lowest

target range for the federal funds rate that has been adopted in the past by the Committee. This truncation would

not be intended to indicate the likelihood of the use of negative interest rates to provide additional monetary policy

accommodation if doing so was judged appropriate. In such situations, the Committee could also employ other tools,

including forward guidance and large-scale asset purchases, to provide additional accommodation. Because current

conditions may differ from those that prevailed, on average, over the previous 20 years, the width and shape of the

confidence interval estimated on the basis of the historical forecast errors may not reflect FOMC participants’ current

assessments of the uncertainty and risks around their projections.

* The confidence interval is derived from forecasts of the average level of short-term interest rates in the fourth

quarter of the year indicated; more information about these data is available in table 2. The shaded area encompasses

less than a 70 percent confidence interval if the confidence interval has been truncated at zero.

Summary of Economic Projections of the Meeting of June 13–14, 2017

Page 17

_____________________________________________________________________________________________

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 (FOMC). The projection error ranges

shown in the table illustrate the considerable uncertainty associated with economic forecasts. For example, suppose a

participant projects that real gross domestic product (GDP)

and total consumer prices will rise steadily at annual rates of,

respectively, 3 percent and 2 percent. If the uncertainty attending those projections is similar to that experienced in the

past and the risks around the projections are broadly balanced, the numbers reported in table 2 would imply a probability of about 70 percent that actual GDP would expand

within a range of 1.6 to 4.4 percent in the current year, 1.0 to

5.0 percent in the second year, and 0.8 to 5.2 percent in the

third year. The corresponding 70 percent confidence intervals for overall inflation would be 1.2 to 2.8 percent in the

current year, and 1.0 to 3.0 percent in the second and third

years. Figures 4.A through 4.C illustrate these confidence

bounds in “fan charts” that are symmetric and centered on

the medians of FOMC participants’ projections for GDP

growth, the unemployment rate, and inflation. However, in

some instances, the risks around the projections may not be

symmetric. In particular, the unemployment rate cannot be

negative; furthermore, the risks around a particular projection might be tilted to either the upside or the downside, in

which case the corresponding fan chart would be asymmetrically positioned around the median projection.

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 economic variable is greater than, smaller

than, or broadly similar to typical levels of forecast uncertainty seen in the past 20 years, as presented in table 2 and

reflected in the widths of the confidence intervals shown in

the top panels of figures 4.A through 4.C. Participants’ current assessments of the uncertainty surrounding their projec-

tions are summarized in the bottom-left panels of those figures. 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,

while the symmetric historical fan charts shown in the top

panels of figures 4.A through 4.C imply that the risks to participants’ projections are balanced, participants may judge that

there is a greater risk that a given variable will be above rather

than below their projections. These judgments are summarized in the lower-right panels of figures 4.A through 4.C.

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. The final line in table 2 shows the error ranges

for forecasts of short-term interest rates. They suggest that

the historical confidence intervals associated with projections

of the federal funds rate are quite wide. It should be noted,

however, that these confidence intervals are not strictly consistent with the projections for the federal funds rate, as these

projections are not forecasts of the most likely quarterly outcomes but rather are projections of participants’ individual assessments of appropriate monetary policy and are on an endof-year basis. However, the forecast errors should provide a

sense of the uncertainty around the future path of the federal

funds rate generated by the uncertainty about the macroeconomic variables as well as additional adjustments to monetary

policy that would be appropriate to offset the effects of

shocks to the economy.

If at some point in the future the confidence interval

around the federal funds rate were to extend below zero, it

would be truncated at zero for purposes of the fan chart

shown in figure 5; zero is the bottom of the lowest target

range for the federal funds rate that has been adopted by the

Committee in the past. This approach to the construction of

the federal funds rate fan chart would be merely a convention;

it would not have any implications for possible future policy

decisions regarding the use of negative interest rates to provide additional monetary policy accommodation if doing so

were appropriate. In such situations, the Committee could

also employ other tools, including forward guidance and asset

purchases, to provide additional accommodation.

While figures 4.A through 4.C provide information on

the uncertainty around the economic projections, figure 1

provides information on the range of views across FOMC

participants. A comparison of figure 1 with figures 4.A

through 4.C shows that the dispersion of the projections

across participants is much smaller than the average forecast

errors over the past 20 years.