fomc minutes · September 19, 2017

FOMC Minutes

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Minutes of the Federal Open Market Committee

September 19–20, 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, September 19, 2017,

at 1:00 p.m. and continued on Wednesday, September

20, 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,

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

Mark E. Van Der Weide, General Counsel

Michael Held, Deputy General Counsel

Steven B. Kamin, Economist

Thomas Laubach, Economist

David W. Wilcox, Economist

James A. Clouse, Thomas A. Connors, Evan F.

Koenig, William Wascher, Beth Anne Wilson, and

Mark L.J. Wright, Associate Economists

Simon Potter, Manager, System Open Market Account

The Federal Open Market Committee is referenced as the

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

Lorie K. Logan, Deputy Manager, System Open

Market Account

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; Andreas Lehnert, Director, Division of

Financial Stability, Board of Governors

Michael T. Kiley, Deputy Director, Division of

Financial Stability, Board of Governors;

Stephen A. Meyer, Deputy Director, Division of

Monetary Affairs, Board of Governors

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

Office of Board Members, Board of Governors

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

David E. Lebow and Michael G. Palumbo, Senior

Associate Directors, Division of Research and

Statistics, Board of Governors

Antulio N. Bomfim, Edward Nelson, and Joyce K.

Zickler, Senior Advisers, Division of Monetary

Affairs, Board of Governors

Jane E. Ihrig, Associate Director, Division of Monetary

Affairs, Board of Governors; John J. Stevens and

Stacey Tevlin, Associate Directors, Division of

Research and Statistics, Board of Governors

Attended the discussions of the proposed changes to Rules

Regarding Availability of Information and developments in financial markets and open market operations.

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Steven A. Sharpe, Deputy Associate Director, Division

of Research and Statistics, Board of Governors;

Min Wei, Deputy Associate Director, Division of

Monetary Affairs, Board of Governors

Penelope A. Beattie, 3 Assistant to the Secretary, Office

of the Secretary, Board of Governors

Michiel De Pooter, Section Chief, Division of

Monetary Affairs, Board of Governors

David H. Small, Project Manager, Division of

Monetary Affairs, Board of Governors

Martin Bodenstein, Principal Economist, Division of

Monetary Affairs, Board of Governors

Randall A. Williams, Information Manager, Division of

Monetary Affairs, Board of Governors

Mark A. Gould, First Vice President, Federal Reserve

Bank of San Francisco

David Altig, Kartik B. Athreya, Glenn D. Rudebusch,

and Geoffrey Tootell, Executive Vice Presidents,

Federal Reserve Banks of Atlanta, Richmond, San

Francisco, and Boston, respectively

Spencer Krane and Keith Sill, Senior Vice Presidents,

Federal Reserve Banks of Chicago and

Philadelphia, respectively

David C. Wheelock and Jonathan L. Willis, Vice

Presidents, Federal Reserve Banks of St. Louis and

Kansas City, respectively

Stefano M. Eusepi, Assistant Vice President, Federal

Reserve Bank of New York

Edward S. Prescott, Senior Professional Economist,

Federal Reserve Bank of Cleveland

Proposed Changes to Rules Regarding Availability

of Information

The Committee unanimously voted to further amend its

Rules Regarding Availability of Information (Rules) in

order to incorporate input received during the public

commenting process that followed the December 2016

Attended Tuesday session only.

publication in the Federal Register of an earlier version of

the Rules.4 The amendment approved at this meeting

indicated that if, in the course of processing a Freedom

of Information Act request, “an adverse determination

is upheld on appeal, in whole or in part,” the requester

will be informed “of the availability of dispute resolution

services from the Office of Government Information

Services as a nonexclusive alternative to litigation.” This

notice will be provided in addition to the ongoing practice of informing the requester of the right to seek judicial review.

Secretary’s note: The amended Rules adopted

at this meeting were published in the Federal Register as a final rule on October 2, 2017, and will

go into effect 30 days following publication.

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 July

FOMC meeting. Yields on longer-term Treasury securities had fallen modestly, the foreign exchange value of

the dollar had declined, and broad equity price indexes

had increased. Survey responses suggested that the vast

majority of market participants expected the FOMC to

announce a change in SOMA reinvestment policy at this

meeting and that nearly all market participants anticipated that the FOMC would also leave the target range

for the federal funds rate unchanged.

The deputy manager followed with a report on developments in money markets and open market operations

over the intermeeting period. The effective federal

funds rate remained near the center of the FOMC’s target range except on month-ends. Take-up at the System’s overnight reverse repurchase agreement facility averaged somewhat less than in the previous period. The

deputy manager provided updates on developments

with respect to reference interest rates and on smallvalue tests of open market operations, which are conducted routinely to promote operational readiness. The

deputy manager also summarized the results of the

staff’s annual review of foreign reserves investment and

its recommendations to the Foreign Currency Subcommittee for key parameters for foreign reserves investment for the forthcoming year, and the deputy manager

In compliance with the FOIA Improvement Act of 2016, the

earlier version of the Rules was published in the Federal Register

as an interim final rule on December 27, 2016.

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noted that the Subcommittee would welcome any input

from the Committee regarding those parameters.

Secretary’s note: On September 27, 2017, the

Foreign Currency Subcommittee provided to

the Federal Reserve Bank selected to conduct

open market operations instructions that incorporated the staff recommendations for key parameters for foreign reserves investment.

Finally, the manager reviewed details of the operational

approach that the Open Market Desk planned to follow

if the Committee decided at this meeting to initiate the

proposal for SOMA reinvestment policy described in

the Committee’s June 2017 Addendum to the Policy

Normalization Principles and Plans.

By unanimous vote, the Committee ratified the Desk’s

domestic transactions over the intermeeting period.

There were no intervention operations in foreign currencies for the System’s account during the intermeeting period.

Staff Review of the Economic Situation

The information reviewed for the September 19–20

meeting showed that labor market conditions continued

to strengthen in July and August and that real gross domestic product (GDP) appeared to be rising at a moderate pace in the third quarter before the landfall of Hurricanes Harvey and Irma. Only limited data pertaining

to the economic effects of these hurricanes were available at the time of the meeting, but it appeared likely that

the negative effects would restrain national economic activity only in the near term. 5 Total consumer price inflation, as measured by the 12-month change in the price

index for personal consumption expenditures (PCE),

continued to run below 2 percent in July and was lower

than at the start of the year. Survey-based measures of

longer-run inflation expectations were little changed on

balance.

Total nonfarm payroll employment rose solidly in July

and August, with strong gains in private-sector jobs and

declines in government employment. The unemployment rate dipped to 4.3 percent in July and edged back

up to 4.4 percent in August. The unemployment rates

for African Americans, for Hispanics, and for whites

were lower, on average, in recent months than around

the start of the year, whereas the unemployment rate for

Asians was a little higher. The overall labor force particThe background materials prepared by the staff for this

meeting were completed before the full effects of Hurricane

Maria were evident.

ipation rate edged up in July and was unchanged in August, and the share of workers employed part time for

economic reasons was little changed on net. The rate of

private-sector job openings increased in June and July,

the hiring rate ticked up, and the quits rate edged down.

Initial claims for unemployment insurance benefits

jumped in early September from a very low level, and the

Department of Labor noted that Hurricane Harvey had

an effect on claims. Changes in measures of labor compensation were mixed. Compensation per hour rose just

1¼ percent over the four quarters ending in the second

quarter of 2017 (partly reflecting a significant downward

revision to compensation per hour in the second half of

2016), the employment cost index for private workers

increased 2½ percent over the 12 months ending in

June, and average hourly earnings for all employees rose

2½ percent over the 12 months ending in August.

Total industrial production (IP) increased for a sixth

consecutive month in July but then declined sharply in

August. The decrease in August largely reflected the

temporary effects of Hurricane Harvey on drilling, servicing, and extraction activity for oil and natural gas and

on output in several manufacturing industries that are

concentrated in the Gulf Coast region, including petroleum refining, organic chemicals, and plastics materials

and resins. Production disruptions from Hurricane Harvey continued into September, and the effects of Hurricane Irma were anticipated to hold down IP in that

month as well. Even so, anecdotal reports from the

hurricane-affected regions, as well as daily data on capacity outages in selected Gulf Coast industries, indicated

that production had already started to recover. Meanwhile, automakers’ assembly schedules suggested that

motor vehicle production would move up, on balance,

over the remainder of the year despite a somewhat elevated level of dealers’ inventories and a slowing in the

pace of vehicle sales in recent months. Broader indicators of manufacturing production, such as the new orders indexes from national and regional manufacturing

surveys, continued to point to moderate gains in factory

output over the near term.

Several pieces of information suggested that real PCE

was likely increasing at a slower rate in the third quarter

than in the second. First, the components of the nominal retail sales data used by the Bureau of Economic

Analysis to construct its estimate of PCE declined in August and were revised down in June and July. Second,

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the pace of light motor vehicle sales moved lower, on

net, in July and August. Third, Hurricanes Harvey and

Irma appeared likely to temporarily reduce consumer

spending. However, recent readings on key factors that

influence consumer spending—including continued

gains in employment, real disposable personal income,

and households’ net worth—remained supportive of

solid growth in real PCE. Consumer sentiment, as measured by the University of Michigan Surveys of Consumers, was upbeat through early September.

Recent information on housing activity suggested that

real residential investment spending was decreasing in

the third quarter after declining in the second quarter.

Starts for new single-family homes edged down, on net,

in July and August, and starts for multifamily units

moved lower in both months. Building permit issuance

for new single-family homes—which tends to be a good

indicator of the underlying trend in construction—declined in July and August. Sales of both new and existing

homes decreased in July.

Real private expenditures for business equipment and intellectual property appeared to be increasing at a solid

rate in the third quarter. Nominal orders and shipments

of nondefense capital goods excluding aircraft rose over

the two months ending in July, and readings on business

sentiment remained upbeat. In contrast, investment in

nonresidential structures was poised to decline in the

third quarter. Firms’ nominal spending for nonresidential structures excluding drilling and mining fell sharply

in June and July, and the number of oil and gas rigs in

operation, an indicator of spending for structures in the

drilling and mining sector, leveled out in the past couple

of months after increasing steadily for the past year.

Total real government purchases looked to be roughly

flat, on balance, in the third quarter. Nominal outlays

for defense in July and August pointed to a small increase in real federal government purchases in the third

quarter. However, payrolls for state and local governments declined in July and August, and nominal construction spending by these governments decreased in

July.

The nominal U.S. international trade deficit narrowed

substantially in June and was about unchanged in July.

After increasing in June, exports retraced a bit of this

gain in July, with lower exports of consumer goods, automotive products, and services. Imports decreased a

little in both months. The available data suggested that

net exports contributed positively to real GDP growth

in the third quarter.

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

price index, increased nearly 1½ percent over the

12 months ending in July. Core PCE price inflation,

which excludes consumer food and energy prices, also

was about 1½ percent over that same period. Over the

12 months ending in August, the consumer price index

(CPI) increased almost 2 percent, while core CPI inflation was 1¾ percent. Retail gasoline prices moved up

sharply following the landfall of Hurricane Harvey and

appeared likely to put temporary upward pressure on the

12-month change in total PCE prices. The median of

inflation expectations over the next 5 to 10 years from

the Michigan survey edged back up in the preliminary

reading for September, and the median expectation for

PCE price inflation over the next 10 years from the Survey of Professional Forecasters edged down. The medians of longer-run inflation expectations from the Desk’s

Survey of Primary Dealers and Survey of Market Participants were relatively little changed in September.

Foreign economic activity continued to expand at a solid

pace. Economic growth picked up in the advanced foreign economies (AFEs) in the second quarter, especially

in Canada, and incoming indicators suggested that

growth slowed in the third quarter but remained firm.

Recent indicators from the emerging market economies

(EMEs) also pointed to continued strong economic

growth, notwithstanding some slowing in the rate of expansion of activity in China. Headline inflation in most

AFEs remained subdued, held down in part by falling

retail energy prices, but data through August suggested

that the drag from energy prices was diminishing. Inflation also remained low in most EMEs, although food

prices continued to put upward pressure on inflation in

Mexico.

Staff Review of the Financial Situation

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

equity prices increased, longer-term Treasury yields declined, and the dollar depreciated. Investors’ interpretations of FOMC communications, market perceptions of

a reduced likelihood of U.S. fiscal policy changes, and

heightened geopolitical risks all reportedly placed downward pressure on longer-term yields. At the same time,

financing conditions for households and nonfinancial

businesses continued to provide support for growth in

spending and investment.

FOMC communications over the intermeeting period

reportedly were interpreted as indicating a somewhat

slower pace of increases in the target range for the fed-

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eral funds rate than previously expected. Market participants were attentive to the Committee’s assessment of

recent below-expectations inflation data and the acknowledgment in the July FOMC minutes that inflation

might continue to run below the Committee’s 2 percent

objective for longer than anticipated. Investors also

took note of the Committee’s guidance in the July

FOMC statement that it expected to begin implementing

its balance sheet normalization program relatively soon.

By the end of the intermeeting period, market participants appeared nearly certain that the Committee would

announce the implementation of its balance sheet normalization plan at the September meeting. The probability of an increase in the target range for the federal

funds rate occurring at either the September or the November meeting, as implied by quotes on federal funds

futures contracts, fell to essentially zero, while the probability of a 25 basis point increase by the end of the year

stood near 50 percent and was little changed since the

July meeting. Quotes on overnight index swaps (OIS)

pointed to a slight flattening of the expected path of the

federal funds rate through 2020, with a staff model attributing most of the declines in OIS rates to lower expected rates.

Yields on intermediate- and longer-term nominal Treasury securities decreased modestly over the intermeeting

period. Treasury yields fell following the July FOMC

meeting, reflecting the response of investors to the

postmeeting statement, and then dropped further amid

rising geopolitical tensions related to North Korea and

market perceptions of reduced prospects for enactment

of a fiscal stimulus program. Economic data releases appeared to have little net effect on Treasury yields over

most of the period. A staff term structure model attributed about half of the decline in the 10-year Treasury

yield to a decrease in the average expected future shortterm rate and the remaining half to a lower term premium. Measures of inflation compensation over the

next 5 years rose modestly, on net, partly in response to

the release of higher-than-expected CPI data for August,

while inflation compensation 5 to 10 years ahead was little changed.

Broad U.S. equity price indexes increased over the intermeeting period. One-month-ahead option-implied volatility of the S&P 500 index—the VIX—remained at historically low levels despite brief spikes associated with

increased investor concerns about geopolitical tensions

and political uncertainties. Over the intermeeting period, spreads of yields on investment- and speculativegrade nonfinancial corporate bonds over those on

comparable-maturity Treasury securities widened a bit.

Short-dated Treasury bill yields were elevated for a time,

reflecting concerns about potential delays in raising the

federal debt limit. However, following news of an agreement to extend the debt ceiling by three months, rates

on Treasury bills maturing in October retraced their entire increase from early in the intermeeting period. Conditions in other domestic short-term funding markets

were stable. 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 June. Daily take-up at the System’s overnight reverse repurchase agreement facility ran somewhat lower

than in the previous intermeeting period.

Since the July FOMC meeting, asset price movements in

global financial markets were driven by geopolitical tensions in the Korean peninsula, improving economic prospects abroad, communications from AFE central

banks, and changes in prospects for fiscal policy legislation in the United States. The broad index of the foreign

exchange value of the dollar decreased 1½ percent; the

decline was widespread, led by the strengthening of the

euro and the Chinese renminbi. The Canadian dollar appreciated following a rate hike by the Bank of Canada at

its September meeting that came sooner than market

participants expected. Similarly, sterling appreciated after the Bank of England signaled a potential rate hike in

the coming months. Against this backdrop, longer-term

yields rose slightly in Canada and the United Kingdom.

In contrast, longer-term German yields declined moderately, despite better-than-expected economic data releases for the euro area, as market expectations shifted

toward a more gradual withdrawal of stimulus by the European Central Bank (ECB) even though the ECB kept

its policy stance unchanged.

Despite generally better-than-expected earnings releases,

AFE equity prices were mixed over the period, with

bank stocks underperforming broader indexes. Outside

South Korea, most emerging market asset prices were

little affected by the recent escalation of geopolitical concerns. Net flows to emerging market mutual funds

briefly turned negative in early August, but they quickly

returned to near the high levels seen since early this year.

Yield spreads on EME sovereign bonds edged down.

Financing conditions for U.S. nonfinancial businesses

continued to be accommodative. Issuance of corporate

debt and equity was strong in July and August. Gross

issuance of institutional leveraged loans continued its robust pace in June but slowed notably in July, as is typical

during the summer. Meanwhile, the growth of commercial and industrial (C&I) loans on banks’ books ticked up

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in July and August compared with its pace over the first

half of the year; however, C&I loan growth from the

fourth quarter of last year through August remained significantly lower than over recent years.

Gross issuance of municipal bonds was strong in August, and spreads of yields on municipal bonds over

those on comparable-maturity Treasury securities increased a bit over the intermeeting period. The credit

quality of state and local governments improved overall,

as the number of ratings upgrades notably outpaced the

number of downgrades in August.

The growth of commercial real estate (CRE) loans on

banks’ books continued to moderate in July and August,

reflecting a slowdown in lending both for nonfarm nonresidential units and for construction and land development; nonetheless, CRE financing appeared to remain

broadly available. Issuance of commercial mortgagebacked securities (CMBS) so far this year was similar to

that in the same period a year earlier. Spreads on CMBS

over Treasury securities narrowed a little over the intermeeting period and were near the bottom of their ranges

of the past several years. Delinquency rates on loans in

CMBS pools declined slightly but remained elevated for

loans that were originated before the financial crisis.

Interest rates on 30-year fixed-rate residential mortgages

moved lower over the intermeeting period, in line with

comparable-maturity Treasury yields. Growth in mortgage lending for home purchases picked up in July and

August compared with its pace over the second quarter.

However, credit conditions remained tight for borrowers with low credit scores or hard-to-document incomes.

Consumer credit continued to be readily available for

most borrowers, and overall loan balances rose at a moderate pace in the second quarter, reflecting further expansions in credit card, auto, and student loan balances.

Issuance of asset-backed securities remained robust over

the year to date and outpaced that of the previous year,

providing support for consumer lending. However,

standards and terms on auto and credit card loans were

tighter for subprime borrowers, likely in response to rising delinquencies on such loans. Subprime auto loan

balances have declined so far this year, partly reflecting

the tighter lending standards, and the average credit

score of all borrowers who obtained an auto loan in the

second quarter remained near the upper end of its range

of the past few years.

Staff Economic Outlook

The U.S. economic projection prepared by the staff for

the September FOMC meeting was broadly similar to

the previous forecast. Real GDP was expected to rise at

a solid pace, on net, in the second half of the year, and

by a little more than previously projected, reflecting data

on spending that were stronger than expected on balance. The short-term disruptions to spending and production associated with Hurricanes Harvey and Irma

were expected to reduce real GDP growth in the third

quarter and to boost it in the fourth quarter as production returned to its pre-hurricane path and as a portion

of the lost spending was made up. The hurricanes were

also expected to depress payroll employment in September, with a reversal over the next few months. Beyond

2017, the forecast for real GDP growth was little revised.

In particular, the staff continued to project that real

GDP would expand at a modestly faster pace than potential output through 2019. 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. Because of continued subdued inflation readings and, given

real GDP growth, a larger-than-expected decline in the

unemployment rate over much of the past year, the staff

revised down slightly its estimate of the longer-run natural rate of unemployment in this projection.

The staff’s forecast for consumer price inflation, as

measured by the change in the PCE price index, was revised up somewhat for 2017 in response to hurricanerelated effects on gasoline prices. The near-term forecast for core PCE price inflation was essentially unrevised. Total PCE price inflation this year was expected

to run at the same pace as last year, with a slower increase

in core PCE prices offset by a slightly larger increase in

energy prices and an upturn in the prices for food and

non-energy imports. Beyond 2017, the inflation forecast

was little revised from the previous projection. The staff

continued to project that inflation would edge higher in

the next couple of years and that it would reach the

Committee’s longer-run objective 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. On

the one hand, many financial market indicators of uncertainty remained subdued, and the uncertainty associated

with the foreign outlook still appeared to be less than

last year; on the other hand, uncertainty about the direction of some economic policies was judged to have remained elevated. The staff saw the risks to the forecasts

for real GDP growth and the unemployment rate as balanced. The risks to the projection for inflation were also

seen as balanced. Downside risks included the possibilities that longer-term inflation expectations may have

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edged down or that the recent run of soft inflation readings could prove to be more persistent than the staff expected. These downside risks 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 presidents submitted their projections of the most likely outcomes for real output growth, the unemployment rate,

and inflation for each year from 2017 through 2020 and

over the longer run, based on their individual assessments of the appropriate path for the federal funds rate. 6

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. These projections and policy

assessments are described in the Summary of Economic

Projections, which is an addendum to these minutes.

In their discussion of the economic situation and the

outlook, meeting participants agreed that information

received over the intermeeting period indicated that the

labor market had continued to strengthen and that economic activity had been rising moderately so far this

year. Job gains had remained solid in recent months, and

the unemployment rate had stayed low. Household

spending had been expanding at a moderate rate, and

growth in business fixed investment had picked up in

recent quarters. On a 12-month basis, overall inflation

and the measure excluding food and energy prices had

declined this year and were running below 2 percent.

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

Participants acknowledged that Hurricanes Harvey,

Irma, and Maria would affect economic activity in the

near term. They expected growth of real GDP in the

third quarter to be held down by the severe disruptions

caused by the storms but to rebound beginning in the

fourth quarter as rebuilding got under way and economic

activity in the affected areas resumed. Similarly, employment would be temporarily depressed by the hurricanes,

Four members of the Board of Governors, the same number

as in June 2017, were in office at the time of the September

2017 meeting. The office of the president of the Federal Reserve Bank of Richmond was vacant at the time of both

but, abstracting from those effects, employment gains

were anticipated to remain solid, and the unemployment

rate was expected to decline a bit further by year-end.

Based on the estimated effects of past major hurricanes

that made landfall in the United States, participants

judged that the recent storms were unlikely to materially

alter the course of the national economy over the medium term. Moreover, they generally viewed the information on spending, production, and labor market activity that became available over the intermeeting period,

which was mostly not affected by the hurricanes, as suggesting little change in the outlook for economic growth

and the labor market over the medium term. Consequently, they 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. In the

aftermath of the hurricanes, higher prices for gasoline

and some other items were likely to boost inflation temporarily. Apart from that effect, inflation on a 12-month

basis was 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 appeared roughly balanced, but participants agreed to continue to monitor inflation developments closely.

Consumer spending had been expanding at a moderate

rate through the summer, and reports on retail activity

from participants’ contacts were generally positive. Participants expected some fluctuations in consumer spending to result from the hurricanes, but they generally

judged that consumption growth would continue to be

supported by still-solid fundamental determinants of

household spending, including the income generated by

the ongoing strength in the labor market, improved

household balance sheets, and high levels of consumer

confidence. Sales of autos and light trucks had softened

over the summer, leading producers to slow production

to address a buildup of inventories, but a couple of participants noted that automakers expected to see a temporary increase in demand as households and businesses

replaced vehicles damaged during the storms.

Incoming data on business spending showed that equipment investment had picked up during 2017 after having

been weak during much of 2016. Shipments and orders

FOMC meetings; First Vice President Mark L. Mullinix submitted economic projections. One participant did not submit

longer-run projections for real output growth, the unemployment rate, or the federal funds rate.

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of nondefense capital goods had been on a steady uptrend over the first eight months of 2017. A number of

participants reported that their business contacts appeared to have become more confident about the economic outlook, and it was noted that the National Federation of Independent Business reported that greater

optimism among small businesses had contributed to a

sharp increase in the proportion of small firms planning

increases in their capital expenditures. A couple of participants commented that competitive pressures and

tight labor markets were increasing the incentives for

businesses to substitute capital for labor or to invest in

information technology. In contrast, reports on the

strength of nonresidential construction were mixed.

And in energy-producing regions, the count of drilling

rigs in operation had begun to level off before the onset

of Hurricane Harvey.

Participants generally indicated that, before the recent

hurricanes, business activity in their Districts was expanding at a moderate pace. Although industrial production in areas affected by the storms was estimated to

have declined in August, a number of participants from

other areas reported further solid gains in manufacturing

activity in their Districts. Participants from the regions

affected by the hurricanes reported that businesses in

their Districts anticipated that the disruptions to business and sales would be relatively short lived. In the energy sector, Hurricane Harvey had shut down drilling

and refining activity, but by the time of the meeting,

these operations had substantially resumed. And many

business contacts in the affected areas reported that they

expected their operations to return to normal before the

end of the year. Farming in some parts of the country

had been affected by drought, and income in the agricultural sector was under downward pressure because of

low crop prices.

Overall, the available information suggested that, although the storms would likely affect the quarterly pattern of changes in real GDP at least through the second

half of the year, economic activity would continue to expand at a moderate rate over the medium term, supported by further gains in consumer spending and the

pickup in business investment. In addition, improving

global economic conditions and the depreciation of the

dollar in recent months were anticipated to result in a

modest positive contribution to domestic economic activity from net exports. In contrast, most participants

had not assumed enactment of a fiscal stimulus package

in their economic projections or had marked down the

expected magnitude of any stimulus.

Labor market conditions strengthened further in recent

months. The increases in nonfarm payroll employment

in July and August remained well above the pace likely

to be sustainable in the longer run. Although the unemployment rate was little changed from March to August,

it remained below participants’ estimates of its longerrun normal level. Other indicators suggested that labor

market conditions had continued to tighten over recent

quarters. The labor force participation rate had been

moving sideways despite factors, such as demographic

changes, that were contributing to a declining longer-run

trend. In addition, the number of individuals working

part time for economic reasons, as a share of household

employment, had moved lower. The job openings rate,

the quits rate, households’ assessments of job availability, and the labor market conditions index prepared by

the Federal Reserve Bank of Kansas City had returned

to pre-recession levels. However, some participants still

saw room for further increases in labor utilization, with

a couple of them noting that the employment-topopulation ratio and the participation rate for prime-age

workers had not fully recovered to pre-recession levels.

Against the backdrop of the continued strengthening in

labor market conditions, participants discussed recent

wage developments. Increases in most aggregate

measures of hourly wages and labor compensation remained subdued, and several participants commented

that the absence of broad-based upward wage pressures

suggested that the sustainable rate of unemployment

might be lower than they currently estimated. Other factors that may have been contributing to the subdued

pace of wage increases reported in the national data included low productivity growth, changes in the composition of the workforce, and competitive pressure on

employers to hold down their costs. However, reports

from business contacts in several Districts indicated that

employers in labor markets in which demand was high

or in which workers in some occupations were in short

supply were raising wages noticeably to compete for

workers and limit turnover. It was noted that the expected increase in demand for skilled construction workers for reconstruction in hurricane-affected areas would

likely exacerbate existing shortages. Most participants

expected wage increases to pick up over time as the labor

market strengthened further; a couple of participants

cautioned that a broader acceleration in wages may already have begun, consistent with already-tight labor

market conditions.

Based on the available data, PCE price inflation over the

12 months ending in August was estimated to be about

1½ percent, remaining below the Committee’s longer-

Minutes of the Meeting of September 19–20, 2017

Page 9

_____________________________________________________________________________________________

run objective. In their review of the recent data and the

outlook for inflation, participants discussed a number of

factors that could be contributing to the low readings on

consumer prices this year and weighed the extent to

which those factors might be transitory or could prove

more persistent. Many participants continued to believe

that the cyclical pressures associated with a tightening labor market or an economy operating above its potential

were likely to show through to higher inflation over the

medium term. In addition, many judged that at least part

of the softening in inflation this year was the result of

idiosyncratic or one-time factors, and, thus, their effects

were likely to fade over time. However, other developments, such as the effects of earlier changes to government health-care programs that had been holding down

health-care costs, might continue to do so for some time.

Some participants discussed the possibility that secular

trends, such as the influence of technological innovations on competition and business pricing, also might

have been muting inflationary pressures and could be intensifying. It was noted that other advanced economies

were also experiencing low inflation, which might suggest that common global factors could be contributing

to persistence of below-target inflation in the United

States and abroad. Several participants commented on

the importance of longer-run inflation expectations to

the outlook for a return of inflation to 2 percent. A

number of indicators of inflation expectations, including

survey statistics and estimates derived from financial

market data, were generally viewed as indicating that

longer-run inflation expectations remained reasonably

stable, although a few participants saw some of these

measures as low or slipping.

Participants raised a number of important considerations about the implications of persistently low inflation

for the path of the federal funds rate over the medium

run. Several expressed concern that the persistence of

low rates of inflation might imply that the underlying

trend was running below 2 percent, risking a decline in

inflation expectations. If so, the appropriate policy path

should take into account the need to bolster inflation expectations in order to ensure that inflation returned to

2 percent and to prevent erosion in the credibility of the

Committee’s objective. It was also noted that the persistence of low inflation might result in the federal funds

rate staying uncomfortably close to its effective lower

bound. However, a few others pointed out the need to

consider the lags in the response of inflation to tightening resource utilization and, thus, increasing upside risks

to inflation as the labor market tightened further.

On balance, participants continued to forecast that PCE

price inflation would stabilize around the Committee’s

2 percent objective over the medium term. However,

several noted that in preparing their projections for this

meeting, they had taken on board the likelihood that

convergence to the Committee’s symmetric 2 percent

inflation objective might take somewhat longer than

they anticipated earlier. Participants generally agreed it

would be important to monitor inflation developments

closely. Several of them noted that interpreting the next

few inflation reports would likely be complicated by the

temporary run-up in energy costs and in the prices of

other items affected by storm-related disruptions and rebuilding.

In financial markets, longer-term interest rates and the

foreign exchange value of the dollar declined over the

intermeeting period, and equity prices increased. It was

noted that U.S. financial conditions recently appeared to

be responding as much or more to economic and financial news from abroad as to domestic developments.

Many participants viewed accommodative financial conditions, which had prevailed even as the Committee

raised the federal funds rate, as likely to provide support

for the economic expansion. However, a couple of

those participants expressed concern that the persistence of highly accommodative financial conditions

could, over time, pose risks to financial stability. In contrast, a few participants cautioned that these financial

market conditions might not deliver much impetus to

aggregate demand if they instead reflected a more pessimistic assessment of prospects for longer-run economic

growth and, accordingly, a view that the longer-run neutral rate of interest in the United States would remain

low.

In their discussion of monetary policy, all participants

agreed that the economy had evolved broadly as they

had anticipated at the time of the June meeting and that

the incoming data had not materially altered the medium-term economic outlook. Consistent with those assessments, participants saw it as appropriate, at this

meeting, to announce implementation of the plan for reducing the Federal Reserve’s securities holdings that the

Committee released in June. Many underscored that the

reduction in securities holdings would be gradual and

that financial market participants appeared to have a

clear understanding of the Committee’s planned approach for a gradual normalization of the size of the

Federal Reserve’s balance sheet. Consequently, participants generally expected that any reaction in financial

markets to the start of balance sheet normalization

would likely be limited.

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Federal Open Market Committee

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With the medium-term outlook little changed, inflation

below 2 percent, and the neutral rate of interest estimated to be quite low, all participants thought it would

be appropriate for the Committee to maintain the current target range for the federal funds rate at this meeting, and nearly all supported again indicating in the

postmeeting statement that a gradual approach to increasing the federal funds rate will likely be warranted.

Nevertheless, many participants expressed concern that

the low inflation readings this year might reflect not only

transitory factors, but also the influence of developments that could prove more persistent, and it was noted

that some patience in removing policy accommodation

while assessing trends in inflation was warranted. A few

of these participants thought that no further increases in

the federal funds rate were called for in the near term or

that the upward trajectory of the federal funds rate might

appropriately be quite shallow. Some other participants,

however, were more worried about upside risks to inflation arising from a labor market that had already reached

full employment and was projected to tighten further.

Their concerns were heightened by the apparent easing

in financial conditions that had developed since the

Committee’s policy normalization process was initiated

in December 2015. These participants cautioned that an

unduly slow pace in removing policy accommodation

could result in an overshoot of the Committee’s inflation

objective in the medium term that would likely be costly

to reverse or could lead to an intensification of financial

stability risks or to other imbalances that might prove

difficult to unwind.

Consistent with the expectation that a gradual rise in the

federal funds rate would be appropriate, many participants thought that another increase in the target range

later this year was likely to be warranted if the mediumterm outlook remained broadly unchanged. Several others noted that, in light of the uncertainty around their

outlook for inflation, their decision on whether to take

such a policy action would depend importantly on

whether the economic data in coming months increased

their confidence that inflation was moving up toward the

Committee’s objective. A few participants thought that

additional increases in the federal funds rate should be

deferred until incoming information confirmed that the

low readings on inflation this year were not likely to persist and that inflation was clearly on a path toward the

Committee’s symmetric 2 percent objective over the medium term. All agreed that they would closely monitor

and assess incoming data before making any further adjustment to the federal funds rate.

Committee Policy Action

In their discussion of monetary policy for the period

ahead, members judged that information received since

the Committee met in July indicated that the labor market had continued to strengthen and that economic activity had been rising moderately so far this year. Job

gains had remained solid in recent months, and the unemployment rate had stayed low. Household spending

had been expanding at a moderate rate, and growth in

business fixed investment had picked up in recent quarters. On a 12-month basis, overall inflation and the

measure excluding food and energy prices had declined

this year and were running below 2 percent. Marketbased measures of inflation compensation remained

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

Members noted that Hurricanes Harvey, Irma, and Maria had devastated many communities, inflicting severe

hardship. Members judged that storm-related disruptions and rebuilding would affect economic activity in

the near term, but past experience suggested that the

hurricanes were unlikely to materially alter the course of

the national economy over the medium term. Consequently, the Committee 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. Higher prices for gasoline and some other items

in the aftermath of the hurricanes would likely boost inflation temporarily; apart from that effect, inflation on a

12-month basis was 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.

Members saw near-term risks to the economic outlook

as roughly balanced, but they agreed to continue to monitor inflation developments closely.

After assessing current conditions and the outlook for

economic activity, the labor market, and inflation, members decided to maintain the target range for the federal

funds rate at 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 the timing and size of future adjustments to the target range for the federal funds rate

would depend on their assessment of realized and expected economic conditions relative to the Committee’s

objectives of maximum employment and 2 percent inflation. They expected that economic conditions would

Minutes of the Meeting of September 19–20, 2017

Page 11

_____________________________________________________________________________________________

evolve in a manner that would warrant gradual increases

in the federal funds rate and that the federal funds rate

was likely to remain, for some time, below levels that

were expected to prevail in the longer run. Members

also again stated that the actual path of the federal funds

rate would depend on the economic outlook as informed

by incoming data. In particular, they reaffirmed that

they would carefully monitor actual and expected inflation developments relative to the Committee’s symmetric inflation goal. Some members emphasized that, in

considering the timing of further adjustments in the federal funds rate, they would be evaluating incoming information to assess the likelihood that recent low readings

on inflation were transitory and that inflation was again

on a trajectory consistent with achieving the Committee’s 2 percent objective over the medium term.

Members agreed that, in October, the Committee would

initiate the balance sheet normalization program described in the June 2017 Addendum to the Policy Normalization Principles and Plans. Several members observed that, in part because financial market participants

appeared to have a clear understanding of the Committee’s plan for gradually reducing the Federal Reserve’s

securities holdings, any reaction in financial markets to

the announcement and implementation of the program

would likely be limited.

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 September 21, 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 per-counterparty limit of

$30 billion per day.

The Committee directs the Desk to continue

rolling over at auction Treasury securities ma-

turing during September, and to continue reinvesting in agency mortgage-backed securities

the principal payments received through September from the Federal Reserve’s holdings of

agency debt and agency mortgage-backed securities.

Effective in October 2017, the Committee directs the Desk to roll over at auction the

amount of principal payments from the Federal

Reserve’s holdings of Treasury securities maturing during each calendar month that exceeds

$6 billion, and to reinvest in agency mortgagebacked securities the amount of principal payments from the Federal Reserve’s holdings of

agency debt and agency mortgage-backed securities received during each calendar month that

exceeds $4 billion. Small deviations from these

amounts for operational reasons are acceptable.

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 July indicates that the

labor market has continued to strengthen and

that economic activity has been rising moderately so far this year. Job gains have remained

solid in recent months, and the unemployment

rate has stayed low. Household spending has

been expanding at a moderate rate, and growth

in business fixed investment has picked up in

recent quarters. On a 12-month basis, overall

inflation and the measure excluding food and

energy prices have declined this year and are

running 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

and price stability. Hurricanes Harvey, Irma,

and Maria have devastated many communities,

inflicting severe hardship. Storm-related disruptions and rebuilding will affect economic activity in the near term, but past experience suggests that the storms are unlikely to materially

Page 12

Federal Open Market Committee

_____________________________________________________________________________________________

alter the course of the national economy over

the medium term. Consequently, 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. Higher prices for gasoline

and some other items in the aftermath of the

hurricanes will likely boost inflation temporarily; apart from that effect, 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 maintain the target range for the federal

funds rate at 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

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.

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 October, the Committee will initiate the balance sheet normalization program described in

the June 2017 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, Neel

Kashkari, and Jerome H. Powell.

Voting against this action: None.

Consistent with the Committee’s decision to leave the

target range for the federal funds rate unchanged, the

Board of Governors voted unanimously to leave the interest rates on required and excess reserve balances unchanged at 1¼ percent and voted unanimously to approve establishment of the primary credit rate (discount

rate) at the existing level of 1¾ percent. 7

It was agreed that the next meeting of the Committee

would be held on Tuesday–Wednesday, October 31–

November 1, 2017.

The meeting adjourned at

10:05 a.m. on September 20, 2017.

Notation Vote

By notation vote completed on August 15, 2017, the

Committee unanimously approved the minutes of the

Committee meeting held on July 25–26, 2017.

_____________________________

Brian F. Madigan

Secretary

Page 1

_____________________________________________________________________________________________

Summary of Economic Projections

In conjunction with the Federal Open Market Committee (FOMC) meeting held on September 19–20, 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

2020 and over the longer run. 1 Each participant’s projections were 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. 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. 2 “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. Almost all participants projected that

economic growth would moderate over the next three

years, and almost all projected that real GDP growth in

2019 and 2020 would be at or close to their individual

estimates of the economy’s longer-run potential growth

rate. 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 almost all projected that the unemployment

rate would remain below their estimates of its longer-run

level through 2020. 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

Four members of the Board of Governors, the same number

as in June 2017, were in office at the time of the September

2017 meeting. As in June 2017, 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

again submitted economic projections.

2 One participant did not submit longer-run projections for

real output growth, the unemployment rate, or the federal

funds rate. This participant’s projections over the next several

years were informed by the view that the U.S. economy is

then step up in the next three years; about half of them

projected that inflation would be at the Committee’s

2 percent objective in 2019 and 2020, and all judged that

inflation would be within a couple of tenths of a percentage point of the objective in those years. Most participants commented on the effects of Hurricanes Harvey

and Irma and judged that there would likely be some effect on national economic activity and inflation in the

near term but little effect in the medium term. 3 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 lowered their

federal funds rate projections since June, the median

projections for the federal funds rate in 2017 and 2018

were unchanged; the median projection for 2019 was

slightly lower, and the median projection for the longerrun normal level of the federal funds rate edged down.

However, because of considerable uncertainty about

how the economy will evolve, the actual path of shortterm interest rates, including the federal funds rate, can

differ substantially from projections.

In general, participants viewed the uncertainty attached

to their economic projections as broadly similar to the

average of the past 20 years, and all participants saw the

uncertainty associated with their forecasts for real GDP

growth, the unemployment rate, and inflation as unchanged from June. Most participants judged the risks

around their projections for economic growth, the unemployment rate, and inflation as broadly balanced.

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

2.4 percent in 2017, about 2 percent in 2018 and 2019,

characterized by multiple medium-term regimes, that these regimes are persistent, and that optimal monetary policy is regime dependent. Because switches between regimes are difficult to predict and affect the longer-run outlook, this participant’s forecast did not incorporate convergence to longerterm outcomes for variables other than inflation.

Participants had completed their submissions for the Summary of Economic Projections before the full effects of Hurricane Maria were evident.

1.4

2.1

1.9

2.0

2.7

2.9

2.0

2.9

n.a.

2.0

n.a.

2.0

n.a.

2.8

3.0

2.0

1.4 – 1.7 1.7 – 2.0 1.8 – 2.2 1.9 – 2.2

1.6 – 1.8 1.7 – 2.1 1.8 – 2.2

n.a.

1.5 – 1.7 1.7 – 2.0 1.8 – 2.2 1.9 – 2.2

1.5 – 1.8 1.7 – 2.1 1.8 – 2.2

n.a.

2.0

1.1 – 1.4 1.9 – 2.4 2.4 – 3.1 2.5 – 3.5 2.5 – 3.0 1.1 – 1.6 1.1 – 2.6 1.1 – 3.4 1.1 – 3.9 2.3 – 3.5

1.1 – 1.6 1.9 – 2.6 2.6 – 3.1

n.a.

2.8 – 3.0 1.1 – 1.6 1.1 – 3.1 1.1 – 4.1

n.a.

2.5 – 3.5

1.5 – 1.6 1.8 – 2.0

2.0

2.0 – 2.1

1.6 – 1.7 1.8 – 2.0 2.0 – 2.1

n.a.

1.5 – 1.6 1.8 – 2.0

2.0

2.0 – 2.1

1.6 – 1.7 1.8 – 2.0 2.0 – 2.1

n.a.

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 June projections were made in conjunction with the meeting of the Federal Open Market Committee on

June 13–14, 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 June

13–14, 2017, meeting, and one participant did not submit such projections in conjunction with the September 19–20, 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

June projection

Memo: Projected

appropriate policy path

1.5

1.7

2.0

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

4.2 – 4.3 4.0 – 4.3 4.1 – 4.4

n.a.

4.5 – 4.8 4.1 – 4.5 3.9 – 4.5 3.8 – 4.5

n.a.

4.5 – 5.0

Core PCE inflation4

June projection

1.9

2.0

4.6

1.6

4.2

n.a.

PCE inflation

June projection

4.1

4.2

Unemployment rate

June projection

4.1

4.2

4.3

Change in real GDP

June projection

Variable

Median1

Central tendency2

Range3

2017 2018 2019 2020 Longer 2017

2018

2019

2020

2017

2018

2019

2020

Longer

run

2.4

2.1

2.0

1.8

2.2 – 2.5 2.0 – 2.3 1.7 – 2.1 1.6 – 2.0 1.8 – 2.0 2.2 – 2.7 1.7 – 2.6 1.4 – 2.3 1.4 – 2.0 1.5 – 2.2

2.2

2.1

1.9 n.a.

1.8

2.1 – 2.2 1.8 – 2.2 1.8 – 2.0

n.a.

1.8 – 2.0 2.0 – 2.5 1.7 – 2.3 1.4 – 2.3

n.a.

1.5 – 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, September 2017

Page 2

Federal Open Market Committee

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Summary of Economic Projections of the Meeting of September 19–20, 2017

Page 3

_____________________________________________________________________________________________

Figure 1. Medians, central tendencies, and ranges of economic projections, 2017–20 and over the longer run

Percent

Change in real GDP

Median of projections

Central tendency of projections

Range of projections

Actual

2012

2013

2014

2015

2016

2017

2018

2019

2020

Longer

run

Percent

Unemployment rate

2012

2013

2014

2015

2016

2017

2018

2019

2020

Longer

run

Percent

PCE inflation

2012

2013

2014

2015

2016

2017

2018

2019

2020

Longer

run

Percent

Core PCE inflation

2012

2013

2014

2015

2016

2017

2018

2019

2020

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.

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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

2020

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 September 19–20, 2017

Page 5

_____________________________________________________________________________________________

and 1.8 percent in 2020; the median of projections for

the longer-run normal rate of real GDP growth was

1.8 percent. Compared with the June Summary of Economic Projections (SEP), the median of the forecasts for

real GDP growth for 2017 was a bit higher, while the

medians for 2018 and 2019, as well as the median assessment of the longer-run growth rate, were mostly unchanged. Most participants did not incorporate expectations of fiscal stimulus in their projections. Several

participants who included some fiscal stimulus indicated

that they had marked down its expected magnitude relative to their June projections.

The median of projections for the unemployment rate in

the fourth quarter of 2017 was 4.3 percent, unchanged

from June and 0.3 percentage point below the median

assessment of its longer-run normal level. The medians

of the unemployment rate projections for 2018 through

2020 were a little above 4 percent. The median estimate

of the longer-run normal rate of unemployment was

4.6 percent, unchanged from June.

Figures 3.A and 3.B show the distributions of participants’ projections for real GDP growth and the unemployment rate from 2017 to 2020 and in the longer run.

The distribution of individual projections for real GDP

growth for this year shifted up, with half of the participants now expecting real GDP growth of 2.4 or 2.5 percent and none seeing it below 2.2 percent. The distribution of projected real GDP growth in 2018 also shifted

up a bit, while the distributions in 2019 and in the longer

run were broadly similar to the distributions of the June

projections. The distributions of individual projections

for the unemployment rate in 2018 and 2019 shifted

down slightly.

The Outlook for Inflation

The median of projections for headline PCE inflation

was 1.6 percent this year, 1.9 percent next year, and

2 percent in 2019 and 2020, about unchanged from June.

Most participants anticipated that inflation would continue to run slightly below 2 percent in 2018, while no

participants expected inflation above 2 percent in that

year. About half projected that inflation would be equal

to the Committee’s objective in 2019 and 2020; others

projected that inflation would run a little above or below

the Committee’s objective in one or both of those years.

The median of projections for core PCE inflation was

1.5 percent in 2017 and 1.9 percent in 2018, a decline of

0.2 percentage point and 0.1 percentage point from

June, respectively. The median projection for core PCE

inflation in 2019 and 2020 was 2.0 percent.

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 inflation and for core PCE inflation in 2017 moved

down somewhat from June, and the distributions for

both measures in 2018 shifted down slightly. Most participants indicated that the soft readings on inflation so

far this year were 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

of each year from 2017 to 2020 and over the longer run.

The distributions for 2017 and 2018 became somewhat

less dispersed compared with those in June. Even

though the range of the distribution in 2019 was narrower than in June, other measures of dispersion were

roughly unchanged. 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, 2.69 percent at the end

of 2019, and 2.88 percent at the end of 2020. Compared

with their projections prepared for the June SEP, some

participants reduced their projection for the federal

funds rate in the longer run; the median declined

0.25 percentage point, to 2.75 percent.

In discussing their September projections, many participants again expressed 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, including a neutral real interest

rate that was currently low and was expected to move up

only slowly as well as a gradual return of inflation to the

Committee’s 2 percent objective. Some participants

judged that a slightly lower path of the federal funds rate

than in their previous projections would likely be appropriate, with a few citing a slower rate of progress toward

the Committee’s 2 percent inflation objective than previously expected or reduced prospects for fiscal stimulus. In their discussions of appropriate monetary policy,

some of the participants mentioned their assumptions

for the Committee’s reinvestment policy; all of those

who did so anticipated that the Committee would begin

its program of balance sheet normalization, described in

the Addendum to the Policy Normalization Principles

and Plans released in June, before the end of this year.

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Figure 3.A. Distribution of participants’ projections for the change in real GDP, 2017–20 and over the longer run

Number of participants

2017

September projections

June 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

2.6 2.7

Percent range

Number of participants

2018

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

2.6 2.7

Percent range

Number of participants

2019

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

2.6 2.7

Percent range

Number of participants

2020

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

2.6 2.7

Percent range

Number of participants

Longer run

1.2 1.3

1.4 1.5

1.6 1.7

1.8 1.9

2.0 2.1

2.2 2.3

Percent range

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

2.4 2.5

2.6 2.7

Summary of Economic Projections of the Meeting of September 19–20, 2017

Page 7

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Figure 3.B. Distribution of participants’ projections for the unemployment rate, 2017–20 and over the longer run

Number of participants

2017

September projections

June 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

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

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

2020

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

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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Figure 3.C. Distribution of participants’ projections for PCE inflation, 2017–20 and over the longer run

Number of participants

2017

September projections

June projections

1.5 1.6

1.7 1.8

1.9 2.0

2.1 2.2

Percent range

Number of participants

2018

1.5 1.6

1.7 1.8

1.9 2.0

2.1 2.2

Percent range

Number of participants

2019

1.5 1.6

1.7 1.8

1.9 2.0

2.1 2.2

Percent range

Number of participants

2020

1.5 1.6

1.7 1.8

1.9 2.0

2.1 2.2

Percent range

Number of participants

Longer run

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 September 19–20, 2017

Page 9

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Figure 3.D. Distribution of participants’ projections for core PCE inflation, 2017–20

Number of participants

2017

September projections

June projections

1.3 1.4

1.5 1.6

1.7 1.8

1.9 2.0

2.1 2.2

Percent range

Number of participants

2018

1.3 1.4

1.5 1.6

1.7 1.8

1.9 2.0

2.1 2.2

Percent range

Number of participants

2019

1.3 1.4

1.5 1.6

1.7 1.8

1.9 2.0

2.1 2.2

Percent range

Number of participants

2020

1.3 1.4

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, 2017–20 and over the longer run

Number of participants

2017

September projections

June projections

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

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

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

2020

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

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 September 19–20, 2017

Page 11

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Table 2. Average historical projection error ranges

Percentage points

Variable

Change in real GDP1 . . . . . .

Unemployment

rate1

Total consumer

prices2

Short-term interest

......

....

rates3

...

2017

2018

2019

2020

±1.2

±1.9

±2.0

±2.1

±0.3

±1.1

±1.6

±2.0

±0.8

±1.1

±1.2

±1.1

±0.5

±1.7

±2.3

±2.7

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 fall by various private and government forecasters. As described in the box “Forecast Uncertainty,” under certain assumptions,

there is about a 70 percent probability that actual outcomes for real GDP,

unemployment, 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), 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. Projections are percent changes on a fourth quarter to fourth

quarter basis.

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

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

Projection errors are calculated using average levels, in percent, in the

fourth quarter.

Uncertainty and Risks

The future outcomes 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 economic outcomes, the likelihood of

those outcomes, and the potential benefits and costs

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) from forecast errors of various private and government projections

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. The width

of the confidence interval for each variable at a given

point is a measure of forecast uncertainty at that horizon.

If the degree of uncertainty attending these projections

is similar to the typical magnitude of past forecast errors

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

and 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

degree of uncertainty attached to their economic projections about GDP growth, the unemployment rate, and

inflation as broadly similar to the average of the past

20 years, and all participants saw the degree of uncertainty as unchanged from June. 4 In their discussion of

the uncertainty attached to their current projections, a

few participants judged that near-term uncertainty for

economic activity and inflation had increased as a result

of the effects of Hurricanes Harvey and Irma but commented that their assessment of medium-term prospects

was unaffected.

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 June, 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. One fewer participant than in June judged the risks to GDP growth as

weighted to the upside, and one fewer participant judged

the risks to the unemployment rate as weighted to the

downside. Also, one fewer participant judged the risks

to inflation to be weighted to the upside, and one 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

the uncertainty and risks attending the participants’ projections.

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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

Actual

2012

2013

2014

2015

2016

2017

2018

2019

2020

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

Number of participants

Uncertainty about GDP growth

Risks to GDP growth

September projections

June projections

Lower

Broadly

similar

Number of participants

Higher

September projections

June projections

Weighted to

downside

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 September 19–20, 2017

Page 13

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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

Median of projections

70% confidence interval

Actual

2012

2013

2014

2015

2016

2017

2018

2019

2020

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

Number of participants

Uncertainty about the unemployment rate

September projections

June projections

Lower

Broadly

similar

Risks to the unemployment rate

Higher

Number of participants

September projections

June projections

Weighted to

downside

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

Actual

2012

2013

2014

2015

2016

2017

2018

2019

2020

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

Number of participants

Uncertainty about PCE inflation

Risks to PCE inflation

September projections

June projections

Lower

Broadly

similar

Number of participants

Higher

September projections

June projections

Weighted to

downside

Broadly

balanced

Number of participants

Uncertainty about core PCE inflation

Broadly

similar

Weighted to

upside

Number of participants

Risks to core PCE inflation

September projections

June projections

Lower

Higher

September projections

June projections

Weighted to

downside

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 September 19–20, 2017

Page 15

_____________________________________________________________________________________________

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

most likely 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 adjust-

ments to monetary policy that may be appropriate to offset the effects of shocks to the economy. To illustrate

the uncertainty regarding the appropriate path for monetary policy, figure 5 shows a fan chart plotting the median SEP projections for 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.

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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*

Actual

2012

2013

2014

2015

2016

2017

2018

2019

2020

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 September 19–20, 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 1.8 to 4.2 percent in the current year, 1.1 to

4.9 percent in the second year, 1.0 to 5.0 percent in the third

year, and 0.9 to 5.1 percent in the fourth year. The corresponding 70 percent confidence intervals for overall inflation would be 1.2 to 2.8 percent in the current year, 0.9 to

3.1 percent in the second year, 0.8 to 3.2 percent in the third

year, and 0.9 to 3.1 percent in the fourth year. 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’ cur-

rent assessments of the uncertainty surrounding their projections 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

end-of-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.

Cite this document

APA

Federal Reserve (2017, September 19). FOMC Minutes. Fomc Minutes, Federal Reserve. https://whenthefedspeaks.com/doc/fomc_minutes_20170920

BibTeX

@misc{wtfs_fomc_minutes_20170920,
  author = {Federal Reserve},
  title = {FOMC Minutes},
  year = {2017},
  month = {Sep},
  howpublished = {Fomc Minutes, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/fomc_minutes_20170920},
  note = {Retrieved via When the Fed Speaks corpus}
}