FOMC Minutes
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Minutes of the Federal Open Market Committee
December 12–13, 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, December 12, 2017,
at 1:00 p.m. and continued on Wednesday,
December 13, 2017, at 9:00 a.m.1
PRESENT:
Janet L. Yellen, Chair
William C. Dudley, Vice Chairman
Lael Brainard
Charles L. Evans
Patrick Harker
Robert S. Kaplan
Neel Kashkari
Jerome H. Powell
Randal K. Quarles
Raphael W. Bostic, Loretta J. Mester, Mark L. Mullinix,
Michael Strine, and John C. Williams, Alternate
Members of the Federal Open Market Committee
James Bullard, Esther L. George, and Eric Rosengren,
Presidents of the Federal Reserve Banks of St.
Louis, Kansas City, and Boston, respectively
James A. Clouse, 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
Thomas A. Connors, Michael Dotsey, Eric M. Engen,
Evan F. Koenig, Daniel G. Sullivan, William
Wascher, and Beth Anne Wilson, Associate
Economists
Simon Potter, Manager, System Open Market Account
The Federal Open Market Committee is referenced as the
“FOMC” and the “Committee” in these minutes.
1
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; Andreas Lehnert, Director, Division of
Financial Stability, Board of Governors
Jennifer Burns, Deputy Director, Division of
Supervision and Regulation, Board of Governors;
Rochelle M. Edge and Stephen A. Meyer, Deputy
Directors, Division of Monetary Affairs, Board of
Governors; Michael T. Kiley, Deputy Director,
Division of Financial Stability, Board of Governors
Trevor A. Reeve, Senior Special Adviser to the Chair,
Office of Board Members, Board of Governors
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
Antulio N. Bomfim, Edward Nelson, Ellen E. Meade,
and Robert J. Tetlow, Senior Advisers, Division of
Monetary Affairs, Board of Governors
Shaghil Ahmed, Associate Director, Division of
International Finance, Board of Governors;
Elizabeth Kiser, John J. Stevens, and Stacey Tevlin,
Associate Directors, Division of Research and
Statistics, Board of Governors; David LópezSalido, Associate Director, Division of Monetary
Affairs, Board of Governors
Norman J. Morin and Shane M. Sherlund, Assistant
Directors, Division of Research and Statistics,
Board of Governors
Attended through the discussion of developments in financial markets and open market operations.
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Eric C. Engstrom, Adviser, Division of Monetary
Affairs, and Adviser, Division of Research and
Statistics, Board of Governors
Penelope A. Beattie,3 Assistant to the Secretary, Office
of the Secretary, Board of Governors
David H. Small, Project Manager, Division of
Monetary Affairs, Board of Governors
Cynthia L. Doniger, Senior Economist, Division of
Monetary Affairs, Board of Governors
Randall A. Williams, Senior Information Manager,
Division of Monetary Affairs, Board of Governors
Kelly J. Dubbert, First Vice President, Federal Reserve
Bank of Kansas City
David Altig, Kartik B. Athreya, Mary Daly, Beverly
Hirtle, Geoffrey Tootell, and Christopher J. Waller,
Executive Vice Presidents, Federal Reserve Banks
of Atlanta, Richmond, San Francisco, New York,
Boston, and St. Louis, respectively
Todd E. Clark and Marc Giannoni, Senior Vice
Presidents, Federal Reserve Banks of Cleveland
and Dallas, respectively
Jonathan L. Willis, Vice President, Federal Reserve
Bank of Kansas City
Benjamin Malin, Senior Research Economist, Federal
Reserve Bank of Minneapolis
Developments in Financial Markets and Open Market Operations
The manager of the System Open Market Account
(SOMA) reported on developments in domestic and international financial markets over the intermeeting period. Equity prices moved higher over the period, with
market participants pointing to the likely passage of tax
reform legislation as an important factor contributing to
the rise. The narrowing of the spread between long- and
short-term Treasury yields over recent months had been
a focus of market attention. Market participants cited a
range of factors as contributing to this narrowing, including the gradual firming in the stance of monetary
policy as well as an increasing expectation among inves-
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Attended Tuesday session only.
tors that the Treasury Department would issue substantial volumes of shorter-term securities in meeting its financing needs over coming years.
The deputy manager discussed open market operations
over the period. Take-up at the System’s overnight reverse repurchase (ON RRP) agreement facility dropped
to relatively low levels over the period. In part, the decline appeared to reflect an increase in yields on alternative investments; Treasury bill yields, for example, had
moved higher over recent weeks as the Treasury boosted
net issuance of Treasury bills. The Open Market Desk
continued to execute reinvestment operations for Treasury and agency securities in the SOMA in accordance
with the procedure specified in the Committee’s directive to the Desk. The deputy manager also provided
an update on plans for the Federal Reserve Bank of New
York, in conjunction with the Treasury’s Office of Financial Research, to begin publishing reference interest
rates for repurchase agreements involving Treasury securities by the middle of next year.
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 December 12–13
meeting indicated that labor market conditions continued to strengthen through November and suggested that
real gross domestic product (GDP) was rising at a solid
pace in the second half of 2017. Total consumer price
inflation, as measured by the 12-month percentage
change in the price index for personal consumption expenditures (PCE), remained below 2 percent in October
and was lower than early in the year. Survey-based
measures of longer-run inflation expectations were little
changed on balance.
Total nonfarm payroll employment increased strongly in
October and November, likely reflecting in part a rebound from the negative effects of the hurricanes in
September. The national unemployment rate declined
to 4.1 percent in October and remained at that level in
November. The unemployment rates for Hispanics, for
Asians, and for whites were lower in November than
two months earlier, while the rate for African Americans
was a little higher; the unemployment rates for each of
these groups were close to the levels seen just before the
most recent recession. The national labor force participation rate was lower in November than it had been in
Minutes of the Meeting of December 12–13, 2017
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September but remained in the range seen over the past
several years. The share of workers employed part time
for economic reasons declined in October and was
about unchanged in November. The rates of privatesector job openings and quits were little changed at relatively high levels in September and October, and the
four-week moving average of initial claims for unemployment insurance benefits continued to be at a low
level in early December. Recent readings showed that
wage gains remained modest. Compensation per hour
in the nonfarm business sector increased 1 percent over
the four quarters ending in the third quarter, and average
hourly earnings for all employees rose 2½ percent over
the 12 months ending in November.
Total industrial production increased briskly in October,
boosted in part by a continued return to more-normal
operations that reflected the waning of the negative effects of recent hurricanes in the previous two months.
Automakers’ schedules indicated that light motor vehicle
assemblies would likely move up in the coming months.
Broader indicators of manufacturing production, such as
the new orders indexes from national and regional manufacturing surveys, pointed to further increases in factory output in the near term.
Real PCE increased modestly in October after expanding strongly in September. The pace of light motor vehicle sales slowed in November from the elevated rate in
the preceding two months but continued to be above
levels seen earlier in the year. Recent readings on key
factors that influence consumer spending—including
gains in employment, real disposable personal income,
and households’ net worth—continued to be supportive
of moderate real PCE growth in the fourth quarter.
Consumer sentiment in early December, as measured by
the University of Michigan Surveys of Consumers, remained at a high level.
Recent information on housing activity suggested that
real residential investment spending was edging up in the
fourth quarter after declining in the previous two quarters. Both starts and building permit issuance for new
single-family homes increased somewhat in October,
and starts for multifamily units moved up considerably.
Sales of both new and existing homes rose moderately
in October.
Real private expenditures for business equipment and intellectual property appeared to be rising further in the
fourth quarter. Nominal shipments of nondefense capital goods excluding aircraft increased in October, and
new orders of these goods continued to exceed shipments, which pointed to further gains in shipments in
the near term. In addition, readings on business sentiment remained upbeat. Firms’ nominal spending for
nonresidential structures excluding drilling and mining
rose in October, and the number of oil and gas rigs in
operation—an indicator of spending for structures in
the drilling and mining sector—started to edge up in late
November after declining earlier in the fourth quarter.
Total real government purchases looked to be rising in
the fourth quarter. Nominal defense expenditures in
October and November pointed to a flattening in real
federal government purchases. However, real purchases
by state and local governments appeared to be moving
up, as these governments expanded their payrolls modestly over the two months ending in November and their
nominal construction spending increased in October.
The nominal U.S. international trade deficit widened
slightly in September and sharply in October. Exports
picked up in September, led by exports of industrial supplies, but were flat in October. Imports grew significantly in both months, reflecting strength in most categories, although imports of automobiles declined. The
available trade data suggested that the change in real net
exports would make a neutral contribution to real U.S.
GDP growth in the fourth quarter.
Total U.S. consumer prices, as measured by the PCE
price index, increased slightly more than 1½ percent
over the 12 months ending in October. Core PCE price
inflation, which excludes changes in consumer food and
energy prices, was nearly 1½ percent over that same period. The consumer price index (CPI) rose 2¼ percent
over the 12 months ending in November, while core CPI
inflation was 1¾ percent. Recent readings on surveybased measures of longer-run inflation expectations—
including those from the Michigan survey, the Survey of
Professional Forecasters, and the Desk’s Survey of Primary Dealers and Survey of Market Participants—were
little changed on balance.
Economic activity expanded at a solid pace in most foreign economies in the third quarter. In several advanced
foreign economies (AFEs), economic growth slowed
but remained firm. Economic activity in the emerging
market economies (EMEs) continued to grow briskly for
the most part, especially in Asia. However, the Mexican
economy contracted in the third quarter, as hurricanes
and earthquakes disrupted economic activity. Despite a
boost from recent increases in oil prices, inflation remained relatively subdued in most AFEs and moderate
in EMEs.
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Staff Review of the Financial Situation
Movements in domestic financial asset prices over the
intermeeting period reflected slightly stronger-thanexpected economic data releases, announcements related to Treasury debt issuance, and an increase in the
perceived probability that the Congress would enact tax
legislation. On net, the Treasury yield curve flattened,
U.S. equity prices moved up, and the foreign exchange
value of the dollar was little changed. Financing conditions for businesses and households remained broadly
supportive of continued growth in household spending
and business investment.
Federal Reserve communications and economic data releases over the intermeeting period were characterized
by market participants as reinforcing perceptions of a
likely increase in the target range for the federal funds
rate at the December meeting. The probability of an increase as implied by quotes on federal funds futures contracts edged up to around 95 percent, roughly consistent
with the average probability indicated by responses to
the Desk’s surveys of primary dealers and market participants in December.
The nominal Treasury yield curve flattened over the intermeeting period, as short-dated Treasury yields rose
and the 10-year Treasury yield moved up only slightly.
Market participants pointed to the November 1 release
of the Treasury’s quarterly financing statement and accompanying analysis by the Treasury Borrowing Advisory Committee that highlighted some advantages of increasing issuance of relatively short-dated Treasury securities as factors contributing to the flattening of the
yield curve over the period. Measures of inflation compensation based on Treasury Inflation-Protected Securities were little changed, on net, over the intermeeting period. Option-adjusted spreads of yields on currentcoupon mortgage-backed securities (MBS) over Treasury yields also were little changed. Overall, market participants did not attribute any price changes in Treasury
and agency MBS markets to the implementation of reductions in reinvestments of the SOMA portfolio.
Broad equity price indexes rose over the intermeeting
period, likely reflecting in part investors’ perceptions of
increased odds for the passage of federal tax legislation
and an associated potential boost to corporate earnings.
One-month-ahead option-implied volatility on the
S&P 500 index—the VIX—was little changed, on net, at
levels close to historical lows. Spreads on both investment- and speculative-grade corporate bond yields over
comparable-maturity Treasury yields were about flat on
net.
Conditions in short-term funding markets remained stable over the intermeeting period. The effective federal
funds rate held steady, and rates and volumes in other
overnight markets were little changed. Take-up of ON
RRPs declined notably as Treasury bill supply continued
to increase, and short-dated bill yields rose to levels significantly above the ON RRP offering rate. On December 11, the Treasury declared a debt issuance suspension
period to keep outstanding federal debt below the debt
ceiling and began to use extraordinary measures to allow
continued financing of government operations.
Financing conditions for large nonfinancial corporations
continued to be accommodative on balance. Gross issuance of corporate bonds and gross equity issuance remained robust. Institutional leveraged loan issuance in
November was brisk. Growth of bank-intermediated
credit to nonfinancial firms, however, was tepid. On
balance, the credit quality of nonfinancial corporations
was little changed over the intermeeting period and appeared to remain solid. Financing conditions for small
businesses also appeared to have remained favorable. In
municipal bond markets, gross issuance was strong and
credit quality remained stable.
In commercial real estate (CRE) markets, spreads of
commercial mortgage-backed securities (CMBS) yields
over comparable-maturity Treasury yields remained near
the lower end of the range seen since the financial crisis,
and delinquency rates on loans in CMBS pools continued to decrease. The growth of CRE loans held by the
largest banks continued to slow, while CRE loan growth
at smaller banks remained strong overall and even
picked up a bit in October.
In the residential mortgage market, although credit
standards had loosened gradually for borrowers with low
credit scores, they continued to be tight for borrowers
with low credit scores and hard-to-document incomes.
Mortgage credit remained readily available for borrowers
with strong credit scores. Similarly, consumer credit remained readily available to borrowers with strong credit
histories, but conditions for subprime borrowers stayed
tight in credit card markets and continued to tighten for
auto loans. Issuance of asset-backed securities (ABS)
funding consumer loans was robust in recent months,
and ABS spreads were about unchanged over the intermeeting period.
On balance, the broad index of the foreign exchange
value of the dollar was little changed, longer-term sovereign bond yields in AFEs declined modestly, and most
foreign equity indexes moved lower over the intermeeting period. The euro appreciated modestly against the
U.S. dollar, in part because of strong economic data for
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the euro area early in the intermeeting period. The British pound was somewhat volatile amid Brexit-related developments, and the Mexican peso fluctuated on news
about negotiations associated with the North American
Free Trade Agreement, but both currencies ended the
period little changed. Following missed interest payments on its sovereign bonds, Venezuela was assigned
selective default status by two credit rating agencies in
early November, which precipitated a “credit event” ruling by the International Swaps and Derivatives Association. However, developments related to Venezuela generated little spillover to global financial markets.
Staff Economic Outlook
The U.S. economic projection prepared by the staff for
the December FOMC meeting was generally comparable with the staff’s previous forecast. Real GDP was
forecast to have increased at a solid pace in the second
half of 2017. Beyond 2017, the forecast for real GDP
growth was revised up modestly, reflecting the staff’s updated assumption that the reduction in federal income
taxes expected to begin next year would be larger than
assumed in the previous projection. The staff projected
that real GDP would increase at a modestly faster pace
than potential output through 2019. The unemployment
rate was projected to decline further over the next few
years and to continue running below the staff’s slightly
downward-revised estimate of the longer-run natural
rate over this period.
The staff’s forecast for total PCE price inflation was revised up a little for 2017, as somewhat higher forecasts
for core PCE prices and for consumer energy prices
were offset only partially by a lower forecast for consumer food prices. Total PCE price inflation in 2018
was projected to be about the same as in 2017, despite
projected declines in consumer energy prices; core PCE
prices were forecast to rise faster in 2018, reflecting the
expected waning of transitory factors that held down
those prices in 2017. Beyond 2018, the inflation forecast
was little changed from the previous projection. The
staff projected that inflation would be very close to the
Committee’s 2 percent objective in 2019 and at that objective in 2020.
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 indicators of uncertainty about the
macroeconomic outlook continued to be subdued; on
The incoming president of the Federal Reserve Bank of
Richmond is scheduled to assume office on January 1, 2018;
First Vice President Mark L. Mullinix submitted economic
4
the other hand, considerable uncertainty remained about
a number of federal government policies relevant for the
economic outlook. 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 also
were seen as balanced. Downside risks to inflation included the possibility that longer-term inflation expectations may move lower or that the run of soft core inflation readings this year 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 move further above its 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 GDP 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.4
The longer-run projections represented each participant’s assessment of the rate to which each variable
would be expected to converge, over time, under appropriate monetary policy and in the absence of further
shocks to the economy. These projections and policy
assessments are described in the Summary of Economic
Projections (SEP), which is an addendum to these
minutes.
In their discussion of economic conditions and the outlook, meeting participants agreed that information received since the FOMC met in November indicated that
economic activity had been rising at a solid rate and that
the labor market had continued to strengthen. Averaging through fluctuations associated with the recent hurricanes, job gains had been solid and the unemployment
rate had declined further. 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, both overall inflation and inflation for
items other than food and energy 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.
projections for this meeting. One participant did not submit
longer-run projections for real output growth, the unemployment rate, or the federal funds rate.
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Real economic activity appeared to be growing at a solid
pace, buttressed by gains in consumer and business
spending, supportive financial conditions, and an improving global economy. Participants judged that
hurricane-related disruptions and rebuilding had affected economic activity, employment, and inflation in
recent months but had not materially altered the outlook
for the national economy. They saw the incoming information on spending and the labor market as consistent
with continued above-trend growth and a further
strengthening in labor market conditions. Consequently, participants 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 remain strong. 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 to be roughly balanced, but participants agreed
that it would be important to continue to monitor inflation developments closely.
Participants expected moderate growth in consumer
spending in the near term, underpinned by ongoing
strength in the labor market, further improvements in
households’ net worth, and buoyant consumer sentiment. Business contacts in a few Districts reported
strong pre-holiday sales. Many participants expected the
proposed cuts in personal taxes to provide some boost
to consumer spending. A few participants noted that
expectations of tax reform may have already raised consumer spending somewhat to the extent that those expectations had spurred increases in asset valuations and
household net worth. A number of participants expressed uncertainty about the magnitude of the effects
of tax reform on consumer spending.
District contacts were optimistic, and their reports were
generally consistent with continued steady growth in
business spending. Reports from District contacts
about both the manufacturing and service sectors were
generally positive. In contrast, reports on housing and
nonresidential construction were mixed. Activity in the
energy sector continued to firm, with transportation bottlenecks and residual effects of the hurricanes putting
some upward pressure on gasoline prices. In the agricultural sector, farm income was under downward pressure due to low crop prices, and contacts expressed concern about the effects of the possible renegotiation of
trade agreements on exports.
Many participants judged that the proposed changes in
business taxes, if enacted, would likely provide a modest
boost to capital spending, although the magnitude of the
effects was uncertain. The resulting increase in the capital stock could contribute to positive supply-side effects,
including an expansion of potential output over the next
few years. However, some business contacts and respondents to business surveys suggested that firms were
cautious about expanding capital spending in response
to the proposed tax changes or noted that the increase
in cash flow that would result from corporate tax cuts
was more likely to be used for mergers and acquisitions
or for debt reduction and stock buybacks.
Labor market conditions continued to strengthen in recent months, with the unemployment rate declining further and payroll gains well above a pace consistent with
maintaining a stable unemployment rate over time.
Other indicators, such as consumer and business surveys
of job availability and job openings, also pointed to a
further tightening in labor market conditions. A couple
of participants noted that broad improvements in labor
market conditions over the past several years were evident across demographic groups. In several Districts,
reports from business contacts or evidence from surveys
pointed to some difficulty in finding qualified workers;
in some cases, labor shortages were making it hard to fill
customer demand or expand business. A few participants noted that a reduction in personal tax rates could
potentially increase labor supply, but the magnitude of
such effects was quite uncertain.
Against the backdrop of the continued strengthening in
labor market conditions, participants discussed recent
wage developments. Overall, the pace of wage increases
had generally been modest and in line with inflation and
productivity growth. In some Districts, reports from
business contacts or evidence from surveys pointed to a
pickup in wage gains, particularly for unskilled or entrylevel workers. In a couple of regions, businesses facing
tight labor market conditions were said to be offering
more flexible work arrangements or taking advantage of
technology to use employees more efficiently, rather
than raising wages. A few participants judged that the
tightness in labor markets was likely to translate into an
acceleration in wages; however, another observed that
the absence of broad-based upward wage pressures suggested that there might be scope for further improvement in labor market conditions.
PCE price inflation over the 12 months ending in October, at 1.6 percent, continued to run below the Committee’s longer-run objective of 2 percent; core PCE price
inflation for items other than consumer food and energy
prices was only 1.4 percent over the same period. It was
noted that recent readings on monthly inflation had
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edged up, and a couple of participants observed that
core inflation on a year-over-year basis appeared to be
stabilizing. Many indicated that they expected cyclical
pressures associated with a tightening labor market to
show through to higher inflation over the medium term.
These participants generally judged that much of the
softness in core inflation this year reflected transitory
factors and that inflation would begin to rise as the influence of these factors waned. However, one of them
noted that secular trends, such as technological innovation or globalization, could be affecting competition and
business pricing, and muting inflationary pressures.
With core inflation readings having moved down this
year and remaining well below 2 percent, some participants observed that there was a possibility that inflation
might stay below the objective for longer than they currently expected. Several of them expressed concern that
persistently weak inflation may have led to a decline in
longer-term inflation expectations; they pointed to low
market-based measures of inflation compensation, declines in some survey measures of inflation expectations,
or evidence from statistical models suggesting that the
underlying trend in inflation had fallen in recent years.
A few participants, however, noted that measures of inflation expectations had remained broadly stable this
year despite the low readings on inflation and judged that
this stability should support the return of inflation to the
Committee’s 2 percent objective.
With regard to financial markets, some participants observed that financial conditions remained accommodative, citing a range of indicators including low interest
rates, narrow credit spreads, high equity values, a lower
dollar, and some evidence of easier terms for lending to
risky borrowers. In light of elevated asset valuations and
low financial market volatility, a couple of participants
expressed concern that the persistence of highly accommodative financial conditions could, over time, pose
risks to financial stability. Participants also noted that
term premiums on longer-term nominal Treasury securities remained low. A number of factors were seen as
possibly contributing to the low levels of term premiums, including large holdings of longer-term assets by
major central banks, persistently low global inflation,
and substantial global demand for assets with long durations.
Meeting participants also discussed the recent narrowing
of the gap between the yields on long- and shortmaturity nominal Treasury securities, which had resulted
in a flatter profile of the term structure of interest rates.
Among the factors contributing to the flattening, participants pointed to recent increases in the target range for
the federal funds rate, reductions in investors’ estimates
of the longer-run neutral real interest rate, lower longerterm inflation expectations, and lower term premiums.
They generally agreed that the current degree of flatness
of the yield curve was not unusual by historical standards. However, several participants thought that it
would be important to continue to monitor the slope of
the yield curve. Some expressed concern that a possible
future inversion of the yield curve, with short-term yields
rising above those on longer-term Treasury securities,
could portend an economic slowdown, noting that inversions have preceded recessions over the past several
decades, or that a protracted yield curve inversion could
adversely affect the financial condition of banks and
other financial institutions and pose risks to financial stability. A couple of other participants viewed the flattening of the yield curve as an expected consequence of increases in the Committee’s target range for the federal
funds rate, and judged that a yield curve inversion under
such circumstances would not necessarily foreshadow or
cause an economic downturn. It was also noted that
contacts in the financial sector generally did not express
concern about the recent flattening of the term structure.
In their discussion of monetary policy, participants saw
the outlook for economic activity and the labor market
as having remained strong or having strengthened since
their previous meeting, in part reflecting a modest boost
from the expected passage of the tax legislation under
consideration. Regarding inflation, participants generally viewed the medium-term outlook as little changed,
and a majority commented that they continued to expect
inflation to gradually return to the Committee’s 2 percent longer-run objective. A few participants again
noted that transitory factors had likely held down inflation earlier this year. However, several participants observed that survey-based measures of inflation expectations or market-based measures of inflation compensation remained low, or that other persistent factors may
be holding down inflation, which would present challenges for the Committee in promoting a return of inflation to 2 percent over the medium term.
Based on their current assessments, almost all participants expressed the view that it would be appropriate for
the Committee to raise the target range for the federal
funds rate 25 basis points at this meeting. These participants agreed that, even after an increase in the target
range at this meeting, the stance of monetary policy
would remain accommodative, supporting strong labor
market conditions and a sustained return to 2 percent
inflation. A couple of participants did not believe it was
appropriate to raise the target range for the federal funds
rate at this meeting; these participants suggested that the
Committee should maintain the target range at 1 to
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1¼ percent until the actual rate of inflation had moved
further toward the Committee’s 2 percent longer-run
objective or inflation expectations had increased. They
judged that leaving the target range at its current level
would better support an increase in inflation expectations and thereby increase the likelihood that inflation
will rise to 2 percent.
Regarding the determination of the appropriate timing
and size of future adjustments to the target range for the
federal funds rate, participants reaffirmed the need to
continue to assess realized and expected economic conditions. Most participants reiterated their support for
continuing a gradual approach to raising the target range,
noting that this approach helped to balance risks to the
outlook for economic activity and inflation. Participants
discussed several risks that, if realized, could necessitate
a steeper path of increases in the target range; these risks
included the possibility that inflation pressures could
build unduly if output expanded well beyond its maximum sustainable level, perhaps owing to fiscal stimulus
or accommodative financial market conditions. Participants also discussed risks that could lead to a flatter trajectory for the federal funds rate in the medium term,
including a failure of actual or expected inflation to
move up to the Committee’s 2 percent objective. While
participants generally saw the risks to the economic outlook as roughly balanced, they agreed that inflation developments should be monitored closely. A few participants indicated that they were not comfortable with the
degree of additional policy tightening through the end of
2018 implied by the median projections for the federal
funds rate in the December SEP. They expressed concern that such a path of increases in the policy rate, while
gradual, might prove inconsistent with a sustained return
of inflation to 2 percent, or that the level of the federal
funds rate might already be near its current neutral value.
A few other participants mentioned that they saw as appropriate a pace of additional policy tightening through
the end of 2018 that was somewhat faster than that implied by the December SEP median forecast. They
noted that financial conditions had not materially tightened since the removal of monetary policy accommodation began, that continued low interest rates risked financial instability in the future, or that the labor market
was increasingly tight. A couple of participants noted
the need to continue to monitor and evaluate the effects
of balance sheet normalization on long-term interest
rates and economic performance.
Due to the persistent shortfall of inflation from the
Committee’s 2 percent objective, or the risk that monetary policy could again become constrained by the zero
lower bound, a few participants suggested that further
study of potential alternative frameworks for the conduct of monetary policy such as price-level targeting or
nominal GDP targeting could be useful.
Committee Policy Action
In their discussion of monetary policy for the period
ahead, members judged that information received since
the Committee met in November indicated that the labor market had continued to strengthen and that economic activity had been rising at a solid rate. Averaging
through hurricane-related fluctuations, job gains had
been solid, and the unemployment rate had declined further. 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,
both overall inflation and inflation for items other than
food and energy had declined for the year to date and
were running below 2 percent. Market-based measures
of inflation compensation had remained low; surveybased measures of longer-term inflation expectations
had changed little, on balance.
Members acknowledged that hurricane-related disruptions and rebuilding had affected economic activity, employment, and inflation in recent months but had not
materially altered the outlook for the national economy.
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 remain strong. Members expected inflation on a 12-month basis to remain somewhat below
2 percent in the near term. They also expected inflation
to stabilize around the Committee’s 2 percent objective
over the medium term, but a couple of members expressed concern about whether inflation would return to
2 percent on a sustained basis in the medium term if the
Committee increased the target range for the federal
funds rate at the pace that is implied by the medians of
the projections from the December SEP. Members saw
the near-term risks to the economic outlook as roughly
balanced, but they agreed to monitor inflation developments closely.
After assessing current conditions and the outlook for
economic activity, the labor market, and inflation, nearly
all members agreed to raise the target range for the federal funds rate to 1¼ to 1½ percent. These members
noted that the stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.
Two members preferred to leave the target range at 1 to
1¼ percent, suggesting that the Committee should wait
to raise the target range until inflation moves up closer
Minutes of the Meeting of December 12–13, 2017
Page 9
_____________________________________________________________________________________________
to 2 percent on a sustained basis or inflation expectations increase.
Members agreed that the timing and size of future adjustments to the target range for the federal funds rate
would depend on their assessments of realized and expected economic conditions relative to the Committee’s
objectives of maximum employment and 2 percent inflation. They noted that their assessments would take
into account a wide range of information, including
measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings
on financial and international developments. Members
agreed that their assessments would also take into account actual and expected inflation developments relative to the Committee’s symmetric inflation goal. Almost all members reaffirmed their expectation that economic conditions would evolve in a manner that would
warrant gradual increases in the federal funds rate, and
that the federal funds rate would be likely to remain, for
some time, below levels that were expected to prevail in
the longer run. Nonetheless, members reiterated that
the actual path of the federal funds rate would depend
on the economic outlook as informed by incoming data.
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 December 14, 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 1¼ to 1½ 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 1.25 percent, in
amounts limited only by the value of Treasury
securities held outright in the System Open
Market Account that are available for such operations and by a per-counterparty limit of
$30 billion per day.
The Committee directs the Desk to continue
rolling over at auction the amount of principal
payments from the Federal Reserve’s holdings
of Treasury securities maturing during December that exceeds $6 billion, and to continue reinvesting in agency mortgage-backed securities
the amount of principal payments from the
Federal Reserve’s holdings of agency debt and
agency mortgage-backed securities received
during December that exceeds $4 billion. Effective in January, 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 $12 billion, and to
reinvest in agency mortgage-backed 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 $8 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 November indicates
that the labor market has continued to
strengthen and that economic activity has been
rising at a solid rate. Averaging through
hurricane-related fluctuations, job gains have
been solid, and the unemployment rate declined
further. 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, both overall inflation and inflation for items other than food and
energy 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. Hurricane-related disruptions and rebuilding have affected economic activity, employment, and inflation in recent
months but have not materially altered the outlook for the national economy. 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 remain strong. Inflation on a 12‐month basis is
Page 10
Federal Open Market Committee
_____________________________________________________________________________________________
expected to remain somewhat below 2 percent
in the near term but to stabilize around the
Committee’s 2 percent objective over the medium term. Near-term risks to the economic
outlook appear roughly balanced, but the Committee is monitoring inflation developments
closely.
In view of realized and expected labor market
conditions and inflation, the Committee decided to raise the target range for the federal
funds rate to 1¼ to 1½ percent. The stance of
monetary policy remains accommodative,
thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.
In determining the timing and size of future adjustments to the target range for the federal
funds rate, the Committee will assess realized
and expected economic conditions relative to its
objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including
measures of labor market conditions, indicators
of inflation pressures and inflation expectations,
and readings on financial and international developments. The Committee will carefully
monitor actual and expected inflation developments relative to its symmetric inflation goal.
The Committee expects that economic conditions will evolve in a manner that will warrant
gradual increases in the federal funds rate; the
federal funds rate is likely to remain, for some
time, below levels that are expected to prevail in
the longer run. However, the actual path of the
federal funds rate will depend on the economic
outlook as informed by incoming data.”
Voting for this action: Janet L. Yellen, William C.
Dudley, Lael Brainard, Patrick Harker, Robert S. Kaplan,
Jerome H. Powell, and Randal K. Quarles.
Messrs. Evans and Kashkari dissented because they preferred to maintain the existing target range for the federal funds rate at this meeting.
In Mr. Evans’s view, with inflation continuing to run
substantially below 2 percent and measures of inflation
expectations lower than he believed to be consistent
with a symmetric 2 percent inflation objective, it was important to pause in the process of policy normalization.
Leaving the target range at 1 to 1¼ percent for a time
would better support an increase in inflation expectations, increase the likelihood that inflation will rise to
2 percent and perhaps modestly beyond, and thus provide more support for the symmetry of the Committee’s
inflation objective. Such a pause also would better allow
the Committee time to assess the degree to which earlier
soft readings on inflation were transitory or more persistent.
In Mr. Kashkari’s view, while employment growth remained strong, wage growth had not picked up and inflation remained notably below the Committee’s 2 percent target. In addition, the yield curve had flattened as
long-term rates had not moved higher even though the
Committee raised the federal funds rate target range. He
was concerned that the flattening yield curve was partly
due to falling longer-term inflation expectations or a
lower neutral real rate of interest. He preferred to wait
for inflation to move closer to 2 percent on a sustained
basis or for inflation expectations to move up before further raising the target range for the federal funds rate.
To support the Committee’s decision to raise the target
range for the federal funds rate, the Board of Governors
voted unanimously to raise the interest rates on required
and excess reserve balances ¼ percentage point, to
1½ percent, effective December 14, 2017. The Board of
Governors also voted unanimously to approve a ¼ percentage point increase in the primary credit rate (discount rate) to 2 percent, effective December 14, 2017.5
Voting against this action: Charles L. Evans and Neel
Kashkari.
It was agreed that the next meeting of the Committee
would be held on Tuesday–Wednesday, January 30–31,
2018.
The meeting adjourned at 10:15 a.m. on
December 13, 2017.
In taking this action, the Board approved requests submitted
by the boards of directors of the Federal Reserve Banks of
Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Kansas City, Dallas, and San Francisco. This vote also
encompassed approval by the Board of Governors of the establishment of a 2 percent primary credit rate by the remaining
Federal Reserve Banks, effective on the later of December 14,
2017, and the date such Reserve Banks informed the Secretary
of the Board of such a request. (Secretary’s note: Subsequently, the Federal Reserve Banks of Chicago, St. Louis, and
Minneapolis were informed by the Secretary of the Board of
the Board’s approval of their establishment of a primary credit
rate of 2 percent, effective December 14, 2017.) The second
vote of the Board also encompassed approval of the establishment of the interest rates for secondary and seasonal credit
under the existing formulas for computing such rates.
5
Minutes of the Meeting of December 12–13, 2017
Page 11
_____________________________________________________________________________________________
Notation Vote
By notation vote completed on November 21, 2017, the
Committee unanimously approved the minutes of the
Committee meeting held on October 31–November 1,
2017.
_____________________________
James A. Clouse
Secretary
Page 1
_____________________________________________________________________________________________
Summary of Economic Projections
In conjunction with the Federal Open Market Committee (FOMC) meeting held on December 12–13, 2017,
meeting participants submitted their projections of the
most likely outcomes for real gross domestic product
(GDP) growth, the unemployment rate, and inflation for
each year from 2017 to 2020 and over the longer run.1
Each participant’s projection was based on information
available at the time of the meeting, together with his or
her assessment of appropriate monetary policy—including a path for the federal funds rate and its longer-run
value—and assumptions about other factors likely to affect economic outcomes. 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 statutory
mandate to promote maximum employment and price
stability.
All participants who submitted longer-run projections
expected that, under appropriate monetary policy,
growth in real GDP in 2018 would be somewhat
stronger than their individual estimates of its longer-run
rate. All participants projected that real GDP growth
would moderate in 2019, and nearly all predicted that it
would ease further in 2020; a solid majority of participants thought that growth in real GDP would be at or
close to their individual estimates of the economy’s
longer-run growth rate by 2020. All participants who
submitted longer-run projections expected that the unemployment rate would run below their estimates of its
longer-run normal level through 2020. Participants generally projected that inflation, as measured by the fourquarter percentage change in the price index for personal
consumption expenditures (PCE), would step up toward
the Committee’s 2 percent objective in 2018 and be at or
Four members of the Board of Governors were in office at
the time of the December 2017 meeting, the same number as
in September 2017. However, since the September meeting,
one member, Stanley Fischer, resigned from the Board and
another, Randal K. Quarles, joined. The incoming president
of the Federal Reserve Bank of Richmond is scheduled to assume office on January 1, 2018; First Vice President Mark L.
1
close to that objective by 2019. Most participants indicated that prospective changes in federal tax policy were
a factor that led them to boost their projections of real
GDP growth over the next couple of years; some participants, however, noted that they had already incorporated at least some effects of future tax cuts in their September projections. Several also noted the possibility
that changes to tax policy could raise the level of potential GDP in the longer run.3 Table 1 and figure 1 provide summary statistics for the projections.
As shown in figure 2, participants generally expected
that the evolution of the economy relative to their objectives of maximum employment and 2 percent inflation would likely warrant further gradual increases in the
federal funds rate. Compared with the projections they
submitted in September, some participants raised their
federal funds rate projections for 2018 and 2019, while
several others lowered their projections, leaving the median projection for the federal funds rate in those years
unchanged; the median projection for 2020 was slightly
higher, and the median projection for the longer-run
normal level of the federal funds rate was unchanged.
Nearly all participants saw it as likely to be appropriate
for the federal funds rate to rise above their estimates of
its longer-run normal level at some point during the
forecast period. Participants generally noted several
sources of uncertainty about the future course of the
federal funds rate, including the details of potential
changes in tax policy, how those changes would affect
the economy, and the range of factors influencing inflation over the medium term.
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 projections for real
GDP growth, the unemployment rate, and inflation as
essentially unchanged from September. As in Septem-
Mullinix submitted economic projections at this meeting as he
did in September.
2 One participant did not submit longer-run projections for
real output growth, the unemployment rate, or the federal
funds rate.
3 Participants completed their submissions for the Summary
of Economic Projections before the reconciliation of the
House and Senate tax bills in the Congress.
1.5
1.5
Core PCE inflation4
September projection
2.1
2.1
1.9
1.9
1.9
1.9
3.9
4.1
2.7
2.7
2.0
2.0
2.0
2.0
3.9
4.1
3.1
2.9
2.0
2.0
2.0
2.0
4.0
4.2
2.8
2.8
2.0
2.0
4.6
4.6
2.0
2.0
2.0
2.0
2.0 – 2.1
2.0 – 2.1
2.0 – 2.1
2.0 – 2.1
2.0
2.0
1.4 – 1.5 1.7 – 2.0 1.8 – 2.3 1.9 – 2.3
1.4 – 1.7 1.7 – 2.0 1.8 – 2.2 1.9 – 2.2
1.5 – 1.7 1.7 – 2.1 1.8 – 2.3 1.9 – 2.2
1.5 – 1.7 1.7 – 2.0 1.8 – 2.2 1.9 – 2.2
2.0
2.0
1.4
1.9 – 2.4 2.4 – 3.1 2.6 – 3.1 2.8 – 3.0 1.1 – 1.4 1.1 – 2.6 1.4 – 3.6 1.4 – 4.1 2.3 – 3.0
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
1.5
1.7 – 1.9
1.5 – 1.6 1.8 – 2.0
1.6 – 1.7 1.7 – 1.9
1.5 – 1.6 1.8 – 2.0
4.1
3.7 – 4.0 3.6 – 4.0 3.6 – 4.2 4.4 – 4.7
4.1
3.6 – 4.0 3.5 – 4.2 3.5 – 4.5 4.3 – 5.0
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
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 September projections were made in conjunction with the meeting of the Federal Open Market Committee
on September 19–20, 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 September 19–20, 2017, meeting, and one participant did not submit such projections in conjunction with the December 12–13, 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
September projection
1.4
1.4
1.7
1.6
PCE inflation
September projection
Memo: Projected
appropriate policy path
4.1
4.3
Unemployment rate
September projection
Median1
Central tendency2
Range3
Variable
2017 2018 2019 2020 Longer 2017
2018
2019
2020
2017
2018
2019
2020
Longer
Longer
run
run
run
Change in real GDP
2.5
2.5
2.1
2.0
1.8
2.4 – 2.5 2.2 – 2.6 1.9 – 2.3 1.7 – 2.0 1.8 – 1.9 2.4 – 2.6 2.2 – 2.8 1.7 – 2.4 1.1 – 2.2 1.7 – 2.2
September projection 2.4
2.1
2.0
1.8
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
Percent
Table 1. Economic projections of Federal Reserve Board members and Federal Reserve Bank presidents,
under their individual assessments of projected appropriate monetary policy, December 2017
Page 2
Federal Open Market Committee
_____________________________________________________________________________________________
Summary of Economic Projections of the Meeting of December 12–13, 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
3
2
1
Actual
2012
2013
2014
2015
2016
2017
2018
2019
2020
Longer
run
Percent
Unemployment rate
8
7
6
5
4
2012
2013
2014
2015
2016
2017
2018
2019
2020
Longer
run
Percent
PCE inflation
3
2
1
2012
2013
2014
2015
2016
2017
2018
2019
2020
Longer
run
Percent
Core PCE inflation
3
2
1
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.
Page 4
Federal Open Market Committee
_____________________________________________________________________________________________
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 December 12–13, 2017
Page 5
_____________________________________________________________________________________________
ber, 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 for 2018, conditional on their individual assessments of appropriate monetary policy, was
2.5 percent, the same as for 2017. The median projections for GDP growth in 2019 and 2020 were slightly
lower, at 2.1 and 2.0 percent, respectively. Compared
with the Summary of Economic Projections (SEP) from
September, the median of the projections for real GDP
growth for 2018 was notably higher, while the medians
for real GDP growth for 2019 and 2020 were modestly
higher. The median of projections for the longer-run
normal rate of real GDP growth remained at 1.8 percent.
Most participants pointed to changes in tax policy as
likely to provide some boost to real GDP growth over
the forecast period; in September, fewer than half of the
participants incorporated prospective tax policy changes
in their projections. Several participants indicated that
they had marked up their estimates of the magnitude of
tax cuts, relative to their assumptions in September.
The medians of projections for the unemployment rate
in the fourth quarter of both 2018 and 2019 were
3.9 percent, 0.2 percentage point below the medians
from September and about ¾ percentage point below
the median assessment of its longer-run normal level.
The median projection for the unemployment rate
ticked up slightly to 4.0 percent in 2020.
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 2018 shifted up, with more than half of the
participants now expecting real GDP growth of 2.5 percent or more and none seeing it below 2.2 percent. The
distribution of projected real GDP growth in 2019 and
2020 also shifted up, albeit only slightly. The distribution for the longer-run normal rate of GDP growth was
little changed from September. The distributions of individual projections for the unemployment rate in 2018
and 2019 shifted down relative to those in September,
broadly consistent with the changes in the distributions
for real GDP growth.
The Outlook for Inflation
The median of projections for headline PCE price inflation was 1.9 percent in 2018 and 2 percent in 2019 and
2020, the same as in the September SEP. Most participants anticipated that inflation would continue to run a
bit below 2 percent in 2018, and only one participant expected inflation above 2 percent that year. A majority of
participants projected that inflation would be equal to
the Committee’s objective in 2019 and 2020. Several
participants projected that inflation would slightly exceed 2 percent in 2019 or 2020. The medians of projections for core PCE price inflation over the 2018–20 period were the same as those for headline inflation.
Figures 3.C and 3.D provide information on the distributions of participants’ views about the outlook for inflation. On the whole, the distributions of projections
for headline PCE price inflation and core PCE price inflation beyond 2017 were little changed from September.
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 in the longer
run. Overall, the distributions differed in only small
ways from those reported in the September SEP. There
was a moderate reduction in the dispersion of the distribution for 2020 and for the longer run; some of the
lower-end projections for those horizons from the September SEP were revised up in the current projections.
The median projection of the year-end federal funds rate
continued to rise gradually over the 2018–20 period.
The median projection for the end of 2018 was 2.13 percent; the medians of the projections were 2.69 percent at
the end of 2019 and 3.07 percent at the end of 2020.
Nearly all participants projected that it would likely be
appropriate for the federal funds rate to rise above their
individual estimates of the longer-run normal rate at
some point over the forecast period. Compared with
their projections prepared for the September SEP, a few
participants raised their projections for the federal funds
rate in the longer run and one lowered it; the median was
unchanged at 2.75 percent.
In discussing their projections, many participants once
again expressed the view that the appropriate trajectory
of the federal funds rate over the next few years would
likely involve gradual increases. This view was predicated on several factors, including a judgment that the
neutral real interest rate was currently low and would
move up only slowly, as well as the balancing of risks
associated with, among other things, the possibility that
inflation pressures could build if the economy expands
well beyond its long-run sustainable level, and the possibility that the forces depressing inflation could prove to
be more persistent than currently anticipated. As always,
the actual path of the federal funds rate will depend on
Page 6
Federal Open Market Committee
_____________________________________________________________________________________________
Figure 3.A. Distribution of participants’ projections for the change in real GDP, 2017–20 and over the longer run
Number of participants
2017
18
16
14
12
10
8
6
4
2
December projections
September projections
1.0 1.1
1.2 1.3
1.4 1.5
1.6 1.7
1.8 1.9
2.0 2.1
2.2 2.3
2.4 2.5
2.6 2.7
2.8 2.9
Percent range
Number of participants
2018
1.0 1.1
18
16
14
12
10
8
6
4
2
1.2 1.3
1.4 1.5
1.6 1.7
1.8 1.9
2.0 2.1
2.2 2.3
2.4 2.5
2.6 2.7
2.8 2.9
Percent range
Number of participants
2019
1.0 1.1
18
16
14
12
10
8
6
4
2
1.2 1.3
1.4 1.5
1.6 1.7
1.8 1.9
2.0 2.1
2.2 2.3
2.4 2.5
2.6 2.7
2.8 2.9
Percent range
Number of participants
2020
1.0 1.1
18
16
14
12
10
8
6
4
2
1.2 1.3
1.4 1.5
1.6 1.7
1.8 1.9
2.0 2.1
2.2 2.3
2.4 2.5
2.6 2.7
2.8 2.9
Percent range
Number of participants
Longer run
1.0 1.1
18
16
14
12
10
8
6
4
2
1.2 1.3
1.4 1.5
1.6 1.7
1.8 1.9
2.0 2.1
2.2 2.3
2.4 2.5
Percent range
Note: Definitions of variables and other explanations are in the notes to table 1.
2.6 2.7
2.8 2.9
Summary of Economic Projections of the Meeting of December 12–13, 2017
Page 7
_____________________________________________________________________________________________
Figure 3.B. Distribution of participants’ projections for the unemployment rate, 2017–20 and over the longer run
Number of participants
2017
18
16
14
12
10
8
6
4
2
December projections
September projections
3.2 3.3
3.4 3.5
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
3.2 3.3
18
16
14
12
10
8
6
4
2
3.4 3.5
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
3.2 3.3
18
16
14
12
10
8
6
4
2
3.4 3.5
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
3.2 3.3
18
16
14
12
10
8
6
4
2
3.4 3.5
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
3.2 3.3
18
16
14
12
10
8
6
4
2
3.4 3.5
3.6 3.7
3.8 3.9
4.0 4.1
4.2 4.3
4.4 4.5
4.6 4.7
Percent range
Note: Definitions of variables and other explanations are in the notes to table 1.
4.8 4.9
5.0 5.1
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Federal Open Market Committee
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Figure 3.C. Distribution of participants’ projections for PCE inflation, 2017–20 and over the longer run
Number of participants
2017
18
16
14
12
10
8
6
4
2
December projections
September projections
1.5 1.6
1.7 1.8
1.9 2.0
2.1 2.2
2.3 2.4
Percent range
Number of participants
2018
18
16
14
12
10
8
6
4
2
1.5 1.6
1.7 1.8
1.9 2.0
2.1 2.2
2.3 2.4
Percent range
Number of participants
2019
18
16
14
12
10
8
6
4
2
1.5 1.6
1.7 1.8
1.9 2.0
2.1 2.2
2.3 2.4
Percent range
Number of participants
2020
18
16
14
12
10
8
6
4
2
1.5 1.6
1.7 1.8
1.9 2.0
2.1 2.2
2.3 2.4
Percent range
Number of participants
Longer run
1.5 1.6
18
16
14
12
10
8
6
4
2
1.7 1.8
1.9 2.0
2.1 2.2
Percent range
Note: Definitions of variables and other explanations are in the notes to table 1.
2.3 2.4
Summary of Economic Projections of the Meeting of December 12–13, 2017
Page 9
_____________________________________________________________________________________________
Figure 3.D. Distribution of participants’ projections for core PCE inflation, 2017–20
Number of participants
2017
18
16
14
12
10
8
6
4
2
December projections
September projections
1.3 1.4
1.5 1.6
1.7 1.8
1.9 2.0
2.1 2.2
2.3 2.4
Percent range
Number of participants
2018
18
16
14
12
10
8
6
4
2
1.3 1.4
1.5 1.6
1.7 1.8
1.9 2.0
2.1 2.2
2.3 2.4
Percent range
Number of participants
2019
18
16
14
12
10
8
6
4
2
1.3 1.4
1.5 1.6
1.7 1.8
1.9 2.0
2.1 2.2
2.3 2.4
Percent range
Number of participants
2020
18
16
14
12
10
8
6
4
2
1.3 1.4
1.5 1.6
1.7 1.8
1.9 2.0
2.1 2.2
Percent range
Note: Definitions of variables and other explanations are in the notes to table 1.
2.3 2.4
Page 10
Federal Open Market Committee
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Figure 3.E. Distribution of participants’ judgments of the midpoint of the appropriate target range for the federal funds
rate or the appropriate target level for the federal funds rate, 2017–20 and over the longer run
Number of participants
2017
18
16
14
12
10
8
6
4
2
December projections
September 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
18
16
14
12
10
8
6
4
2
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
18
16
14
12
10
8
6
4
2
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
18
16
14
12
10
8
6
4
2
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
18
16
14
12
10
8
6
4
2
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 December 12–13, 2017
Page 11
_____________________________________________________________________________________________
evolving economic conditions and their implications for
the economic outlook.
Table 2. Average historical projection error ranges
2017
2018
2019
2020
Uncertainty and Risks
In assessing the path for the federal funds rate that, in
their view, is likely to be 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. As a reference,
table 2 provides a measure of forecast uncertainty, based
on the forecast errors of various private and government
forecasts over the past 20 years, for real GDP growth,
the unemployment rate, and total consumer price inflation. That measure 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 forecast errors presented in table 2. If the degree of uncertainty attending these projections is similar to the typical magnitude of past forecast errors 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 projection uncertainty is substantial and
generally increases as the forecast horizon lengthens.
Change in real GDP1 . . . . . . ±0.8
±1.7
±2.1
±2.2
±0.1
±0.8
±1.5
±1.9
±0.2
±1.0
±1.1
±1.0
. . . ±0.1
±1.4
±1.9
±2.4
Participants’ assessments of the level of uncertainty surrounding their economic projections are shown in the
bottom-left panels of figures 4.A, 4.B, and 4.C. 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, a view that was essentially unchanged from September.4 About half of the
participants who commented on this topic suggested
that uncertainties about the details of the pending tax
legislation had raised their assessment of uncertainty for
GDP growth, albeit not by enough to tip their assessments into the higher-than-average category.
Because the fan charts are constructed to be symmetric
around the median projection, they do not reflect any
asymmetries in the balance of risks that participants may
see in their economic projections. Accordingly, 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 September, 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,
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
4
Percentage points
Variable
Unemployment
rate1
Total consumer
prices2
Short-term interest
......
....
rates3
NOTE: Error ranges shown are measured as plus or minus the
root mean squared error of projections for 1997 through 2016 that
were released in the winter 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.
as broadly consistent with a symmetric fan chart. The
balance of risks to the economic outlook shifted slightly
in the direction of strength, with two more participants
seeing upside risks to growth in real GDP than in September and one more seeing risks to the unemployment
rate as weighted to the downside. In addition, one more
participant than before saw risks to inflation as weighted
to the upside.
Participants’ assessments of the future path of the federal funds rate consistent with appropriate policy are also
subject to considerable uncertainty. Because the Committee adjusts the federal funds rate in response to actual
and prospective developments over time in real GDP
growth, unemployment, and inflation, uncertainty surrounding the projected path for the funds rate importantly reflects the uncertainties about the path for
those key economic variables. Figure 5 provides a
graphical representation of this uncertainty, plotting the
median SEP projection 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 for
longer horizons.
the uncertainty and risks attending the participants’ projections.
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Federal Open Market Committee
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Figure 4.A. Uncertainty and risks in projections of GDP growth
Median projection and confidence interval based on historical forecast errors
Percent
Change in real GDP
Median of projections
70% confidence interval
4
3
2
1
Actual
0
2012
2013
2014
2015
2016
2017
2018
2019
2020
FOMC participants’ assessments of uncertainty and risks around their economic projections
Number of participants
Uncertainty about GDP growth
Risks to GDP growth
December projections
September projections
Lower
Broadly
similar
Number of participants
18
16
14
12
10
8
6
4
2
Higher
December projections
September projections
Weighted to
downside
Broadly
balanced
18
16
14
12
10
8
6
4
2
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 December 12–13, 2017
Page 13
_____________________________________________________________________________________________
Figure 4.B. Uncertainty and risks in projections of the unemployment rate
Median projection and confidence interval based on historical forecast errors
Percent
Unemployment rate
10
Median of projections
70% confidence interval
9
8
7
6
Actual
5
4
3
2
1
2012
2013
2014
2015
2016
2017
2018
2019
2020
FOMC participants’ assessments of uncertainty and risks around their economic projections
Number of participants
Uncertainty about the unemployment rate
December projections
September projections
Lower
Broadly
similar
Risks to the unemployment rate
18
16
14
12
10
8
6
4
2
Higher
Number of participants
December projections
September projections
Weighted to
downside
Broadly
balanced
18
16
14
12
10
8
6
4
2
Weighted to
upside
Note: The blue and red lines in the top panel show actual values and median projected values, respectively, of
the average civilian unemployment rate in the fourth quarter of the year indicated. The confidence interval around
the median projected values is assumed to be symmetric and is based on root mean squared errors of various private
and government forecasts made over the previous 20 years; more information about these data is available in table 2.
Because current conditions may differ from those that prevailed, on average, over the previous 20 years, the width
and shape of the confidence interval estimated on the basis of the historical forecast errors may not reflect FOMC
participants’ current assessments of the uncertainty and risks around their projections; these current assessments are
summarized in the lower panels. Generally speaking, participants who judge the uncertainty about their projections as
“broadly similar” to the average levels of the past 20 years would view the width of the confidence interval shown in the
historical fan chart as largely consistent with their assessments of the uncertainty about their projections. Likewise,
participants who judge the risks to their projections as “broadly balanced” would view the confidence interval around
their projections as approximately symmetric. For definitions of uncertainty and risks in economic projections, see the
box “Forecast Uncertainty.”
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Federal Open Market Committee
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Figure 4.C. Uncertainty and risks in projections of PCE inflation
Median projection and confidence interval based on historical forecast errors
Percent
PCE inflation
Median of projections
70% confidence interval
3
2
1
Actual
0
2012
2013
2014
2015
2016
2017
2018
2019
2020
FOMC participants’ assessments of uncertainty and risks around their economic projections
Number of participants
Uncertainty about PCE inflation
Risks to PCE inflation
December projections
September projections
Lower
Broadly
similar
Number of participants
18
16
14
12
10
8
6
4
2
Higher
December projections
September 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
December projections
September projections
Lower
18
16
14
12
10
8
6
4
2
18
16
14
12
10
8
6
4
2
Higher
December projections
September projections
Weighted to
downside
Broadly
balanced
18
16
14
12
10
8
6
4
2
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 December 12–13, 2017
Page 15
_____________________________________________________________________________________________
Figure 5. Uncertainty in projections of the federal funds rate
Median projection and confidence interval based on historical forecast errors
Percent
Federal funds rate
Midpoint of target range
Median of projections
70% confidence interval*
6
5
4
3
2
1
Actual
0
2012
2013
2014
2015
2016
2017
2018
2019
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.
Page 16
Federal Open Market Committee
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Forecast Uncertainty
The economic projections provided by the members of
the Board of Governors and the presidents of the Federal
Reserve Banks inform discussions of monetary policy among
policymakers and can aid public understanding of the basis
for policy actions. Considerable uncertainty attends these
projections, however. The economic and statistical models
and relationships used to help produce economic forecasts
are necessarily imperfect descriptions of the real world, and
the future path of the economy can be affected by myriad
unforeseen developments and events. Thus, in setting the
stance of monetary policy, participants consider not only
what appears to be the most likely economic outcome as embodied in their projections, but also the range of alternative
possibilities, the likelihood of their occurring, and the potential costs to the economy should they occur.
Table 2 summarizes the average historical accuracy of a
range of forecasts, including those reported in past Monetary
Policy Reports and those prepared by the Federal Reserve
Board’s staff in advance of meetings of the Federal Open
Market Committee (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 2.2 to 3.8 percent in the current year, 1.3 to
4.7 percent in the second year, 0.9 to 5.1 percent in the third
year, and 0.8 to 5.2 percent in the fourth year. The corresponding 70 percent confidence intervals for overall inflation would be 1.8 to 2.2 percent in the current year, 1.0 to
3.0 percent in the second year, 0.9 to 3.1 percent in the third
year, and 1.0 to 3.0 percent in the fourth year. 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 endof-year basis. However, the forecast errors should provide a
sense of the uncertainty around the future path of the federal
funds rate generated by the uncertainty about the macroeconomic variables as well as additional adjustments to monetary
policy that would be appropriate to offset the effects of
shocks to the economy.
If at some point in the future the confidence interval
around the federal funds rate were to extend below zero, it
would be truncated at zero for purposes of the fan chart
shown in figure 5; zero is the bottom of the lowest target
range for the federal funds rate that has been adopted by the
Committee in the past. This approach to the construction of
the federal funds rate fan chart would be merely a convention;
it would not have any implications for possible future policy
decisions regarding the use of negative interest rates to provide additional monetary policy accommodation if doing so
were appropriate. In such situations, the Committee could
also employ other tools, including forward guidance and asset
purchases, to provide additional accommodation.
While figures 4.A through 4.C provide information on
the uncertainty around the economic projections, figure 1
provides information on the range of views across FOMC
participants. A comparison of figure 1 with figures 4.A
through 4.C shows that the dispersion of the projections
across participants is much smaller than the average forecast
errors over the past 20 years.
Cite this document
Federal Reserve (2017, December 12). FOMC Minutes. Fomc Minutes, Federal Reserve. https://whenthefedspeaks.com/doc/fomc_minutes_20171213
@misc{wtfs_fomc_minutes_20171213,
author = {Federal Reserve},
title = {FOMC Minutes},
year = {2017},
month = {Dec},
howpublished = {Fomc Minutes, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/fomc_minutes_20171213},
note = {Retrieved via When the Fed Speaks corpus}
}