FOMC Minutes

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Minutes of the Federal Open Market Committee

January 30–31, 2018

A joint meeting of the Federal Open Market Committee

and the Board of Governors was held in the offices of

the Board of Governors of the Federal Reserve System

in Washington, D.C., on Tuesday, January 30, 2018, at

10:00 a.m. and continued on Wednesday, January 31,

2018, at 9:00 a.m. 1

PRESENT:

Janet L. Yellen, Chair

William C. Dudley, Vice Chairman

Thomas I. Barkin

Raphael W. Bostic

Lael Brainard

Loretta J. Mester

Jerome H. Powell

Randal K. Quarles

John C. Williams

Simon Potter, Manager, System Open Market Account

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

Rochelle M. Edge, Deputy Director, Division of

Monetary Affairs, Board of Governors; Maryann F.

Hunter, Deputy Director, Division of Supervision

and Regulation, Board of Governors

James Bullard, Charles L. Evans, Esther L. George,

Michael Strine, and Eric Rosengren, Alternate

Members of the Federal Open Market Committee

David Reifschneider and John M. Roberts, Special

Advisers to the Board, Office of Board Members,

Board of Governors

Patrick Harker, Robert S. Kaplan, and Neel Kashkari,

Presidents of the Federal Reserve Banks of

Philadelphia, Dallas, and Minneapolis, respectively

Linda Robertson, Assistant to the Board, Office of

Board Members, Board of Governors

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

David Altig, Kartik B. Athreya, Thomas A. Connors,

Mary Daly, David E. Lebow, Trevor A. Reeve,

Argia M. Sbordone, Ellis W. Tallman, William

Wascher, and Beth Anne Wilson, Associate

Economists

1 The Federal Open Market Committee is referenced as the

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

2 Attended through the discussion of developments in financial markets and open market operations.

Joseph W. Gruber, Senior Associate Director, Division

of International Finance, Board of Governors;

Michael G. Palumbo, Senior Associate Director,

Division of Research and Statistics, Board of

Governors

Antulio N. Bomfim, Ellen E. Meade, Stephen A.

Meyer, Edward Nelson, and Joyce K. Zickler,

Senior Advisers, Division of Monetary Affairs,

Board of Governors; Jeremy B. Rudd, Senior

Adviser, Division of Research and Statistics, Board

of Governors

William F. Bassett, Associate Director, Division of

Financial Stability, Board of Governors

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Federal Open Market Committee

Andrew Figura, Assistant Director, Division of

Research and Statistics, Board of Governors; Jason

Wu, Assistant Director, Division of Monetary

Affairs, Board of Governors

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

of the Secretary, Board of Governors

Dana L. Burnett and Michele Cavallo, Section Chiefs,

Division of Monetary Affairs, Board of Governors

David H. Small, Project Manager, Division of

Monetary Affairs, Board of Governors

Andrea Ajello, Kurt F. Lewis, and Bernd Schlusche,

Principal Economists, Division of Monetary

Affairs, Board of Governors; Ekaterina Peneva and

Daniel J. Vine, Principal Economists, Division of

Research and Statistics, Board of Governors

Camille Bryan, Lead Financial Analyst, Division of

International Finance, Board of Governors

Ellen J. Bromagen, First Vice President, Federal

Reserve Bank of Chicago

Jeff Fuhrer and Daniel G. Sullivan, Executive Vice

Presidents, Federal Reserve Banks of Boston and

Chicago, respectively

Evan F. Koenig, Keith Sill, and Mark

Todd E.

L.J. Wright, Senior Vice Presidents, Federal

Reserve Banks of Cleveland, Dallas, Philadelphia,

and Minneapolis, respectively

Clark,3

Carlos Garriga and Jonathan L. Willis, Vice Presidents,

Federal Reserve Banks of St. Louis and Kansas

City, respectively

Annual Organizational Matters4

In the agenda for this meeting, it was reported that advices of the election of the following members and alternate members of the Federal Open Market Committee

for a term beginning January 30, 2018, had been received

and that these individuals had executed their oaths of office.

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Attended Tuesday session only.

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The elected members and alternate members were as follows:

William C. Dudley, President of the Federal Reserve

Bank of New York, with Michael Strine, First Vice President of the Federal Reserve Bank of New York, as alternate

Thomas I. Barkin, President of the Federal Reserve

Bank of Richmond, with Eric Rosengren, President of

the Federal Reserve Bank of Boston, as alternate

Loretta J. Mester, President of the Federal Reserve Bank

of Cleveland, with Charles L. Evans, President of the

Federal Reserve Bank of Chicago, as alternate

Raphael W. Bostic, President of the Federal Reserve

Bank of Atlanta, with James Bullard, President of the

Federal Reserve Bank of St. Louis, as alternate

John C. Williams, President of the Federal Reserve Bank

of San Francisco, with Esther L. George, President of

the Federal Reserve Bank of Kansas City, as alternate

By unanimous vote, the Committee selected Janet L.

Yellen to serve as Chairman through February 2, 2018,

and Jerome H. Powell to serve as Chairman, effective

February 3, 2018, until the selection of his successor at

the first regularly scheduled meeting of the Committee

in 2019.

By unanimous vote, the following officers of the Committee were selected to serve until the selection of their

successors at the first regularly scheduled meeting of the

Committee in 2019:

William C. Dudley

James A. Clouse

Matthew M. Luecke

David W. Skidmore

Michelle A. Smith

Mark E. Van Der Weide

Michael Held

Richard M. Ashton

Steven B. Kamin

Thomas Laubach

David W. Wilcox

Vice Chairman

Secretary

Deputy Secretary

Assistant Secretary

Assistant Secretary

General Counsel

Deputy General Counsel

Assistant General Counsel

Economist

Economist

Economist

David Altig

Kartik B. Athreya

Committee organizational documents are available at

www.federalreserve.gov/monetarypolicy/rules_authorizations.htm.

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Minutes of the Meeting of January 30–31, 2018

Thomas A. Connors

Mary Daly

David E. Lebow

Trevor A. Reeve

Argia M. Sbordone

Ellis W. Tallman

William Wascher

Beth Anne Wilson

Associate Economists

By unanimous vote, the Federal Reserve Bank of New

York was selected to execute transactions for the System

Open Market Account (SOMA).

By unanimous vote, the Committee selected Simon Potter and Lorie K. Logan to serve at the pleasure of the

Committee as manager and deputy manager of the

SOMA, respectively, on the understanding that these selections were subject to their being satisfactory to the

Federal Reserve Bank of New York.

Secretary’s note: Advice subsequently was received that the manager and deputy manager selections indicated above were satisfactory to the

Federal Reserve Bank of New York.

By unanimous vote, the Authorization for Domestic

Open Market Operations was approved with revisions

to incorporate transactions of securities lending into the

existing operational readiness testing provision and to

improve the document’s readability. The Guidelines for

the Conduct of System Open Market Operations in

Federal-Agency Issues remained suspended.

AUTHORIZATION FOR DOMESTIC OPEN

MARKET OPERATIONS

(As amended effective January 30, 2018)

OPEN MARKET TRANSACTIONS

1. The Federal Open Market Committee (the “Committee”) authorizes and directs the Federal Reserve Bank

selected by the Committee to execute open market transactions (the “Selected Bank”), to the extent necessary to

carry out the most recent domestic policy directive

adopted by the Committee:

A. To buy or sell in the open market securities that

are direct obligations of, or fully guaranteed as to principal and interest by, the United States, and securities

that are direct obligations of, or fully guaranteed as to

principal and interest by, any agency of the United

States, that are eligible for purchase or sale under Sec-

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tion 14(b) of the Federal Reserve Act (“Eligible Securities”) for the System Open Market Account

(“SOMA”):

i.

As an outright operation with securities dealers

and foreign and international accounts maintained

at the Selected Bank: on a same-day or deferred delivery basis (including such transactions as are commonly referred to as dollar rolls and coupon swaps)

at market prices; or

ii. As a temporary operation: on a same-day or

deferred delivery basis, to purchase such Eligible Securities subject to an agreement to resell (“repo

transactions”) or to sell such Eligible Securities subject to an agreement to repurchase (“reverse repo

transactions”) for a term of 65 business days or less,

at rates that, unless otherwise authorized by the

Committee, are determined by competitive bidding,

after applying reasonable limitations on the volume

of agreements with individual counterparties;

B. To allow Eligible Securities in the SOMA to mature without replacement;

C. To exchange, at market prices, in connection

with a Treasury auction, maturing Eligible Securities in

the SOMA with the Treasury, in the case of Eligible

Securities that are direct obligations of the United

States or that are fully guaranteed as to principal and

interest by the United States; and

D. To exchange, at market prices, maturing Eligible

Securities in the SOMA with an agency of the United

States, in the case of Eligible Securities that are direct

obligations of that agency or that are fully guaranteed

as to principal and interest by that agency.

SECURITIES LENDING

2. In order to ensure the effective conduct of open

market operations, the Committee authorizes the Selected Bank to operate a program to lend Eligible Securities held in the SOMA to dealers on an overnight basis

(except that the Selected Bank may lend Eligible Securities for longer than an overnight term to accommodate

weekend, holiday, and similar trading conventions).

A. Such securities lending must be:

i.

At rates determined by competitive bidding;

ii. At a minimum lending fee consistent with the

objectives of the program;

iii. Subject to reasonable limitations on the total

amount of a specific issue of Eligible Securities that

may be auctioned; and

iv. Subject to reasonable limitations on the

amount of Eligible Securities that each borrower

may borrow.

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Federal Open Market Committee

B. The Selected Bank may:

i.

Reject bids that, as determined in its sole discretion, could facilitate a bidder’s ability to control a

single issue;

ii. Accept Treasury securities or cash as collateral

for any loan of securities authorized in this paragraph 2; and

iii. Accept agency securities as collateral only for a

loan of agency securities authorized in this paragraph 2.

OPERATIONAL READINESS TESTING

3. The Committee authorizes the Selected Bank to

undertake transactions of the type described in paragraphs 1 and 2 from time to time for the purpose of testing operational readiness, subject to the following limitations:

A. All transactions authorized in this paragraph 3

shall be conducted with prior notice to the Committee;

B. The aggregate par value of the transactions authorized in this paragraph 3 that are of the type described in paragraph 1.A.i shall not exceed $5 billion

per calendar year; and

C. The outstanding amount of the transactions described in paragraphs 1.A.ii and 2 shall not exceed

$5 billion at any given time.

TRANSACTIONS WITH CUSTOMER ACCOUNTS

4. In order to ensure the effective conduct of open

market operations, while assisting in the provision of

short-term investments or other authorized services for

foreign central bank and international accounts maintained at a Federal Reserve Bank (the “Foreign Accounts”) and accounts maintained at a Federal Reserve

Bank as fiscal agent of the United States pursuant to section 15 of the Federal Reserve Act (together with the

Foreign Accounts, the “Customer Accounts”), the Committee authorizes the following when undertaken on

terms comparable to those available in the open market:

A. The Selected Bank, for the SOMA, to undertake

reverse repo transactions in Eligible Securities held in

the SOMA with the Customer Accounts for a term of

65 business days or less; and

B. Any Federal Reserve Bank that maintains Customer Accounts, for any such Customer Account,

when appropriate and subject to all other necessary

authorization and approvals, to:

i.

Undertake repo transactions in Eligible Securities with dealers with a corresponding reverse repo

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transaction in such Eligible Securities with the Customer Accounts; and

ii. Undertake intra-day repo transactions in Eligible Securities with Foreign Accounts.

Transactions undertaken with Customer Accounts under the provisions of this paragraph 4 may provide for a

service fee when appropriate. Transactions undertaken

with Customer Accounts are also subject to the authorization or approval of other entities, including the Board

of Governors of the Federal Reserve System and, when

involving accounts maintained at a Federal Reserve

Bank as fiscal agent of the United States, the United

States Department of the Treasury.

ADDITIONAL MATTERS

5. The Committee authorizes the Chairman of the

Committee, in fostering the Committee’s objectives during any period between meetings of the Committee, to

instruct the Selected Bank to act on behalf of the Committee to:

A. Adjust somewhat in exceptional circumstances

the stance of monetary policy and to take actions that

may result in material changes in the composition and

size of the assets in the SOMA; or

B. Undertake transactions with respect to Eligible

Securities in order to appropriately address temporary

disruptions of an operational or highly unusual nature

in U.S. dollar funding markets.

Any such adjustment described in subparagraph A of

this paragraph 5 shall be made in the context of the

Committee’s discussion and decision about the stance of

policy at its most recent meeting and the Committee’s

long-run objectives to foster maximum employment and

price stability, and shall be based on economic, financial,

and monetary developments since the most recent meeting of the Committee. The Chairman, whenever feasible, will consult with the Committee before making any

instruction under this paragraph 5.

The Committee voted unanimously to reaffirm without

revision the Authorization for Foreign Currency Operations and the Foreign Currency Directive as shown below.

AUTHORIZATION FOR FOREIGN CURRENCY

OPERATIONS

(As reaffirmed effective January 30, 2018)

IN GENERAL

1. The Federal Open Market Committee (the “Committee”) authorizes the Federal Reserve Bank selected by

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Minutes of the Meeting of January 30–31, 2018

the Committee (the “Selected Bank”) to execute open

market transactions for the System Open Market Account as provided in this Authorization, to the extent

necessary to carry out any foreign currency directive of

the Committee:

A. To purchase and sell foreign currencies (also

known as cable transfers) at home and abroad in the

open market, including with the United States Treasury, with foreign monetary authorities, with the Bank

for International Settlements, and with other entities

in the open market. This authorization to purchase

and sell foreign currencies encompasses purchases and

sales through standalone spot or forward transactions

and through foreign exchange swap transactions. For

purposes of this Authorization, foreign exchange

swap transactions are: swap transactions with the

United States Treasury (also known as warehousing

transactions), swap transactions with other central

banks under reciprocal currency arrangements, swap

transactions with other central banks under standing

dollar liquidity and foreign currency liquidity swap arrangements, and swap transactions with other entities

in the open market.

B. To hold balances of, and to have outstanding forward contracts to receive or to deliver, foreign currencies.

2. All transactions in foreign currencies undertaken

pursuant to paragraph 1 above shall, unless otherwise

authorized by the Committee, be conducted:

A. In a manner consistent with the obligations regarding exchange arrangements under Article IV of

the Articles of Agreement of the International Monetary Fund (IMF).1

B. In close and continuous cooperation and consultation, as appropriate, with the United States Treasury.

C. In consultation, as appropriate, with foreign

monetary authorities, foreign central banks, and international monetary institutions.

D. At prevailing market rates.

STANDALONE SPOT AND FORWARD

TRANSACTIONS

3. For any operation that involves standalone spot or

forward transactions in foreign currencies:

A. Approval of such operation is required as follows:

i.

The Committee must direct the Selected Bank

in advance to execute the operation if it would result

in the overall volume of standalone spot and forward transactions in foreign currencies, as defined

in paragraph 3.C of this Authorization, exceeding

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$5 billion since the close of the most recent regular

meeting of the Committee. The Foreign Currency

Subcommittee (the “Subcommittee”) must direct

the Selected Bank in advance to execute the operation if the Subcommittee believes that consultation

with the Committee is not feasible in the time available.

ii. The Committee authorizes the Subcommittee

to direct the Selected Bank in advance to execute the

operation if it would result in the overall volume of

standalone spot and forward transactions in foreign

currencies, as defined in paragraph 3.C of this Authorization, totaling $5 billion or less since the close

of the most recent regular meeting of the Committee.

B. Such an operation also shall be:

i.

Generally directed at countering disorderly

market conditions; or

ii. Undertaken to adjust System balances in light

of probable future needs for currencies; or

iii. Conducted for such other purposes as may be

determined by the Committee.

C. For purposes of this Authorization, the overall

volume of standalone spot and forward transactions

in foreign currencies is defined as the sum (disregarding signs) of the dollar values of individual foreign currencies purchased and sold, valued at the time of the

transaction.

WAREHOUSING

4. The Committee authorizes the Selected Bank, with

the prior approval of the Subcommittee and at the request of the United States Treasury, to conduct swap

transactions with the United States Exchange Stabilization Fund established by section 10 of the Gold Reserve

Act of 1934 under agreements in which the Selected

Bank purchases foreign currencies from the Exchange

Stabilization Fund and the Exchange Stabilization Fund

repurchases the foreign currencies from the Selected

Bank at a later date (such purchases and sales also known

as warehousing).

RECIPROCAL CURRENCY ARRANGEMENTS,

AND STANDING DOLLAR AND FOREIGN

CURRENCY LIQUIDITY SWAPS

5. The Committee authorizes the Selected Bank to

maintain reciprocal currency arrangements established

under the North American Framework Agreement,

standing dollar liquidity swap arrangements, and stand-

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Federal Open Market Committee

ing foreign currency liquidity swap arrangements as provided in this Authorization and to the extent necessary

to carry out any foreign currency directive of the Committee.

A. For reciprocal currency arrangements all drawings must be approved in advance by the Committee

(or by the Subcommittee, if the Subcommittee believes that consultation with the Committee is not feasible in the time available).

B. For standing dollar liquidity swap arrangements

all drawings must be approved in advance by the

Chairman. The Chairman may approve a schedule of

potential drawings, and may delegate to the manager,

System Open Market Account, the authority to approve individual drawings that occur according to the

schedule approved by the Chairman.

C. For standing foreign currency liquidity swap arrangements all drawings must be approved in advance

by the Committee (or by the Subcommittee, if the

Subcommittee believes that consultation with the

Committee is not feasible in the time available).

D. Operations involving standing dollar liquidity

swap arrangements and standing foreign currency liquidity swap arrangements shall generally be directed

at countering strains in financial markets in the United

States or abroad, or reducing the risk that they could

emerge, so as to mitigate their effects on economic

and financial conditions in the United States.

E. For reciprocal currency arrangements, standing

dollar liquidity swap arrangements, and standing foreign currency liquidity swap arrangements:

i.

All arrangements are subject to annual review

and approval by the Committee;

ii.

Any new arrangements must be approved by

the Committee; and

iii. Any changes in the terms of existing arrangements must be approved in advance by the Chairman. The Chairman shall keep the Committee informed of any changes in terms, and the terms shall

be consistent with principles discussed with and

guidance provided by the Committee.

OTHER OPERATIONS IN FOREIGN

CURRENCIES

6. Any other operations in foreign currencies for

which governance is not otherwise specified in this Authorization (such as foreign exchange swap transactions

with private-sector counterparties) must be authorized

and directed in advance by the Committee.

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FOREIGN CURRENCY HOLDINGS

7. The Committee authorizes the Selected Bank to

hold foreign currencies for the System Open Market Account in accounts maintained at foreign central banks,

the Bank for International Settlements, and such other

foreign institutions as approved by the Board of Governors under Section 214.5 of Regulation N, to the extent

necessary to carry out any foreign currency directive of

the Committee.

A. The Selected Bank shall manage all holdings of

foreign currencies for the System Open Market Account:

i.

Primarily, to ensure sufficient liquidity to enable the Selected Bank to conduct foreign currency

operations as directed by the Committee;

ii. Secondarily, to maintain a high degree of

safety;

iii. Subject to paragraphs 7.A.i and 7.A.ii, to provide the highest rate of return possible in each currency; and

iv. To achieve such other objectives as may be authorized by the Committee.

B. The Selected Bank may manage such foreign currency holdings by:

i.

Purchasing and selling obligations of, or fully

guaranteed as to principal and interest by, a foreign

government or agency thereof (“Permitted Foreign

Securities”) through outright purchases and sales;

ii. Purchasing Permitted Foreign Securities under

agreements for repurchase of such Permitted Foreign Securities and selling such securities under

agreements for the resale of such securities; and

iii. Managing balances in various time and other

deposit accounts at foreign institutions approved by

the Board of Governors under Regulation N.

C. The Subcommittee, in consultation with the

Committee, may provide additional instructions to the

Selected Bank regarding holdings of foreign currencies.

ADDITIONAL MATTERS

8.

The Committee authorizes the Chairman:

A. With the prior approval of the Committee, to enter into any needed agreement or understanding with

the Secretary of the United States Treasury about the

division of responsibility for foreign currency operations between the System and the United States Treasury;

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Minutes of the Meeting of January 30–31, 2018

B. To advise the Secretary of the United States

Treasury concerning System foreign currency operations, and to consult with the Secretary on policy matters relating to foreign currency operations;

C. To designate Federal Reserve System persons authorized to communicate with the United States

Treasury concerning System Open Market Account

foreign currency operations; and

D. From time to time, to transmit appropriate reports and information to the National Advisory Council on International Monetary and Financial Policies.

9. The Committee authorizes the Selected Bank to

undertake transactions of the type described in this Authorization, and foreign exchange and investment

transactions that it may be otherwise authorized to

undertake, from time to time for the purpose of testing

operational readiness. The aggregate amount of such

transactions shall not exceed $2.5 billion per calendar

year. These transactions shall be conducted with prior

notice to the Committee.

10. All Federal Reserve banks shall participate in the

foreign currency operations for System Open Market

Account in accordance with paragraph 3G(1) of the

Board of Governors’ Statement of Procedure with Respect to Foreign Relationships of Federal Reserve Banks

dated January 1, 1944.

11. Any authority of the Subcommittee pursuant to

this Authorization may be exercised by the Chairman if

the Chairman believes that consultation with the Subcommittee is not feasible in the time available. The

Chairman shall promptly report to the Subcommittee

any action approved by the Chairman pursuant to this

paragraph.

12. The Committee authorizes the Chairman, in exceptional circumstances where it would not be feasible to

convene the Committee, to foster the Committee’s objectives by instructing the Selected Bank to engage in

foreign currency operations not otherwise authorized

pursuant to this Authorization. Any such action shall be

made in the context of the Committee’s discussion and

decisions regarding foreign currency operations. The

Chairman, whenever feasible, will consult with the Committee before making any instruction under this paragraph.

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1 In general, as specified in Article IV, each member of

the IMF undertakes to collaborate with the IMF and

other members to assure orderly exchange arrangements

and to promote a stable system of exchange rates. These

obligations include seeking to direct the member’s eco-

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nomic and financial policies toward the objective of fostering orderly economic growth with reasonable price

stability. These obligations also include avoiding manipulating exchange rates or the international monetary system in such a way that would impede effective balance

of payments adjustment or to give an unfair competitive

advantage over other members.

FOREIGN CURRENCY DIRECTIVE

(As reaffirmed effective January 30, 2018)

1. The Committee directs the Federal Reserve Bank

selected by the Committee (the “Selected Bank”) to execute open market transactions, for the System Open

Market Account, in accordance with the provisions of

the Authorization for Foreign Currency Operations (the

“Authorization”) and subject to the limits in this Directive.

2. The Committee directs the Selected Bank to execute warehousing transactions, if so requested by the

United States Treasury and if approved by the Foreign

Currency Subcommittee (the “Subcommittee”), subject

to the limitation that the outstanding balance of United

States dollars provided to the United States Treasury as

a result of these transactions not at any time exceed

$5 billion.

3. The Committee directs the Selected Bank to maintain, for the System Open Market Account:

A. Reciprocal currency arrangements with the following foreign central banks:

Foreign central bank Maximum amount

(millions of dollars

or equivalent)

Bank of Canada

Bank of Mexico

2,000

3,000

B. Standing dollar liquidity swap arrangements with

the following foreign central banks:

Bank of Canada

Bank of England

Bank of Japan

European Central Bank

Swiss National Bank

C. Standing foreign currency liquidity swap arrangements with the following foreign central banks:

Bank of Canada

Bank of England

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Federal Open Market Committee

Bank of Japan

European Central Bank

Swiss National Bank

4. The Committee directs the Selected Bank to hold

and to invest foreign currencies in the portfolio in accordance with the provisions of paragraph 7 of the Authorization.

5. The Committee directs the Selected Bank to report

to the Committee, at each regular meeting of the Committee, on transactions undertaken pursuant to paragraphs 1 and 6 of the Authorization. The Selected Bank

is also directed to provide quarterly reports to the Committee regarding the management of the foreign currency holdings pursuant to paragraph 7 of the Authorization.

6. The Committee directs the Selected Bank to conduct testing of transactions for the purpose of operational readiness in accordance with the provisions of

paragraph 9 of the Authorization.

By unanimous vote, the Committee revised its Program

for Security of FOMC Information with a set of technical changes to update references to other documents.

In the Committee’s annual reconsideration of the Statement on Longer-Run Goals and Monetary Policy Strategy, participants agreed that only a minor revision was

required at this meeting, which was to update the reference to the median of FOMC participants’ estimates of

the longer-run normal rate of unemployment from

4.8 percent to 4.6 percent. All participants supported

the statement with the revision, and the Committee

voted unanimously to approve the updated statement.

STATEMENT ON LONGER-RUN GOALS AND

MONETARY POLICY STRATEGY

(As amended effective January 30, 2018)

The Federal Open Market Committee (FOMC) is

firmly committed to fulfilling its statutory mandate from

the Congress of promoting maximum employment, stable prices, and moderate long-term interest rates. The

Committee seeks to explain its monetary policy decisions to the public as clearly as possible. Such clarity

facilitates well-informed decisionmaking by households

and businesses, reduces economic and financial uncertainty, increases the effectiveness of monetary policy,

and enhances transparency and accountability, which are

essential in a democratic society.

Inflation, employment, and long-term interest rates

fluctuate over time in response to economic and financial disturbances. Moreover, monetary policy actions

_

tend to influence economic activity and prices with a lag.

Therefore, the Committee’s policy decisions reflect its

longer-run goals, its medium-term outlook, and its assessments of the balance of risks, including risks to the

financial system that could impede the attainment of the

Committee’s goals.

The inflation rate over the longer run is primarily determined by monetary policy, and hence the Committee

has the ability to specify a longer-run goal for inflation.

The Committee reaffirms its judgment that inflation at

the rate of 2 percent, as measured by the annual change

in the price index for personal consumption expenditures, is most consistent over the longer run with the

Federal Reserve’s statutory mandate. The Committee

would be concerned if inflation were running persistently above or below this objective. Communicating

this symmetric inflation goal clearly to the public helps

keep longer-term inflation expectations firmly anchored,

thereby fostering price stability and moderate long-term

interest rates and enhancing the Committee’s ability to

promote maximum employment in the face of significant economic disturbances. The maximum level of employment is largely determined by nonmonetary factors

that affect the structure and dynamics of the labor market. These factors may change over time and may not

be directly measurable. Consequently, it would not be

appropriate to specify a fixed goal for employment; rather, the Committee’s policy decisions must be informed

by assessments of the maximum level of employment,

recognizing that such assessments are necessarily uncertain and subject to revision. The Committee considers a

wide range of indicators in making these assessments.

Information about Committee participants’ estimates of

the longer-run normal rates of output growth and unemployment is published four times per year in the

FOMC’s Summary of Economic Projections. For example, in the most recent projections, the median of

FOMC participants’ estimates of the longer-run normal

rate of unemployment was 4.6 percent.

In setting monetary policy, the Committee seeks to

mitigate deviations of inflation from its longer-run goal

and deviations of employment from the Committee’s assessments of its maximum level. These objectives are

generally complementary. However, under circumstances in which the Committee judges that the objectives are not complementary, it follows a balanced approach in promoting them, taking into account the magnitude of the deviations and the potentially different

time horizons over which employment and inflation are

projected to return to levels judged consistent with its

mandate.

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Minutes of the Meeting of January 30–31, 2018

The Committee intends to reaffirm these principles

and to make adjustments as appropriate at its annual organizational meeting each January.

Developments in Financial Markets and Open Market Operations

The manager of the System Open Market Account

(SOMA) provided a summary of developments in domestic and global financial markets over the intermeeting period. Financial conditions eased further over recent weeks with market participants pointing to increasing appetites for risk and perceptions of diminished

downside risks as factors buoying market sentiment. In

this environment, yields on safe assets such as U.S.

Treasury securities moved up some while corporate risk

spreads narrowed and equity prices recorded further significant gains. Breakeven measures of inflation compensation derived from Treasury Inflation Protected Securities (TIPS) moved up but remained low. Survey

measures of longer-term inflation expectations showed

little change. Judging from interest rate futures, the expected path of the federal funds rate shifted up over the

period but continued to imply a gradual expected pace

of policy firming. The deputy manager followed with a

discussion of recent developments in money markets

and FOMC operations. Year-end pressures were evident in the market for foreign exchange basis swaps, but

conditions returned to normal early in 2018. Yields on

Treasury bills maturing in early March were elevated, reflecting investors’ concerns about the possibility that a

failure to raise the federal debt ceiling could affect the

timing of principal payments for these securities. 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 reported on the volume of overnight reverse repurchase agreement operations over the intermeeting period and discussed the Desk’s plans for small-value operational tests of various types of open market operations over the coming year.

By unanimous vote, the Committee ratified the Open

Market 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.

Inflation Analysis and Forecasting

The staff presented three briefings on inflation analysis

and forecasting. The presentations reviewed a number

of commonly used structural and reduced-form models.

These included structural models in which the rate of

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inflation is linked importantly to measures of resource

slack and a measure of expected inflation relevant for

wage and price setting—so-called Phillips curve specifications—as well as statistical models in which inflation

is primarily determined by a time-varying inflation trend

or longer-run inflation expectations. The briefings

noted several factors beyond those captured in the models that appeared to have put downward pressure on

prices in recent years. These included structural changes

in price setting for some items, such as medical care, and

the effects of idiosyncratic price shocks, such as the unusual drop in prices of wireless telephone services in

2017. The staff found little compelling evidence for the

possible influence of other factors such as a more competitive pricing environment or a change in the markup

of prices over unit labor costs. Overall, for the set of

models presented, the prediction errors in recent years

were larger than those observed during the 2001–07 period but were consistent with historical norms and, in

most models, did not appear to be biased.

The staff presentations considered two key channels by

which monetary policy influences inflation—the response of inflation to changes in resource utilization and

the role of inflation expectations, or trend inflation, in

the price-setting process. In part because inflation was

importantly influenced by a number of short-lived factors, the effects of current and expected resource utilization gaps on inflation were not easy to discern empirically. Estimates of the strength of those effects had diminished noticeably in recent years. The briefings highlighted a number of other challenges associated with estimating the strength and timing of the linkage between

resource utilization and inflation, including the reliability

of and changes over time in estimates of the natural rate

of unemployment and potential output and the ability to

adequately account for supply shocks. In addition, some

research suggested that the relationship between resource utilization and inflation may be nonlinear, with

the response of inflation increasing as rates of utilization

rise to very high levels.

With regard to inflation expectations, two of the briefings presented findings that the longer-run trend in inflation, absent cyclical disturbances or transitory fluctuations, had been stable in recent years at a little below

2 percent. The briefings reported that the average forecasting performance of models employing either statistical estimates of inflation trends or survey-based

measures of inflation expectations as proxies for inflation expectations appeared comparable, even though

different versions of such models could yield very differ-

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Federal Open Market Committee

ent forecasts at any given point in time. Moreover, although survey-based measures of longer-run inflation

expectations tended to move in parallel with estimated

inflation trends, the empirical research provided no clear

guidance on how to construct a measure of inflation expectations that would be the most useful for inflation

forecasting. The staff noted that although reduced-form

models in which inflation tends to revert toward longerrun inflation trends described the data reasonably well,

those models offered little guidance to policymakers on

how to conduct policy so as to achieve their desired outcome for inflation.

Following the staff presentations, participants discussed

how the inflation frameworks reviewed in the briefings

informed their views on inflation and monetary policy.

Almost all participants who commented agreed that a

Phillips curve–type of inflation framework remained

useful as one of their tools for understanding inflation

dynamics and informing their decisions on monetary

policy. Policymakers pointed to a number of possible

reasons for the difficulty in estimating the link between

resource utilization and inflation in recent years. These

reasons included an extended period of low and stable

inflation in the United States and other advanced economies during which the effects of resource utilization on

inflation became harder to identify, the shortcomings of

commonly used measures of resource gaps, the effects

of transitory changes in relative prices, and structural

factors that had made business pricing more competitive

or prices more flexible over time. It was noted that research focusing on inflation across U.S. states or metropolitan areas continued to find a significant relationship

between price or wage inflation and measures of resource gaps. A couple of participants questioned the

usefulness of a Phillips curve–type framework for policymaking, citing the limited ability of such frameworks

to capture the relationship between economic activity

and inflation.

Participants generally agreed that inflation expectations

played a fundamental role in understanding and forecasting inflation, with stable inflation expectations providing

an important anchor for the rate of inflation over the

longer run. Participants acknowledged that the causes

of movements in short- and longer-run inflation expectations, including the role of monetary policy, were imperfectly understood. They commented that various

proxies for inflation expectations—readings from

household and business surveys or from economic forecasters, estimates derived from market prices, or estimated trends—were imperfect measures of actual inflation expectations, which are unobservable. That said,

participants emphasized the critical need for the FOMC

to maintain a credible longer-run inflation objective and

to clearly communicate the Committee’s commitment to

achieving that objective. Several participants indicated

that they viewed the available evidence as suggesting that

longer-run inflation expectations remained well anchored; one cited recent research finding that inflation

expectations had become better anchored following the

Committee’s adoption of a numerical inflation target.

However, a few saw low levels of inflation over recent

years as reflecting, in part, slippage in longer-run inflation expectations below the Committee’s 2 percent objective. In that regard, a number of participants noted

the importance of continuing to emphasize that the

Committee’s 2 percent inflation objective is symmetric.

A couple of participants suggested that the Committee

might consider expressing its objective as a range rather

than a point estimate. A few other participants suggested that the FOMC could begin to examine whether

adopting a monetary policy framework in which the

Committee would strive to make up for past deviations

of inflation from target might address the challenge of

achieving and maintaining inflation expectations consistent with the Committee’s inflation objective, particularly in an environment in which the neutral rate of interest appeared likely to remain low.

Staff Review of the Economic Situation

The information reviewed for the January 30–31 meeting indicated that labor market conditions continued to

strengthen through December and that real gross domestic product (GDP) expanded at about a 2½ percent

pace in the fourth quarter of last year. Growth of real

final domestic purchases by households and businesses,

generally a good indicator of the economy’s underlying

momentum, was solid. 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 December.

Survey-based measures of longer-run inflation expectations were little changed on balance.

Total nonfarm payroll employment increased solidly in

December, and the national unemployment rate remained at 4.1 percent. The unemployment rates for Hispanics, for Asians, and for African Americans were

lower than earlier in the year and close to the levels seen

just before the most recent recession. The national labor

force participation rate held steady in December; relative

to the declining trend suggested by an aging population,

this sideways movement in the participation rate represented a further strengthening in labor market conditions. The participation rate for prime-age (defined as

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Minutes of the Meeting of January 30–31, 2018

ages 25 to 54) men edged up in December, while the rate

for prime-age women declined slightly. The share of

workers who were employed part time for economic reasons was little changed in December and was close to its

pre-recession level. The rates of private-sector job

openings and quits were little changed in November, and

the four-week moving average of initial claims for unemployment insurance benefits continued to be at a low

level in mid-January. Recent readings showed that gains

in hourly labor compensation remained modest. Both

the employment cost index for private-sector workers

and average hourly earnings for all employees rose about

2½ percent over the 12 months ending in December.

Total industrial production increased over the two

months ending in December, with broad-based gains in

manufacturing, mining, and utilities output. Automakers’ schedules indicated that assemblies of light motor

vehicles would likely move up over the coming months.

Broader indicators of manufacturing production, such as

the new orders indexes from national and regional manufacturing surveys, pointed to further solid increases in

factory output in the near term.

Real PCE increased strongly in the fourth quarter. 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 further solid growth of real

PCE in the near term. Consumer sentiment in early January, as measured by the University of Michigan Surveys

of Consumers, remained upbeat.

Real residential investment rose briskly in the fourth

quarter after having declined in the previous two quarters. Both starts and issuance of building permits for

new single-family homes increased in the fourth quarter

as a whole, and starts for multifamily units also moved

up. Moreover, sales of both new and existing homes

rose in the fourth quarter.

Real private expenditures for business equipment and intellectual property increased at a solid pace in the fourth

quarter. Recent indicators of business equipment spending—such as rising new orders of nondefense capital

goods excluding aircraft and upbeat readings on business sentiment from national and regional surveys—

pointed to further gains in equipment spending in the

near term. Firms’ real spending for nonresidential structures rose modestly in the fourth quarter, as an increase

in outlays for drilling and mining structures was largely

offset by a decline in expenditures for other business

structures. The number of crude oil and natural gas rigs

in operation—an indicator of spending for structures in

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the drilling and mining sector—continued to edge up

through late January.

Total real government purchases rose modestly in the

fourth quarter. Increased federal government purchases

mostly reflected a rise in defense spending, and the gains

in purchases by state and local governments were led by

an increase in construction spending in this sector.

The nominal U.S. international trade deficit widened further in November after widening sharply in October.

Exports of goods and services picked up in November,

while imports, particularly of consumer goods, increased

robustly. Available data for goods trade in December

suggested that import growth again outpaced export

growth. All told, real net exports were estimated to be a

substantial drag on real GDP growth in the fourth quarter.

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

price index, increased about 1¾ percent over the

12 months ending in December. Core PCE price inflation, which excludes changes in consumer food and energy prices, was 1½ percent over that same period. The

consumer price index (CPI) rose around 2 percent over

the same period, while core CPI inflation was 1¾ percent. Recent readings on survey-based measures of

longer-run inflation expectations—including those from

the Michigan survey and the Desk’s Survey of Primary

Dealers and Survey of Market Participants—were little

changed on balance.

Incoming data suggested that economic activity abroad

continued to expand at a solid pace and that this expansion was broad based across countries. In the advanced

foreign economies (AFEs), real GDP in the euro area

and the United Kingdom expanded at a moderate pace

in the fourth quarter. In the emerging market economies

(EMEs), Mexico’s economy rebounded after being held

back by natural disasters in the third quarter. Economic

growth remained solid in China but cooled off a bit in

some emerging Asian economies after a very strong

third-quarter performance. Inflation in both AFEs and

EMEs picked up significantly in the fourth quarter,

largely reflecting a boost from rising oil prices. Inflation

excluding food and energy prices remained well below

central bank targets in several economies, including the

euro area and Japan.

Staff Review of the Financial Situation

Domestic financial market conditions eased considerably further over the intermeeting period. A strengthening outlook for economic growth in the United States

and abroad, along with recently enacted tax legislation,

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Federal Open Market Committee

appeared to boost investor sentiment. U.S. equity prices,

Treasury yields, and market-based measures of inflation

compensation rose, and spreads of yields on investmentand speculative-grade nonfinancial corporate bonds

over those for comparable-maturity Treasury securities

narrowed further. In addition, the dollar depreciated

broadly amid strong foreign economic data and monetary policy communications by some foreign central

banks that investors reportedly viewed as less accommodative than expected.

FOMC communications over the intermeeting period

were generally characterized by market participants as

consistent with their expectations for continued gradual

removal of monetary policy accommodation. The Committee’s decision to raise the target range for the federal

funds rate at the December meeting was widely expected, and the probability of an increase in the target

range for the federal funds rate occurring at the January

meeting, as implied by quotes on federal funds futures

contracts, remained essentially zero. Over the intermeeting period, the futures-implied probability of policy

firming at the March meeting rose to about 85 percent;

respondents to the Desk’s Survey of Primary Dealers

and Survey of Market Participants assigned, on average,

similarly high odds to a rate increase at the March meeting. Levels of the federal funds rate at the end of 2018

and 2019 implied by overnight index swap rates moved

up moderately.

The nominal Treasury yield curve shifted up over the intermeeting period amid an improved outlook for domestic and foreign economic growth. Yields on both 2- and

10-year Treasury securities moved up about 30 basis

points. Measures of inflation compensation based on

TIPS fell in response to the soft reading on core inflation

in the November CPI release but subsequently moved

up against the backdrop of an improving global growth

outlook, higher commodity prices, depreciation of the

dollar, and the stronger-than-expected reading on core

inflation in the December CPI release. On net, inflation

compensation moved up at both the 5-year and the

5-to-10-year horizons, and both measures returned to

levels seen in early 2017 before the string of generally

weaker-than-expected inflation readings.

Broad equity price indexes rose substantially over the intermeeting period, with investors pointing to a stronger

global economic outlook and the supportive effect of

the recently enacted tax legislation on risk sentiment.

The VIX, an index of option-implied volatility for onemonth returns on the S&P 500 index, increased but re-

mained low by historical standards. Spreads of both investment- and speculative-grade corporate bond yields

over comparable-maturity Treasury yields declined

slightly and remained well below their historical averages.

The FOMC’s decision at its December meeting to raise

the target range for the federal funds rate was transmitted smoothly to money market rates. The effective federal funds rate held steady at a level near the middle of

the target range except at year-end. While borrowing

costs moved up briefly in offshore dollar funding markets over year-end, conditions in money markets were

reported to be orderly. In line with recent year-end experiences, rates and volumes in the federal funds and

Eurodollar markets declined, while in secured markets,

rates on Treasury repurchase agreements increased. After year-end, pressures in money markets abated quickly

and rates and volumes returned to recent ranges.

The broad nominal dollar index declined nearly 4 percent relative to its value at the time of the December

FOMC meeting; the decline was most pronounced

against AFE currencies, but the dollar depreciated notably against most EME currencies as well. EME equity

prices registered substantial gains, in part supported by a

significant rise in commodity prices; emerging market

bond spreads narrowed moderately, and flows into

EME equity and bond funds strengthened substantially.

Market-based measures of policy expectations and

longer-term sovereign yields moved up in most AFEs.

The Bank of Canada raised its policy rate at its January

meeting, largely in response to better-than-expected economic data. The Bank of England, the Bank of Japan,

and the European Central Bank (ECB) left their monetary policy stances unchanged, as expected. Nonetheless, the ECB president’s optimistic assessment of the

euro-area economy at the press conference following the

January meeting was interpreted by market participants

as a signal that monetary policy would be less accommodative than expected. Following those remarks, the euro

appreciated notably against the dollar and core euro-area

sovereign yields moved higher. That said, market-based

measures of policy expectations continued to indicate

that investors anticipate a gradual pace of monetary policy normalization in the euro area.

Financing conditions for nonfinancial businesses and

households remained generally accommodative over the

intermeeting period and continued to be supportive of

economic activity. Respondents to the January Senior

Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) reported easing standards and narrowing

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Minutes of the Meeting of January 30–31, 2018

loan spreads for large and middle-market firms and attributed this easing to more aggressive competition from

other bank or nonbank lenders. Net debt financing by

investment-grade nonfinancial corporations turned negative in December, but the weakness appeared to reflect

a softening in the demand for credit, possibly related to

the anticipation of higher after-tax cash flows and repatriation of foreign earnings. In contrast, gross issuance

of speculative-grade bonds and institutional leveraged

loans remained strong. Credit market conditions for

small businesses remained relatively accommodative despite sluggish credit growth among these firms. Credit

conditions in municipal bond markets also remained accommodative.

In commercial real estate (CRE) markets, growth of

loans held by banks slowed further in the fourth quarter,

though CRE loans held by small banks and some types

of CRE loans held by large banks—construction and

land development loans in particular—expanded at a

more robust pace. Financing conditions in the commercial mortgage-backed securities (CMBS) market remained accommodative as issuance continued at a robust pace and spreads on CMBS remained near their

lowest levels since the financial crisis. Credit conditions

in the residential mortgage market remained accommodative for most borrowers, though credit standards remained tight for borrowers with low credit scores or

hard-to-document incomes. Mortgage rates increased in

tandem with rates on longer-term Treasury securities but

remained quite low by historical standards.

Conditions in consumer credit markets remained largely

supportive of economic activity. Consumer credit increased notably in November, exceeding the more moderate volume of borrowing observed earlier in the year.

Revolving credit expanded in November, while nonrevolving credit grew robustly, mainly driven by expansion

in student and other consumer loans. In contrast,

growth of auto lending slowed in recent months, consistent with the weakening demand for such loans in the

fourth quarter as reported in the January SLOOS. For

subprime borrowers, conditions remained tight, particularly in the market for credit cards and auto loans.

The staff provided its latest report on the potential risks

to financial stability; the report continued to characterize

the financial vulnerabilities of the U.S. financial system

as moderate on balance. This overall assessment incorporated the staff’s judgment that vulnerabilities associated with asset valuation pressures continued to be elevated; asset valuation pressures apparently reflected, in

part, a broad-based appetite for risk among investors.

Page 13

The staff judged that vulnerabilities from leverage in the

nonfinancial sector appeared to remain moderate, while

vulnerabilities stemming from financial-sector leverage

and from maturity and liquidity transformation continued to be viewed as low.

Staff Economic Outlook

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

the January FOMC meeting was stronger than the staff

forecast at the time of the December meeting. Real

GDP was estimated to have risen in the fourth quarter

of last year by somewhat more than the staff had previously expected, as gains in both household and business

spending were larger than anticipated. Beyond 2017, the

forecast for real GDP growth was revised up, reflecting

a reassessment of the recently enacted tax cuts, along

with higher projected paths for equity prices and foreign

economic growth and a lower assumed path for the foreign exchange value of the dollar. Real GDP was projected to increase at a somewhat faster pace than potential output through 2020; the staff continued to assume

that the recently enacted tax cuts would boost real GDP

growth moderately over the medium term. The unemployment rate was projected to decline further over the

next few years and to continue to run well below the

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

Estimates of total and core PCE price inflation for 2017

were in line with the staff’s previous forecast. The projection for inflation over the medium term was revised

up slightly, primarily reflecting tighter resource utilization in the January forecast. Total PCE price inflation

in 2018 was projected to be somewhat faster than in

2017 despite a slower projected pace of increases in consumer energy prices; core PCE prices were forecast to

rise notably faster in 2018, importantly reflecting both

the expected waning of transitory factors that held down

12-month measures of inflation in 2017 as well as the

projected further tightening in resource utilization. The

staff projected that core inflation would reach 2 percent

in 2019 and that total inflation would be at the Committee’s 2 percent 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 remained subdued; on 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

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Federal Open Market Committee

as balanced. The risks to the projection for inflation also

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

have edged 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 their discussion of the economic situation and the

outlook, meeting participants agreed that information

received since the FOMC met in December indicated

that the labor market continued to strengthen and that

economic activity expanded at a solid rate. Gains in employment, household spending, and business fixed investment were solid, and the unemployment rate stayed

low. On a 12-month basis, both overall inflation and

inflation for items other than food and energy continued

to run below 2 percent. Market-based measures of inflation compensation increased in recent months but remained low; survey-based measures of longer-term inflation expectations were little changed, on balance.

Participants generally saw incoming information on economic activity and the labor market as consistent with

continued above-trend economic growth and a further

strengthening in labor market conditions, with the recent

solid gains in household and business spending indicating substantial underlying economic momentum. They

pointed to accommodative financial conditions, the recently enacted tax legislation, and an improved global

economic outlook as factors likely to support economic

growth over coming quarters. Participants expected that

with further gradual adjustments in the stance of monetary policy, economic activity would expand at a moderate pace and labor market conditions would remain

strong. Near-term risks to the economic outlook appeared roughly balanced. Inflation on a 12-month basis

was expected to move up this year and to stabilize

around the Committee’s 2 percent objective over the

medium term. However, participants judged that it was

important to continue to monitor inflation developments closely.

Participants expected the recent solid growth in consumer spending to continue, supported by further gains

in employment and income, increased household wealth

resulting from higher asset prices, and high levels of consumer confidence. It was noted that spending on dura-

ble goods to replace those damaged during the hurricanes in September may have provided a temporary

boost to consumer spending. In connection with solid

growth in consumer spending, a couple of participants

noted that the household saving rate had declined to its

lowest level since 2005, likely driven by buoyant consumer sentiment or expectations that the rise in household wealth would be sustained.

Participants characterized their business contacts as generally upbeat about the economy; their contacts cited the

recent tax cuts and notable improvements in the global

economic outlook as positive factors. Manufacturers in

a number of Districts had responded to increased orders

by boosting production. Against a backdrop of higher

energy prices and increased global demand for crude oil,

a couple of participants revised up their forecasts for energy production in their respective Districts. Businesses

in a number of Districts reported plans to further increase investment in coming quarters in order to expand

capacity. Even so, several participants expressed considerable uncertainty about the degree to which changes

to corporate taxes would support business investment

and capacity expansion; according to these participants,

firms may be only just beginning to determine how they

might allocate their tax savings among investment,

worker compensation, mergers and acquisitions, returns

to shareholders, or other uses.

The labor market had strengthened further in recent

months, as indicated by continued solid payroll gains, a

small increase in average hours worked, and a labor force

participation rate that had held steady despite the longerrun declining trend implied by an aging population.

Many participants reported that labor market conditions

were tight in their Districts, evidenced by low unemployment rates, difficulties for employers in filling open positions or retaining workers, or some signs of upward

pressure on wages. The unemployment rate, at 4.1 percent, had remained near the lowest level seen in the past

20 years. It was noted that other labor market indicators—such as the U-6 measure of unemployment or the

share of involuntary part-time employment—had returned to their pre-recession levels. A few participants

judged that while the labor market was close to full employment, some margins of slack remained; these participants pointed to the employment-to-population ratio or

the labor force participation rate for prime-age workers,

which remained below pre-recession levels, as well as the

absence to date of clear signs of a pickup in aggregate

wage growth.

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Minutes of the Meeting of January 30–31, 2018

During their discussion of labor market conditions, participants expressed a range of views about recent wage

developments. While some participants heard more reports of wage pressures from their business contacts

over the intermeeting period, participants generally

noted few signs of a broad-based pickup in wage growth

in available data. With regard to how firms might use

part of their tax savings to boost compensation, a few

participants suggested that such a boost could be in the

form of onetime bonuses or variable pay rather than a

permanent increase in wage structures. It was noted that

the pace of wage gains might not increase appreciably if

productivity growth remains low. That said, a number

of participants judged that the continued tightening in

labor markets was likely to translate into faster wage increases at some point.

In their discussion of inflation developments, many participants noted that inflation data in recent months had

generally pointed to a gradual rise in inflation, as the

12-month core PCE price inflation rose to 1.5 percent

in December, up 0.2 percentage point from the low recorded in the summer. Meanwhile, total PCE price inflation was 1.7 percent over the same 12-month period.

Participants anticipated that inflation would continue to

gradually rise as resource utilization tightened further

and as wage pressures became more apparent; several

expected that declines in the foreign exchange value of

the dollar in recent months would also likely help return

inflation to 2 percent over the medium term. Business

contacts in a few Districts reported that they had begun

to have some more ability to raise prices to cover higher

input costs. That said, a few participants posited that the

recently enacted corporate tax cuts might lead firms to

cut prices in order to remain competitive or to gain market share, which could result in a transitory drag on inflation.

With regard to inflation expectations, available readings

from surveys had been steady and TIPS-based measures

of inflation compensation had moved up, although they

remained low. Many participants thought that inflation

expectations remained well anchored and would support

the gradual return of inflation to the Committee’s 2 percent objective over the medium term. However, a few

other participants pointed to the record of inflation consistently running below the Committee’s 2 percent objective over recent years and expressed the concern that

longer-run inflation expectations may have slipped below levels consistent with that objective.

Many participants noted that financial conditions had

eased significantly over the intermeeting period; these

Page 15

participants generally viewed the economic effects of the

decline in the dollar and the rise in equity prices as more

than offsetting the effects of the increase in nominal

Treasury yields. One participant reported that financial

market contacts did not see the relatively flat slope of the

yield curve as signaling an increased risk of recession. A

few others judged that it would be important to continue

to monitor the effects of policy firming on the slope of

the yield curve, noting the strong association between

past yield curve inversions and recessions.

Regulatory actions and improved risk management in recent years had put the financial system in a better position to withstand adverse shocks, such as a substantial

decline in asset prices, than in the past. However, amid

elevated asset valuations and an increased use of debt by

nonfinancial corporations, several participants cautioned

that imbalances in financial markets may begin to

emerge as the economy continued to operate above potential. In this environment, increased use of leverage

by nonbank financial institutions might be difficult to

detect in a timely manner. It was also noted that the

Committee should regularly reassess risks to the financial system and their implications for the economic outlook in light of the potential for changes in regulatory

policies over time.

In their consideration of monetary policy, participants

discussed the implications of recent economic and financial developments for the outlook for economic growth,

labor market conditions, and inflation and, in turn, for

the appropriate path of the federal funds rate. Participants agreed that a gradual approach to raising the target

range for the federal funds rate remained appropriate

and reaffirmed that adjustments to the policy path would

depend on their assessments of how the economic outlook and risks to the outlook were evolving relative to

the Committee’s policy objectives. While participants

continued to expect economic activity to expand at a

moderate pace over the medium term, they anticipated

that the rate of economic growth in 2018 would exceed

their estimates of its sustainable longer-run pace and that

labor market conditions would strengthen further. A

number of participants indicated that they had marked

up their forecasts for economic growth in the near term

relative to those made for the December meeting in light

of the strength of recent data on economic activity in the

United States and abroad, continued accommodative financial conditions, and information suggesting that the

effects of recently enacted tax changes—while still uncertain—might be somewhat larger in the near term than

previously thought. Several others suggested that the

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Federal Open Market Committee

upside risks to the near-term outlook for economic activity may have increased. A majority of participants

noted that a stronger outlook for economic growth

raised the likelihood that further gradual policy firming

would be appropriate.

Almost all participants continued to anticipate that inflation would move up to the Committee’s 2 percent objective over the medium term as economic growth remained above trend and the labor market stayed strong;

several commented that recent developments had increased their confidence in the outlook for further progress toward the Committee’s 2 percent inflation objective. A couple noted that a step-up in the pace of economic growth could tighten labor market conditions

even more than they currently anticipated, posing risks

to inflation and financial stability associated with substantially overshooting full employment. However,

some participants saw an appreciable risk that inflation

would continue to fall short of the Committee’s objective. These participants saw little solid evidence that the

strength of economic activity and the labor market was

showing through to significant wage or inflation pressures. They judged that the Committee could afford to

be patient in deciding whether to increase the target

range for the federal funds rate in order to support further strengthening of the labor market and allow participants to assess whether incoming information on inflation showed that it was solidly on a track toward the

Committee’s objective.

Some participants also commented on the likely evolution of the neutral federal funds rate. By most estimates,

the neutral level of the federal funds rate had been very

low in recent years, but it was expected to rise slowly

over time toward its longer-run level. However, the outlook for the neutral rate was uncertain and would depend on the interplay of a number of forces. For example, the neutral rate, which appeared to have fallen

sharply during the Global Financial Crisis when financial

headwinds had restrained demand, might move up more

than anticipated as the global economy strengthened.

Alternatively, the longer-run level of the neutral rate

might remain low in the absence of fundamental shifts

in trends in productivity, demographics, or the demand

for safe assets.

Committee Policy Action

In their discussion of monetary policy for the period

ahead, members judged that information received since

the Committee met in December indicated that the labor

market had continued to strengthen and that economic

activity had been rising at a solid rate. Gains in employment, household spending, and business fixed investment had been solid, and the unemployment rate had

stayed low. On a 12-month basis, both overall inflation

and inflation for items other than food and energy had

continued to run below 2 percent. Market-based

measures of inflation compensation had increased in recent months but remained low; survey-based measures

of longer-term inflation expectations were little changed,

on balance.

Members expected that, with further gradual adjustments in the stance of monetary policy, economic activity would expand at a moderate pace and labor market

conditions would remain strong. In their discussion of

the economic outlook, most members viewed the recent

data bearing on real economic activity as suggesting a

modestly stronger near-term outlook than they had anticipated at their meeting in December. In addition, financial conditions had remained accommodative, and

the details of the tax legislation suggested that its effects

on consumer and business spending—while still uncertain—might be a bit greater in the near term than they

had previously thought. Although several saw increased

upside risks to the near-term outlook for economic activity, members generally continued to judge the risks to

that outlook as remaining roughly balanced.

Most members noted that recent information on inflation along with prospects for a continued solid pace of

economic activity provided support for the view that inflation on a 12-month basis would likely move up in

2018 and stabilize around the Committee’s 2 percent objective over the medium term. However, a couple of

members expressed concern about the outlook for inflation, seeing little evidence of a meaningful improvement

in the underlying trend in inflation, measures of inflation

expectations, or wage growth. Several members commented that they saw both upside and downside risks to

the inflation outlook, and members agreed to continue

to monitor inflation developments closely.

After assessing current conditions and the outlook for

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

funds rate at 1¼ to 1½ percent. They indicated that the

stance of monetary policy remained accommodative,

thereby supporting strong labor market conditions and

a sustained return to 2 percent inflation.

Members agreed that the timing and size of future adjustments to the target range for the federal funds rate

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

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Minutes of the Meeting of January 30–31, 2018

objectives of maximum employment and 2 percent inflation. They reiterated that this assessment would take

into account a wide range of information, including

measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings

on financial and international developments. Members

also agreed to carefully monitor actual and expected inflation developments relative to the Committee’s symmetric inflation goal. Members expected that economic

conditions would evolve in a manner that would warrant

further gradual increases in the federal funds rate. They

judged that a gradual approach to raising the target range

would sustain the economic expansion and balance the

risks to the outlook for inflation and unemployment.

Members agreed that the strengthening in the near-term

economic outlook increased the likelihood that a gradual

upward trajectory of the federal funds rate would be appropriate. They therefore agreed to update the characterization of their expectation for the evolution of the

federal funds rate in the postmeeting statement to point

to “further gradual increases” while maintaining the target range at the current meeting. Members continued to

anticipate that the federal funds rate would likely remain,

for some time, below levels that were expected to prevail

in the longer run. Nonetheless, they again stated that the

actual path for the federal funds rate would depend on

the economic outlook as informed by the 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 February 1, 2018, 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

Page 17

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 December indicates

that the labor market has continued to

strengthen and that economic activity has been

rising at a solid rate. Gains in employment,

household spending, and business fixed investment have been solid, and the unemployment

rate has stayed low. On a 12-month basis, both

overall inflation and inflation for items other

than food and energy have continued to run below 2 percent. Market-based measures of inflation compensation have increased in recent

months but 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. The Committee expects that,

with further 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 expected to move up this year

and to stabilize around the Committee’s 2 percent objective over the medium term. Nearterm risks to the economic outlook appear

roughly balanced, but the Committee is monitoring inflation developments closely.

In view of realized and expected labor market

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

funds rate at 1¼ to 1½ percent. The stance of

monetary policy remains accommodative,

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Federal Open Market Committee

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

further 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, Thomas I. Barkin, Raphael W. Bostic, Lael

The second vote of the Board also encompassed approval

of the establishment of the interest rates for secondary and

5

Brainard, Loretta J. Mester, Jerome H. Powell, Randal K.

Quarles, and John C. Williams.

Voting against this action: None.

Consistent with the Committee’s decision to leave the

target range for the federal funds rate unchanged, the

Board of Governors voted unanimously to leave the interest rates on required and excess reserve balances unchanged at 1½ percent and voted unanimously to approve establishment of the primary credit rate (discount

rate) at the existing level of 2 percent. 5

It was agreed that the next meeting of the Committee

would be held on Tuesday–Wednesday, March 20–21,

2018. The meeting adjourned at 10:50 a.m. on January 31, 2018.

Notation Vote

By notation vote completed on January 2, 2018, the

Committee unanimously approved the minutes of the

Committee meeting held on December 12–13, 2017.

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James A. Clouse

Secretary

seasonal credit under the existing formulas for computing

such rates.

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