FOMC Minutes
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Minutes of the Federal Open Market Committee
March 19–20, 2019
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, March 19, 2019, at
10:00 a.m.
and
continued
on
Wednesday,
March 20, 2019, at 9:00 a.m.1
PRESENT:
Jerome H. Powell, Chair
John C. Williams, Vice Chair
Michelle W. Bowman
Lael Brainard
James Bullard
Richard H. Clarida
Charles L. Evans
Esther L. George
Randal K. Quarles
Eric Rosengren
Patrick Harker, Robert S. Kaplan, Neel Kashkari,
Loretta J. Mester, and Michael Strine, Alternate
Members of the Federal Open Market Committee
Thomas I. Barkin, Raphael W. Bostic, and Mary C.
Daly, Presidents of the Federal Reserve Banks of
Richmond, Atlanta, and San Francisco, 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
Stacey Tevlin, Economist
Thomas A. Connors, Rochelle M. Edge, Eric M.
Engen, Christopher J. Waller, William Wascher,
and Beth Anne Wilson, Associate Economists
Simon Potter, Manager, System Open Market Account
Lorie K. Logan, Deputy Manager, System Open
Market Account
The Federal Open Market Committee is referenced as the
“FOMC” and the “Committee” in these minutes.
1
Ann E. Misback, Secretary, Office of the Secretary,
Board of Governors
Matthew J. Eichner, 2 Director, Division of Reserve
Bank Operations and Payment Systems, Board of
Governors; Michael S. Gibson, Director, Division
of Supervision and Regulation, Board of
Governors; Andreas Lehnert, Director, Division of
Financial Stability, Board of Governors
Daniel M. Covitz, Deputy Director, Division of
Research and Statistics, Board of Governors;
Michael T. Kiley, Deputy Director, Division of
Financial Stability, Board of Governors; Trevor A.
Reeve, Deputy Director, Division of Monetary
Affairs, Board of Governors
Jon Faust, Senior Special Adviser to the Chair, Office
of Board Members, Board of Governors
Antulio N. Bomfim, Special Adviser to the Chair,
Office of Board Members, Board of Governors
Brian M. Doyle, Wendy E. Dunn, Joseph W. Gruber,
Ellen E. Meade, 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
Shaghil Ahmed, Senior Associate Director, Division of
International Finance, Board of Governors; Joshua
Gallin and David E. Lebow, Senior Associate
Directors, Division of Research and Statistics,
Board of Governors
Edward Nelson, Senior Adviser, Division of Monetary
Affairs, Board of Governors; Jeremy B. Rudd,
Senior Adviser, Division of Research and Statistics,
Board of Governors
Marnie Gillis DeBoer2 and David López-Salido,
Associate Directors, Division of Monetary Affairs,
Board of Governors
Attended through the discussion of developments in financial markets and open market operations.
2
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Jeffrey D. Walker,2 Deputy Associate Director,
Division of Reserve Bank Operations and Payment
Systems, Board of Governors
New York, Chicago, New York, and New York,
respectively
Samuel Schulhofer-Wohl, Senior Economist and
Research Advisor, Federal Reserve Bank of
Chicago
Andrew Figura, Assistant Director, Division of
Research and Statistics, Board of Governors; Laura
Lipscomb,2 Zeynep Senyuz,2 and Rebecca
Zarutskie, Assistant Directors, Division of
Monetary Affairs, Board of Governors
Daniel Cooper, Senior Economist and Policy Advisor,
Federal Reserve Bank of Boston
Michele Cavallo,2 Section Chief, Division of Monetary
Affairs, Board of Governors
Ellen Correia Golay,2 Markets Officer, Federal Reserve
Bank of New York
Penelope A. Beattie,3 Assistant to the Secretary, Office
of the Secretary, Board of Governors
A. Lee Smith, Senior Economist, Federal Reserve Bank
of Kansas City
Mark A. Carlson, Senior Economic Project Manager,
Division of Monetary Affairs, Board of Governors
Balance Sheet Normalization
Committee participants resumed their discussion from
the January 2019 meeting on options for transitioning to
the longer-run size of the balance sheet. The staff described options for ending the reduction in the Federal
Reserve’s securities holdings at the end of September
2019 and for potentially reducing the pace of redemptions of Treasury securities before that date. Reducing
the pace of redemptions before ending them would be
consistent with most previous changes in the Federal
Reserve’s balance sheet policy and would support a gradual transition to the long-run level of reserves. It could
also reinforce the Committee’s communications indicating that the FOMC was flexible in its plans for balance
sheet normalization and that the process of balance
sheet normalization would remain consistent with the attainment of the Federal Reserve’s monetary policy objectives. However, continuing redemptions at the current pace through September might be simpler to communicate and would somewhat shorten the transition to
the long-run level of reserves. The staff noted that reducing the pace of redemptions before September
would leave reserves and the balance sheet slightly larger
than continuing redemptions at the current pace through
September. However, the longer-run level of reserves
and size of the balance sheet would ultimately be determined by long-term demand for Federal Reserve liabilities. Staff projections of term premiums and macroeconomic outcomes did not differ substantially across the
two options.
David H. Small, Project Manager, Division of
Monetary Affairs, Board of Governors
Martin Bodenstein, Marcel A. Priebsch, and Bernd
Schlusche,2 Principal Economists, Division of
Monetary Affairs, Board of Governors
Mary-Frances Styczynski,2 Lead Financial Institution
and Policy Analyst, Division of Monetary Affairs,
Board of Governors
Achilles Sangster II, Information Management Analyst,
Division of Monetary Affairs, Board of Governors
Gregory L. Stefani, First Vice President, Federal
Reserve Bank of Cleveland
David Altig, Kartik B. Athreya, Michael Dotsey, Glenn
D. Rudebusch, Ellis W. Tallman, and Joseph S.
Tracy, Executive Vice Presidents, Federal Reserve
Banks of Atlanta, Richmond, Philadelphia, San
Francisco, Cleveland, and Dallas, respectively
Antoine Martin,2 Julie Ann Remache,2 and Mark L.J.
Wright, Senior Vice Presidents, Federal Reserve
Banks of New York, New York, and Minneapolis,
respectively
Roc Armenter,2 Kathryn B. Chen,2 Hesna Genay,
Jonathan P. McCarthy, and Patricia Zobel,2 Vice
Presidents, Federal Reserve Banks of Philadelphia,
3
Attended Tuesday’s session only.
The staff also described a possible interim plan for reinvesting principal payments received from agency debt
Minutes of the Meeting of March 19–20, 2019
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and agency mortgage-backed securities (MBS) after balance sheet runoff ends and until the Committee decides
on the longer-run composition of the System Open Market Account (SOMA) portfolio. Consistent with the
Committee’s long-standing aim to hold primarily Treasury securities in the longer run, any principal payments
on agency debt and agency MBS would generally be reinvested in Treasury securities in the secondary market.
These reinvestments would be allocated across sectors
of the Treasury market roughly in proportion to the maturity composition of Treasury securities outstanding.
However, the plan would maintain the existing $20 billion per month cap on MBS redemptions; principal payments on agency debt and agency MBS above $20 billion
per month would continue to be reinvested in agency
MBS. This cap would limit the pace at which the Federal
Reserve’s agency MBS holdings could decline if prepayments accelerated; the staff projected that the redemption cap on agency debt and agency MBS was unlikely to
be reached after 2019.
The staff noted that, once balance sheet runoff ended,
the average level of reserves would tend to decline gradually, in line with trend growth in the Federal Reserve’s
nonreserve liabilities, until the Committee chose to resume growth of the balance sheet in order to maintain a
level of reserves consistent with efficient and effective
policy implementation.
Participants judged that ending the runoff of securities
holdings at the end of September would reduce uncertainty about the Federal Reserve’s plans for its securities
holdings and would be consistent with the Committee’s
decision at its January 2019 meeting to continue implementing monetary policy in a regime of ample reserves.
Participants discussed advantages and disadvantages of
slowing balance sheet runoff before the September stopping date. A slowing in the pace of redemptions would
accord with the Committee’s general practice of adjusting its holdings of securities smoothly and predictably,
which might reduce the risk that market volatility would
arise in connection with the conclusion of the runoff of
securities holdings. However, these advantages needed
to be weighed against the additional complexity of a plan
that would end balance sheet runoff in steps rather than
all at once.
Participants reiterated their support for the FOMC’s intention to return to holding primarily Treasury securities
in the long run. Participants judged that adopting an interim approach for reinvesting agency debt and agency
MBS principal payments into Treasury securities across
a range of maturities was appropriate while the Committee continued to evaluate potential long-run maturity
structures for the Federal Reserve’s portfolio of Treasury securities. Many participants offered preliminary
views on advantages and disadvantages of alternative
compositions for the SOMA portfolio. Participants expected to further discuss the longer-run composition of
the portfolio at upcoming meetings.
Participants commented on considerations related to allowing the average level of reserves to decline in line
with trend growth in nonreserve liabilities for a time after the end of balance sheet runoff. Several participants
preferred to stabilize the average level of reserves by resuming purchases of Treasury securities relatively soon
after the end of runoff, because they saw little benefit to
further declines in reserve balances or because they
thought the Committee should minimize the risk of interest rate volatility that could occur if the supply of reserves dropped below a point consistent with efficient
and effective implementation of policy. Some others
preferred to allow the average level of reserves to continue to decline for a longer time after balance sheet runoff ends because such declines could allow the Committee to learn more about underlying reserve demand, because they judged that such a process was not likely to
result in excessive volatility in money market rates, or
because they judged that moving to lower levels of reserves was more consistent with the Committee’s previous communications indicating that it would hold no
more securities than necessary for implementing monetary policy efficiently and effectively. Participants noted
that the eventual resumption of purchases of securities
to keep pace with growth in demand for the Federal Reserve’s liabilities, whenever it occurred, would be a normal part of operations to maintain the ample-reserves
monetary policy implementation regime and would not
represent a change in the stance of monetary policy.
Some participants suggested that, at future meetings, the
Committee should discuss the potential benefits and
costs of tools that might reduce reserve demand or support interest rate control.
Following the discussion, the Chair proposed that the
Committee communicate its intentions regarding balance sheet normalization by publishing a statement at
the conclusion of the meeting. All participants agreed
that it was appropriate to issue the proposed statement.
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BALANCE SHEET NORMALIZATION
PRINCIPLES AND PLANS
$20 billion per month; any principal payments in excess of that maximum will continue to be reinvested in agency MBS.
(Adopted March 20, 2019)
In light of its discussions at previous meetings and the
progress in normalizing the size of the Federal Reserve’s
securities holdings and the level of reserves in the banking system, all participants agreed that it is appropriate at
this time for the Committee to provide additional information regarding its plans for the size of its securities
holdings and the transition to the longer-run operating
regime. At its January meeting, the Committee stated
that it intends to continue to implement monetary policy
in a regime in which an ample supply of reserves ensures
that control over the level of the federal funds rate and
other short-term interest rates is exercised primarily
through the setting of the Federal Reserve’s administered rates and in which active management of the supply of reserves is not required. The Statement Regarding
Monetary Policy Implementation and Balance Sheet
Normalization released in January as well as the principles and plans listed below together revise and replace
the Committee’s earlier Policy Normalization Principles
and Plans.
x
o
To ensure a smooth transition to the longer-run
level of reserves consistent with efficient and effective policy implementation, the Committee intends
to slow the pace of the decline in reserves over coming quarters provided that the economy and money
market conditions evolve about as expected.
o
The Committee intends to slow the reduction
of its holdings of Treasury securities by reducing the cap on monthly redemptions from the
current level of $30 billion to $15 billion beginning in May 2019.
o
The Committee intends to conclude the reduction of its aggregate securities holdings in the
System Open Market Account (SOMA) at the
end of September 2019.
o
The Committee intends to continue to allow its
holdings of agency debt and agency mortgagebacked securities (MBS) to decline, consistent
with the aim of holding primarily Treasury securities in the longer run.
Beginning in October 2019, principal payments received from agency debt and
agency MBS will be reinvested in Treasury
securities subject to a maximum amount of
Principal payments from agency debt and
agency MBS below the $20 billion maximum will initially be invested in Treasury
securities across a range of maturities to
roughly match the maturity composition of
Treasury securities outstanding; the Committee will revisit this reinvestment plan in
connection with its deliberations regarding
the longer-run composition of the SOMA
portfolio.
It continues to be the Committee’s view
that limited sales of agency MBS might be
warranted in the longer run to reduce or
eliminate residual holdings. The timing and
pace of any sales would be communicated
to the public well in advance.
The average level of reserves after the FOMC
has concluded the reduction of its aggregate securities holdings at the end of September will
likely still be somewhat above the level of reserves necessary to efficiently and effectively
implement monetary policy.
o
In that case, the Committee currently anticipates that it will likely hold the size of the
SOMA portfolio roughly constant for a
time. During such a period, persistent gradual increases in currency and other nonreserve liabilities would be accompanied by
corresponding gradual declines in reserve
balances to a level consistent with efficient
and effective implementation of monetary
policy.
When the Committee judges that reserve balances have declined to this level, the SOMA
portfolio will hold no more securities than necessary for efficient and effective policy implementation. Once that point is reached, the
Committee will begin increasing its securities
holdings to keep pace with trend growth of the
Federal Reserve’s non-reserve liabilities and
maintain an appropriate level of reserves in the
system.
Developments in Financial Markets and Open
Market Operations
The manager of the SOMA discussed developments in
global financial markets over the intermeeting period. In
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the United States, equity indexes moved higher and
credit spreads tightened. Market participants attributed
these moves largely to a perceived shift in the FOMC’s
approach to policy following communications stressing
that the Committee would be patient in assessing the
need for future adjustments in the target range for the
federal funds rate and would be flexible on balance sheet
policy.
In Europe, measures announced by the European Central Bank (ECB) in March, including an extension of forward guidance on interest rates and the announcement
of another round of targeted long-term refinancing operations, were followed by a decline in euro-area equity
markets, particularly bank stocks, as well as declines in
euro-area rates. Market contacts attributed the price reaction to a perception that the measures were not as
stimulative as might have been expected, given downward revisions in the ECB’s growth and inflation forecasts. In China, authorities moved toward an easier fiscal and monetary stance; China’s aggregate credit growth
had rebounded slightly in recent months relative to the
declining trend observed last year. The Shanghai Composite index had risen notably since the turn of the year,
driven in part by fiscal and monetary stimulus measures
as well as perceived progress on trade negotiations. Developments around Brexit remained a source of market
uncertainty. Consistent with ongoing investor uncertainty over the outcome, risk reversals on the pound–
dollar currency pair continued to point to higher demand for protection against pound depreciation relative
to the dollar.
The deputy manager provided an overview of money
market developments and policy implementation over
the intermeeting period. The effective federal funds rate
(EFFR) continued to be very stable at a level equal to the
interest rate on excess reserves. Rates in overnight secured markets continued to exhibit some volatility, particularly on month-end dates. Market participants attributed some of the volatility in overnight secured rates
to persistently high net dealer inventories of Treasury securities and to Treasury issuance coinciding with the
month-end statement dates. Over the upcoming intermeeting period, with the combination of changes in the
Treasury’s balances at the Federal Reserve and additional
asset redemptions, reserves were expected to decline to
a new low of around $1.4 trillion by early May, with some
notable fluctuations in reserves on days associated with
tax flows.
The deputy manager also discussed the transition to a
long-run regime of ample reserves, following the Committee’s January announcement that it intends to continue to implement monetary policy in such a regime.
Once the size of the Federal Reserve’s balance sheet has
normalized, the Open Market Desk will at some point
need to conduct open market operations to maintain a
level of reserves in the banking system that the Committee deems appropriate. In doing so, the Desk will need
to assess banks’ demand for reserves as well as forecast
other Federal Reserve liabilities and plan operations to
maintain a supply of reserves sufficient to ensure that
control over short-term interest rates is exercised primarily through the setting of administered rates.
The deputy manager described a possible operational approach in an ample-reserves regime based on establishing a minimum operating level that would be a lower
bound on the daily level of reserves. The assessment of
the minimum operating level of reserves would be based
on a range of information, including surveys of banks
and market participants, data on banks’ reserve holdings,
and market monitoring. Under the proposed approach,
the Desk would plan open market operations to maintain the daily level of reserves above the minimum operating level. Consistent with the Committee’s intention
to maintain a regime that does not require active management of the supply of reserves, the Desk could plan
these open market operations over a medium-term horizon. The average level of reserves over the medium
term would then be above the minimum operating level,
providing a buffer of reserves to absorb daily changes in
nonreserve liabilities.
Following the manager and deputy manager’s report,
some participants commented on various aspects of the
minimum operating level approach. Decisions regarding
how far to allow reserves to decline would need to balance important tradeoffs. On the one hand, a lower
minimum operating level might increase the risk of excessive interest rate volatility. On the other hand, a
lower minimum operating level could provide more opportunities to learn about underlying reserve demand or
could be viewed as more consistent with moving to the
smallest securities holdings necessary for efficient and
effective monetary policy implementation. However,
the scope for reducing the level of reserves much further
after the end of balance sheet runoff might be fairly limited.
By unanimous vote, the Committee ratified the Desk’s
domestic transactions over the intermeeting period.
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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 available for the March 19–20 meeting
indicated that labor market conditions remained strong,
although growth in real gross domestic product (GDP)
appeared to have slowed markedly in the first quarter of
this year from its solid fourth-quarter pace. Consumer
price inflation, as measured by the 12-month percentage
change in the price index for personal consumption expenditures (PCE), was somewhat below 2 percent in December, held down in part by recent declines in consumer energy prices, while PCE price inflation for items
other than food and energy was close to 2 percent; more
recent readings on PCE price inflation were delayed by
the earlier federal government shutdown. Survey-based
measures of longer-run inflation expectations were little
changed on balance.
Increases in total nonfarm payroll employment remained solid, on average, in recent months; employment
rose only a little in February but had expanded strongly
in January. The national unemployment rate edged
down, on net, over the past two months to 3.8 percent
in February, and both the labor force participation rate
and the employment-to-population ratio rose slightly on
balance. The unemployment rates for African Americans, Asians, and Hispanics in February were at or below
their levels at the end of the previous economic expansion, though persistent differentials in unemployment
rates across groups remained. The share of workers employed part time for economic reasons moved down in
February and was below the lows reached in late 2007.
The rate of private-sector job openings in January was
the same as its fourth-quarter average and remained elevated, while the rate of quits edged up in January; the
four-week moving average of initial claims for unemployment insurance benefits through early March was
still near historically low levels. Average hourly earnings
for all employees rose 3.4 percent over the 12 months
ending in February, a significantly faster pace than a year
earlier. The employment cost index for private-sector
workers increased 3 percent over the 12 months ending
in December, somewhat faster than a year earlier. Total
labor compensation per hour in the business sector increased 2.9 percent over the four quarters of 2018, about
the same rate as a year earlier.
Industrial production declined in January and rebounded
only somewhat in February. Moreover, manufacturing
output decreased over both months, as production in
the motor vehicle and parts sector contracted notably in
January and declines were more broad based in February. Production in the mining and utilities sectors expanded, on net, over the past two months. Automakers’
assembly schedules suggested that the production of
light motor vehicles would be roughly flat in the near
term, and new orders indexes from national and regional
manufacturing surveys pointed to only modest gains in
overall factory output in the coming months.
Household spending looked to be slowing around the
turn of the year. Real PCE decreased markedly in December after a solid increase in the previous month, and
the components of the nominal retail sales data used by
the Bureau of Economic Analysis (BEA) to estimate
PCE rebounded only partially in January. Key factors
that influence consumer spending—including a low unemployment rate, ongoing gains in real labor compensation, and still elevated measures of households’ net
worth—were supportive of a pickup in consumer
spending to a solid pace in the near term. In addition,
consumer sentiment, as measured by the University of
Michigan Surveys of Consumers, stepped up in February
and early March to an upbeat level.
Real residential investment appeared to be softening further in the first quarter, likely reflecting, in part, decreases in the affordability of housing arising from both
the net increase in mortgage interest rates over the past
year and ongoing house price appreciation. Starts of
new single-family homes increased slightly, on net, over
December and January, while starts of multifamily units
declined. Building permit issuance for new single-family
homes—which tends to be a good indicator of the underlying trend in construction of such homes—moved
down over those two months. In addition, sales of both
new and existing homes decreased in January.
Growth in real private expenditures for business equipment and intellectual property looked to be slowing in
the first quarter. Nominal shipments of nondefense capital goods excluding aircraft rose in December and January, while available indicators pointed to a decrease in
transportation equipment spending in the first quarter
after a strong fourth-quarter gain. Forward-looking indicators of business equipment spending—such as orders for nondefense capital goods excluding aircraft and
readings on business sentiment—pointed to sluggish increases in the near term. Nominal business expenditures
for nonresidential structures outside of the drilling and
mining sector increased in December and January. In
addition, the number of crude oil and natural gas rigs in
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operation—an indicator of business spending for structures in the drilling and mining sector—expanded, on
balance, in February and through the middle of March.
a modest pickup in China. Inflation in foreign economies slowed further early this year, partly reflecting
lower retail energy prices across both AFEs and EMEs.
Total real government purchases appeared to be moving
sideways in the first quarter. Relatively strong increases
in real federal defense purchases were likely to be
roughly offset by an expected decline in real nondefense
purchases stemming from the effects of the partial federal government shutdown. Real purchases by state and
local governments looked to be rising modestly in the
first quarter, as the payrolls of those governments expanded a bit in January and February, and nominal state
and local construction spending rose, on net, in December and January.
Staff Review of the Financial Situation
Investor sentiment toward risky assets continued to improve over the intermeeting period. Market participants
cited accommodative monetary policy communications
and optimism for a trade deal between the United States
and China as factors that contributed to the improvement. Broad equity price indexes increased notably, corporate bond spreads narrowed, and measures of equity
market volatility declined. Meanwhile, financing conditions for businesses and households improved slightly
and generally remained supportive of economic activity.
The nominal U.S. international trade deficit narrowed in
November before widening in December to the largest
deficit since 2008. Exports declined in November and
December, as exports of industrial supplies and automotive products fell in both months. Imports decreased in
November before partially recovering in December,
with imports of consumer goods and industrial supplies
driving this swing. The BEA estimated that the change
in net exports was a drag of about ¼ percentage point
on the rate of real GDP growth in the fourth quarter.
FOMC communications issued following the January
meeting were generally viewed by market participants as
more accommodative than expected. Subsequent communications—including the minutes of the January
FOMC meeting, the Chair’s semiannual testimony to the
Congress, and speeches by FOMC participants—were
interpreted as reflecting a patient approach to monetary
policy in the near term and a likely conclusion to the
Federal Reserve’s balance sheet reduction by the end of
this year. The market-implied path for the federal funds
rate in 2019 declined slightly over the period, while investors continued to expect no change to the target
range for the federal funds rate at the March FOMC
meeting. The market-implied path of the federal funds
rate for 2020 and 2021 shifted down a little.
Total U.S. consumer prices, as measured by the PCE
price index, increased 1.7 percent over the 12 months
ending in December, slightly slower than a year earlier,
as consumer energy prices declined a little and consumer
food prices rose only modestly. Core PCE price inflation, which excludes changes in consumer food and energy prices, was 1.9 percent over that same period, somewhat higher than a year earlier. The consumer price index (CPI) rose 1.5 percent over the 12 months ending in
February, while core CPI inflation was 2.1 percent. Recent readings on survey-based measures of longer-run
inflation expectations—including those from the Michigan survey, the Blue Chip Economic Indicators, and the
Desk’s Survey of Primary Dealers and Survey of Market
Participants—were little changed on balance.
Economic growth in foreign economies slowed further
in the fourth quarter. This development reflected slowing in the Canadian economy and some emerging market
economies (EMEs), including Brazil and Mexico, along
with continued economic weakness in the euro area and
China. In the advanced foreign economies (AFEs), recent data suggested that economic activity, especially in
the manufacturing sector, remained subdued in the first
quarter of this year. Economic activity also remained
weak in many EMEs, particularly in Mexico and emerging Asia excluding China, although some data pointed to
Yields on nominal Treasury securities declined a bit
across the Treasury yield curve over the intermeeting period. Communications from FOMC participants that
were more accommodative than expected amid muted
readings on inflation, communications from other major
central banks that, on balance, were also regarded as
more accommodative than expected, and generally
mixed economic data releases reportedly contributed to
the decrease in yields and outweighed improved risk sentiment. The spread between the yields on nominal
10- and 2-year Treasury securities was little changed over
the period and remained in the lower end of its historical
range of recent decades. Measures of inflation compensation derived from Treasury Inflation-Protected Securities increased modestly, on net, although they remained
below levels seen last fall.
Major U.S. equity price indexes increased over the intermeeting period, with broad-based gains across sectors.
Improved prospects for a trade deal between the United
States and China and accommodative monetary policy
were cited as driving factors that outweighed weaker-
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than-expected announcements of corporate earnings for
the fourth quarter of 2018 and earnings projections for
2019. Consistent with reports about a potential trade
deal, stock prices of firms with greater exposure to China
generally outperformed the S&P 500 index. Optionimplied volatility on the S&P 500 index at the onemonth horizon—the VIX—declined and reached its
lowest point this year. Spreads on investment- and speculative-grade corporate bonds narrowed, consistent with
the gains in equity prices, but were still wider than levels
observed last fall.
Conditions in short-term funding markets generally remained stable over the intermeeting period. The EFFR
was consistently equal to the rate of interest on excess
reserves, while take-up in the overnight reverse repurchase agreement facility remained low. Yield spreads on
commercial paper and negotiable certificates of deposit
generally narrowed further from their elevated year-end
levels, likely reflecting an increase in investor demand for
short-term financial assets. Meanwhile, the statutory
federal government debt ceiling was reestablished at
$22 trillion on March 1.
The prices of foreign risky assets broadly tracked the
positive moves in similar U.S. assets over the intermeeting period. Communications by major central banks,
which were, on net, more accommodative than expected, along with optimism regarding trade negotiations between the United States and China, contributed
to the upward price moves and more than offset the effects of continued concerns about foreign economic
growth. In particular, global equity prices generally
ended the period higher, and dedicated emerging market
funds continued to see inflows. At the same time, longterm AFE yields declined somewhat, on net, on communications from major foreign central banks and investors’ concerns about foreign economic growth.
The broad dollar index appreciated slightly as the extension of accommodative policies and revised guidance by
major foreign central banks weighed on AFE currencies.
An exception was the British pound, which strengthened
a bit against the dollar, as market participants viewed recent Parliamentary votes as reducing the likelihood of a
no-deal Brexit.
Financing conditions for nonfinancial businesses continued to be accommodative overall. Gross issuance of
both investment-grade and high-yield corporate bonds
was strong in January and February, recovering from the
low levels observed late last year. Issuance in the institutional syndicated leveraged loan market also recovered
in the first two months of the year, as new issuance in
February was in line with average monthly new issuance
in 2018, and spreads narrowed somewhat from their December levels. The credit quality of nonfinancial corporations continued to show signs of deterioration, although actual defaults remained low overall. Commercial and industrial lending showed continued strength in
January and February. Small business credit market conditions were little changed, and credit conditions in municipal bond markets stayed accommodative on net.
Private-sector analysts revised down their projections
for 2019 and year-ahead corporate earnings a bit. The
pace of gross equity issuance was sluggish in January but
ticked up in February, consistent with the uptick in the
stock market.
In the commercial real estate (CRE) sector, financing
conditions continued to be generally accommodative.
Commercial mortgage-backed securities (CMBS)
spreads declined over the intermeeting period, with
triple-B spreads moving down to near their lateNovember levels. Issuance of non-agency CMBS remained strong through February, and CRE lending by
banks grew at a strong pace in February following relatively sluggish growth in January.
Residential mortgage financing conditions remained accommodative on balance. Purchase mortgage origination activity was flat in December but edged up in January, as mortgage rates remained lower than the peak
reached last November.
Financing conditions in consumer credit markets were
little changed in recent months and remained generally
supportive of household spending. Credit card loan
growth remained strong through December, though the
pace slowed during 2018 amid tighter lending standards
by commercial banks. Auto loan growth remained
steady through the end of 2018.
Staff Economic Outlook
The U.S. economic projection prepared by the staff for
the March FOMC meeting was revised down a little on
balance. This revision reflected the effects of weakerthan-expected incoming data on both aggregate domestic spending and foreign economic growth that were
only partially offset by a somewhat higher projected path
for domestic equity prices and a lower projected trajectory for interest rates. The staff forecast that U.S. real
GDP growth would slow markedly in the first quarter,
reflecting a softening in growth of both consumer
spending and business investment. But the staff judged
that the first-quarter slowdown would be transitory and
that real GDP growth would bounce back solidly in the
Minutes of the Meeting of March 19–20, 2019
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second quarter. In the medium-term projection, real
GDP growth was forecast to run at a rate similar to the
staff’s estimate of potential output growth in 2019 and
2020—a somewhat lower trajectory, on net, for real
GDP than in the previous projection—and then slow to
a pace below potential output growth in 2021. The staff
revised up slightly its assumed underlying trend in the
labor force participation rate, raising the level of potential output a bit, which contributed—along with the
lower projected path for real GDP—to an assessment
that resource utilization was a little less tight than in the
previous forecast. The unemployment rate was projected to decline a little further below the staff’s estimate
of its longer-run natural rate but to bottom out by the
end of this year and begin to edge up in 2021. With labor
market conditions judged to still be tight, the staff continued to assume that projected employment gains
would manifest in smaller-than-usual downward pressure on the unemployment rate and in larger-than-usual
upward pressure on the labor force participation rate.
The staff’s forecast for inflation was revised down
slightly for the March FOMC meeting, reflecting some
recent softer-than-expected readings on consumer
prices. Core PCE price inflation was expected to remain
at 1.9 percent over this year as a whole and then to edge
up to 2 percent for the remainder of the medium term.
Total PCE price inflation was forecast to run a bit below
core inflation over the next three years, reflecting projected declines in energy prices.
The staff viewed the uncertainty around its projections
for real GDP growth, the unemployment rate, and inflation as generally similar to the average of the past
20 years. The staff also saw the risks to the forecasts for
real GDP growth and the unemployment rate as roughly
balanced. On the upside, household spending and business investment could expand faster than the staff projected, supported by the tax cuts enacted at the end of
2017, still strong overall labor market conditions, and
upbeat consumer sentiment. In addition, financial conditions might not tighten as much as assumed in the staff
forecast. On the downside, the recent softening in a
number of economic indicators could be the harbinger
of a substantial deterioration in economic activity.
Moreover, trade policies and foreign economic developments could move in directions that have significant
negative effects on U.S. economic growth. Risks to the
inflation projection also were seen as balanced. The upside risk that inflation could increase more than expected
in an economy that is still projected to be operating notably above potential for an extended period was coun-
terbalanced by the downside risk that longer-term inflation expectations may be lower than was assumed in the
staff forecast, as well as the possibility that the dollar
could appreciate if foreign economic conditions deteriorated.
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 2019 through 2021 and
over the longer run, based on their individual assessments of the appropriate path for the federal funds rate.
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.
Participants agreed that information received since the
January meeting indicated that the labor market had remained strong but that growth of economic activity had
slowed from its solid rate in the fourth quarter. Payroll
employment was little changed in February, but job
gains had been solid, on average, in recent months, and
the unemployment rate had remained low. Recent indicators pointed to slower growth of household spending
and business fixed investment in the first quarter. On a
12-month basis, overall inflation had declined, largely as
a result of lower energy prices; inflation for items other
than food and energy remained near 2 percent. On balance, market-based measures of inflation compensation
had remained low in recent months, and survey-based
measures of longer-term inflation expectations were little changed.
Participants continued to view a sustained expansion of
economic activity, strong labor market conditions, and
inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes over the next few
years. Underlying economic fundamentals continued to
support sustained expansion, and most participants indicated that they did not expect the recent weakness in
spending to persist beyond the first quarter. Nevertheless, participants generally expected the growth rate of
real GDP this year to step down from the pace seen over
2018 to a rate at or modestly above their estimates of
longer-run growth. Participants cited various factors as
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likely to contribute to the step-down, including slower
foreign growth and waning effects of fiscal stimulus. A
number of participants judged that economic growth in
the remaining quarters of 2019 and in the subsequent
couple of years would likely be a little lower, on balance,
than they had previously forecast. Reasons cited for
these downward revisions included disappointing news
on global growth and less of a boost from fiscal policy
than had previously been anticipated.
In their discussion of the household sector, participants
noted that softness in consumer spending had contributed importantly to the projected slowing in economic
growth in the current quarter. Many participants
pointed to the weakness in retail sales in December as
notable, although they recognized that the data for January had shown a partial recovery in retail sales. Participants also observed that much of the recent softness
likely reflected temporary factors, such as the partial federal government shutdown and December’s volatility in
financial markets, and that consumer sentiment had recovered after these factors had receded. Consequently,
many participants expected consumer spending to proceed at a stronger pace in coming months, supported by
favorable underlying factors, including a strong labor
market, solid growth in household incomes, improvements in financial conditions and in households’ balance
sheet positions, and upbeat consumer sentiment. Participants noted, however, that the continued softness in
the housing sector was a concern.
Participants also commented on the apparent slowing of
growth in business fixed investment in the first quarter.
Factors cited as consistent with the recent softness in investment growth included downward revisions in forecasts of corporate earnings; relatively low energy prices
that provided less incentive for new drilling and exploration; flattening capital goods orders; reports from contacts of softer export sales and of weaker economic activity abroad; elevated levels of uncertainty about government policies, including trade policies; and the likely
effect of recent financial market volatility on business
sentiment. However, many participants pointed to signs
that the weakness in investment would likely abate.
Some contacts in manufacturing and other sectors reported that business conditions were favorable, with
strong demand for labor, business sentiment had recovered from its recent decline, and recent reductions in
mortgage interest rates would provide some support for
construction activity. Agricultural activity remained
weak in various areas of the country, with the weakness
in part reflecting adverse effects of trade policy on commodity prices. Recent widespread severe flooding had
also adversely affected the agricultural sector.
Participants noted that the latest readings on overall inflation had been somewhat softer than expected. However, participants observed that these readings largely reflected the effects of earlier declines in crude oil prices
and that core inflation remained near 2 percent. Most
participants, while seeing inflation pressures as muted,
expected the overall rate of inflation to firm somewhat
and to be at or near the Committee’s longer-run objective of 2 percent over the next few years. Many participants indicated that, while inflation had been close to
2 percent last year, it was noteworthy that it had not
shown greater signs of firming in response to strong labor market conditions and rising nominal wage growth,
as well as to the short-term upward pressure on prices
arising from tariff increases. Low rates of price increases
in sectors of the economy that were not cyclically sensitive were cited by a couple of participants as one reason
for the recent easing in inflation. A few participants observed that the pickup in productivity growth last year
was a welcome development helping to bolster potential
output and damp inflationary pressures.
In their discussion of indicators of inflation expectations, participants noted that market-based measures of
inflation compensation had risen modestly over the intermeeting period, although they remained low. A couple of participants stressed that recent readings on survey measures of inflation expectations were also still at
low levels. Several participants suggested that longerterm inflation expectations could be at levels somewhat
below those consistent with the Committee’s 2 percent
inflation objective and that this might make it more difficult to achieve that objective on a sustained basis.
In their discussion of the labor market, participants cited
evidence that conditions remained strong, including the
very low unemployment rate, a further increase in the
labor force participation rate, a low number of layoffs,
near-record levels of job openings and help-wanted
postings, and solid job gains, on average, in recent
months. Participants observed that, following strong
job gains in January, there had been little growth in payrolls in February, although a few participants pointed out
that the February reading had likely been affected by adverse weather conditions. A couple of participants
noted that, over the medium term, some easing in payroll growth was to be expected as economic growth
slowed to its longer-run trend rate. Reports from business contacts predominantly pointed to continued
Minutes of the Meeting of March 19–20, 2019
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strong labor demand, with firms offering both higher
wages and more nonwage benefits to attract workers.
Economy-wide wage growth was seen as being broadly
consistent with recent rates of labor productivity growth
and with inflation of 2 percent. A few participants cited
the combination of muted inflation pressures and expanding employment as a possible indication that some
slack remained in the labor market.
Participants commented on a number of risks associated
with their outlook for economic activity. A few participants noted that there remained a high level of uncertainty associated with international developments, including ongoing trade talks and Brexit deliberations, although a couple of participants remarked that the risks
of adverse outcomes were somewhat lower than in January. Other downside risks included the possibility of
sizable spillovers from a greater-than-expected economic slowdown in Europe and China, persistence of
the softness in spending, or a sharp falloff in fiscal stimulus. A few participants observed that an economic deterioration in the United States, if it occurred, might be
amplified by significant debt service burdens for many
firms. Participants also mentioned a number of upside
risks regarding the outlook for economic activity, including outcomes in which various sources of uncertainty
were resolved favorably, consumer and business sentiment rebounded sharply, or the recent strengthening in
labor productivity growth signaled a pickup in the underlying trend. Upside risks to the outlook for inflation
included the possibility that wage pressures could rise
unexpectedly and lead to greater-than-expected price increases.
In their discussion of financial developments, participants observed that a good deal of the tightening over
the latter part of last year in financial conditions had
since been reversed; Federal Reserve communications
since the beginning of this year were seen as an important contributor to the recent improvements in financial conditions. Participants noted that asset valuations had recovered strongly and also discussed the decline that had occurred in recent months in yields on
longer-term Treasury securities. Several participants expressed concern that the yield curve for Treasury securities was now quite flat and noted that historical evidence
suggested that an inverted yield curve could portend
economic weakness; however, their discussion also
noted that the unusually low level of term premiums in
longer-term interest rates made historical relationships a
less reliable basis for assessing the implications of the
recent behavior of the yield curve. Several participants
pointed to the increased debt issuance and higher leverage of nonfinancial corporations as a development that
warranted continued monitoring.
In their discussion of monetary policy decisions at the
current meeting, participants agreed that it would be appropriate to maintain the current target range for the
federal funds rate at 2¼ to 2½ percent. Participants
judged that the labor market remained strong, but that
information received over the intermeeting period, including recent readings on household spending and
business fixed investment, pointed to slower economic
growth in the early part of this year than in the fourth
quarter of 2018. Despite these indications of softer firstquarter growth, participants generally expected economic activity to continue to expand, labor markets to
remain strong, and inflation to remain near 2 percent.
Participants also noted significant uncertainties surrounding their economic outlooks, including those related to global economic and financial developments. In
light of these uncertainties as well as continued evidence
of muted inflation pressures, participants generally
agreed that a patient approach to determining future adjustments to the target range for the federal funds rate
remained appropriate. Several participants observed
that the characterization of the Committee’s approach to
monetary policy as “patient” would need to be reviewed
regularly as the economic outlook and uncertainties surrounding the outlook evolve. A couple of participants
noted that the “patient” characterization should not be
seen as limiting the Committee’s options for making policy adjustments when they are deemed appropriate.
With regard to the outlook for monetary policy beyond
this meeting, a majority of participants expected that the
evolution of the economic outlook and risks to the outlook would likely warrant leaving the target range unchanged for the remainder of the year. Several of these
participants noted that the current target range for the
federal funds rate was close to their estimates of its
longer-run neutral level and foresaw economic growth
continuing near its longer-run trend rate over the forecast period. Participants continued to emphasize that
their decisions about the appropriate target range for the
federal funds rate at coming meetings would depend on
their ongoing assessments of the economic outlook, as
informed by a wide range of data, as well as on how the
risks to the outlook evolved. Several participants noted
that their views of the appropriate target range for the
federal funds rate could shift in either direction based on
incoming data and other developments. Some participants indicated that if the economy evolved as they currently expected, with economic growth above its longer-
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run trend rate, they would likely judge it appropriate to
raise the target range for the federal funds rate modestly
later this year.
Several participants expressed concerns that the public
had, at times, misinterpreted the medians of participants’
assessments of the appropriate level for the federal
funds rate presented in the SEP as representing the consensus view of the Committee or as suggesting that policy was on a preset course. Such misinterpretations
could complicate the Committee’s communications regarding its view of appropriate monetary policy, particularly in circumstances when the future course of policy
is unusually uncertain. Nonetheless, several participants
noted that the policy rate projections in the SEP are a
valuable component of the overall information provided
about the monetary policy outlook. The Chair noted
that he had asked the subcommittee on communications
to consider ways to improve the information contained
in the SEP and to improve communications regarding
the role of the federal funds rate projections in the SEP
as part of the policy process.
Participants also discussed alternative interpretations of
subdued inflation pressures in current economic circumstances and the associated policy implications. Several
participants observed that limited inflationary pressures
during a period of historically low unemployment could
be a sign that low inflation expectations were exerting
downward pressure on inflation relative to the Committee’s 2 percent inflation target; in addition, subdued inflation pressures could indicate a less tight labor market
than suggested by common measures of resource utilization. Consistent with these observations, several participants noted that various indicators of inflation expectations had remained at the lower end of their historical
range, and a few participants commented that they had
recently revised down their estimates of the longer-run
unemployment rate consistent with 2 percent inflation.
In light of these considerations, some participants noted
that the appropriate response of the federal funds rate to
signs of labor market tightening could be modest provided that signs of inflation pressures continued to be
limited. Some participants regarded their judgments that
the federal funds rate was likely to remain on a very flat
trajectory as reflecting other factors, such as low estimates of the longer-run neutral real interest rate or riskmanagement considerations. A few participants observed that the appropriate path for policy, insofar as it
implied lower interest rates for longer periods of time,
could lead to greater financial stability risks. However, a
couple of these participants noted that such financial stability risks could be addressed through appropriate use
of countercyclical macroprudential policy tools or other
supervisory or regulatory tools.
Committee Policy Action
In their discussion of monetary policy for the period
ahead, members judged that the information received
since the Committee met in January indicated that the
labor market remained strong but that growth of economic activity had slowed from its solid rate in the
fourth quarter. Payroll employment was little changed
in February, but job gains had been solid, on average, in
recent months, and the unemployment rate had remained low. Recent indicators pointed to slower growth
of household spending and business fixed investment in
the first quarter. On a 12-month basis, overall inflation
had declined, largely as a result of lower energy prices;
inflation for items other than food and energy remained
near 2 percent. On balance, market-based measures of
inflation compensation had remained low in recent
months, and survey-based measures of longer-term inflations expectations were little changed.
In their consideration of the economic outlook, members noted that financial conditions had improved since
the beginning of year, but that some time would be
needed to assess whether indications of weak economic
growth in the first quarter would persist in subsequent
quarters. Members also noted that inflationary pressures
remained muted and that a number of uncertainties
bearing on the U.S. and global economic outlook still
awaited resolution. However, members continued to
view sustained expansion of economic activity, strong
labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely
outcomes for the U.S. economy in the period ahead. In
light of global economic and financial developments and
muted inflation pressures, members concurred that the
Committee could be patient as it determined what future
adjustments to the target range for the federal funds rate
may be appropriate to support those outcomes.
After assessing current conditions and the outlook for
economic activity, the labor market, and inflation, members decided to maintain the target range for the federal
funds rate at 2¼ to 2½ percent. Members agreed that
in determining the timing and size of future adjustments
to the target range for the federal funds rate, the Committee would assess realized and expected economic
conditions relative to the Committee’s maximumemployment and symmetric 2 percent inflation objectives. They reiterated that this assessment would take
into account a wide range of information, including
Minutes of the Meeting of March 19–20, 2019
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_____________________________________________________________________________________________
measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings
on financial and international developments. More generally, members noted that decisions regarding nearterm adjustments of the stance of monetary policy
would appropriately remain dependent on the evolution
of the outlook as informed by incoming data.
With regard to the postmeeting statement, members
agreed to characterize the labor market as remaining
strong. While payroll employment had been little
changed in February, job gains had been solid, on average, in recent months, and the unemployment rate had
remained low. Members also agreed to note that growth
in economic activity appeared to have slowed from its
solid rate in the fourth quarter, consistent with recent
indicators of household spending and business fixed investment. The description of overall inflation was revised to recognize that inflation had declined, largely as
a result of lower energy prices, while still noting that inflation for items other than food and energy remained
near 2 percent.
At the conclusion of the discussion, the Committee
voted to authorize and direct the Federal Reserve Bank
of New York, until 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 March 21, 2019, 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 2¼ to 2½ 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 2.25 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 each calendar month that exceeds $30 billion, and to
continue reinvesting in agency mortgagebacked securities the amount of principal payments from the Federal Reserve’s holdings of
agency debt and agency mortgage-backed securities received during each calendar month that
exceeds $20 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 January indicates that
the labor market remains strong but that growth
of economic activity has slowed from its solid
rate in the fourth quarter. Payroll employment
was little changed in February, but job gains
have been solid, on average, in recent months,
and the unemployment rate has remained low.
Recent indicators point to slower growth of
household spending and business fixed investment in the first quarter. On a 12-month basis,
overall inflation has declined, largely as a result
of lower energy prices; inflation for items other
than food and energy remains near 2 percent.
On balance, market-based measures of inflation
compensation have remained low in recent
months, and survey-based measures of longerterm inflation expectations are little changed.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment
and price stability. In support of these goals,
the Committee decided to maintain the target
range for the federal funds rate at 2¼ to
2½ percent. The Committee continues to view
sustained expansion of economic activity,
strong labor market conditions, and inflation
near the Committee’s symmetric 2 percent objective as the most likely outcomes. In light of
global economic and financial developments
and muted inflation pressures, the Committee
will be patient as it determines what future adjustments to the target range for the federal
funds rate may be appropriate to support these
outcomes.
In determining the timing and size of future adjustments to the target range for the federal
funds rate, the Committee will assess realized
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Federal Open Market Committee
_____________________________________________________________________________________________
and expected economic conditions relative to its
maximum employment objective and its symmetric 2 percent inflation objective. 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.”
Voting for this action: Jerome H. Powell, John C.
Williams, Michelle W. Bowman, Lael Brainard, James
Bullard, Richard H. Clarida, Charles L. Evans, Esther L.
George, Randal K. Quarles, and Eric Rosengren.
changed at 2.40 percent and voted unanimously to approve establishment of the primary credit rate at the existing level of 3.00 percent, effective March 21, 2019.
It was agreed that the next meeting of the Committee
would be held on Tuesday–Wednesday, April 30–
May 1, 2019. The meeting adjourned at 10:00 a.m. on
March 20, 2019.
Notation Vote
By notation vote completed on February 19, 2019, the
Committee unanimously approved the minutes of the
Committee meeting held on January 29–30, 2019.
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 un-
_______________________
James A. Clouse
Secretary
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_____________________________________________________________________________________________
Summary of Economic Projections
In conjunction with the Federal Open Market Committee (FOMC) meeting held on March 19–20, 2019, 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 2019 to 2021 and over the longer run. Each
participant’s projections were based on information
available at the time of the meeting, together with his or
her assessment of appropriate monetary policy—including a path for the federal funds rate and its longer-run
value—and assumptions about other factors likely to affect economic outcomes. The longer-run projections
represent each participant’s assessment of the value to
which each variable would be expected to converge, over
time, under appropriate monetary policy and in the absence of further shocks to the economy. 1 “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.
Participants who submitted longer-run projections generally expected that, under appropriate monetary policy,
growth of real GDP in 2019 would run at or somewhat
above their individual estimates of its longer-run rate.
Most participants continued to expect real GDP growth
to edge down over the projection horizon, with almost
all participants projecting growth in 2021 to be at or below their estimates of its longer-run rate. All participants
who submitted longer-run projections continued to expect that the unemployment rate would run at or below
their estimates of its longer-run level through 2021. Almost all participants projected that inflation, as measured by the four-quarter percentage change in the price
index for personal consumption expenditures (PCE),
would increase slightly over the next two years, and most
participants expected that it would be at or slightly above
the Committee’s 2 percent objective in 2020 and 2021.
Compared with the Summary of Economic Projections
(SEP) from December 2018, all participants marked
down somewhat their projections for real GDP growth
in 2019, and most revised down slightly their projections
for total inflation in 2019. Table 1 and figure 1 provide
summary statistics for the projections.
1 One participant did not submit longer-run projections for
real GDP growth, the unemployment rate, or the federal funds
rate.
As shown in figure 2, most participants expected that
the evolution of the economy, relative to their objectives
of maximum employment and 2 percent inflation, would
likely warrant keeping the federal funds rate at its current
level through the end of 2019. The medians of participants’ assessments of the appropriate level of the federal
funds rate in 2020 and 2021 were close to the median
assessment of its longer-run level. Compared with the
December submissions, the median projections for the
federal funds rate for the end of 2019, 2020, and 2021
were 50 basis points lower.
A substantial majority of participants continued to view
the uncertainty around their projections as broadly similar to the average of the past 20 years. While a majority
of participants viewed the risks to the outlook as balanced, a couple more participants than in December
viewed the risks to inflation as weighted to the downside.
The Outlook for Economic Activity
As shown in table 1, the median of participants’ projections for the growth rate of real GDP in 2019, conditional on their individual assessments of appropriate
monetary policy, was 2.1 percent. Most participants
continued to expect GDP growth to slow throughout
the projection horizon, with the median projection at
1.9 percent in 2020 and at 1.8 percent in 2021, a touch
lower than the median estimate of its longer-run rate of
1.9 percent. Relative to the December SEP, the medians
of the projections for real GDP growth in 2019 and 2020
were 0.2 percentage point and 0.1 percentage point
lower, respectively. Most participants mentioned a recent patch of weaker data on domestic economic activity, and some pointed to a softer global growth outlook,
as factors behind the downward revisions to their nearterm growth estimates.
The median of projections for the unemployment rate in
the fourth quarter of 2019 was 3.7 percent, about ½ percentage point below the median assessment of its longerrun level. The median projections for 2020 and 2021
were 3.8 percent and 3.9 percent, respectively. These
median unemployment rates were a little higher than
those from the December SEP. Nevertheless, most participants continued to project that the unemployment
rate in 2021 would be below their estimates of its longerrun level. The median estimate of the longer-run rate of
2.4
2.9
2.6
3.1
2.0
2.0
2.6
3.1
2.0
2.0
2.0
2.1
2.8
2.8
2.0
2.0
2.0
2.0
1.8 – 2.2 1.8 – 2.2 1.9 – 2.2
1.9 – 2.2 2.0 – 2.2 2.0 – 2.3
1.6 – 2.1 1.9 – 2.2 2.0 – 2.2
1.8 – 2.2 2.0 – 2.2 2.0 – 2.3
2.0
2.0
2.4 – 2.6 2.4 – 2.9 2.4 – 2.9 2.5 – 3.0 2.4 – 2.9 2.4 – 3.4 2.4 – 3.6 2.5 – 3.5
2.6 – 3.1 2.9 – 3.4 2.6 – 3.1 2.5 – 3.0 2.4 – 3.1 2.4 – 3.6 2.4 – 3.6 2.5 – 3.5
1.9 – 2.0 2.0 – 2.1 2.0 – 2.1
2.0 – 2.1 2.0 – 2.1 2.0 – 2.1
1.8 – 1.9 2.0 – 2.1 2.0 – 2.1
1.8 – 2.1 2.0 – 2.1 2.0 – 2.1
Note: Projections of change in real gross domestic product (GDP) and projections for both measures of inflation are percent changes from the
fourth quarter of the previous year to the fourth quarter of the year indicated. PCE inflation and core PCE inflation are the percentage rates of change
in, respectively, the price index for personal consumption expenditures (PCE) and the price index for PCE excluding food and energy. Projections for
the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated. Each participant’s projections are
based on his or her assessment of appropriate monetary policy. Longer-run projections represent each participant’s assessment of the rate to which each
variable would be expected to converge under appropriate monetary policy and in the absence of further shocks to the economy. The projections for the
federal funds rate are the value of the midpoint of the projected appropriate target range for the federal funds rate or the projected appropriate target
level for the federal funds rate at the end of the specified calendar year or over the longer run. The December projections were made in conjunction with
the meeting of the Federal Open Market Committee on December 18–19, 2018. 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 December 18–19, 2018, meeting, and one participant did not submit
such projections in conjunction with the March 19–20, 2019, 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
December projection
Memo: Projected
appropriate policy path
2.0
2.0
Core PCE inflation4
December projection
2.0
2.1
3.6 – 3.8 3.6 – 3.9 3.7 – 4.1 4.1 – 4.5 3.5 – 4.0 3.4 – 4.1 3.4 – 4.2 4.0 – 4.6
3.5 – 3.7 3.5 – 3.8 3.6 – 3.9 4.2 – 4.5 3.4 – 4.0 3.4 – 4.3 3.4 – 4.2 4.0 – 4.6
1.8
1.9
4.3
4.4
PCE inflation
December projection
3.9
3.8
Unemployment rate
December projection
3.8
3.6
3.7
3.5
Change in real GDP
December projection
Variable
Central tendency2
Range3
Median1
2019 2020 2021 Longer
2019
2020
2021
2019
2020
2021
Longer
Longer
run
run
run
2.1
1.9
1.8
1.9
1.9 – 2.2 1.8 – 2.0 1.7 – 2.0 1.8 – 2.0 1.6 – 2.4 1.7 – 2.2 1.5 – 2.2 1.7 – 2.2
2.3
2.0
1.8
1.9
2.3 – 2.5 1.8 – 2.0 1.5 – 2.0 1.8 – 2.0 2.0 – 2.7 1.5 – 2.2 1.4 – 2.1 1.7 – 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, March 2019
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Summary of Economic Projections of the Meeting of March 19–20, 2019
Page 3
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Figure 1. Medians, central tendencies, and ranges of economic projections, 2019–21 and over the longer run
Percent
Change in real GDP
Median of projections
Central tendency of projections
Range of projections
3
Actual
2
1
2014
2015
2016
2017
2018
2019
2020
2021
Longer
run
Percent
Unemployment rate
7
6
5
4
3
2014
2015
2016
2017
2018
2019
2020
2021
Longer
run
Percent
PCE inflation
3
2
1
2014
2015
2016
2017
2018
2019
2020
2021
Longer
run
Percent
Core PCE inflation
3
2
1
2014
2015
2016
2017
2018
2019
2020
2021
Longer
run
Note: Definitions of variables and other explanations are in the notes to table 1. The data for the actual values of
the variables are annual.
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Federal Open Market Committee
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Figure 2. FOMC participants’ assessments of appropriate monetary policy: Midpoint of target range or target level for
the federal funds rate
Percent
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2019
2020
2021
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 March 19–20, 2019
Page 5
_____________________________________________________________________________________________
unemployment was 4.3 percent, which was slightly lower
than in December.
Table 2. Average historical projection error ranges
Variable
2019
2020
2021
Figures 3.A and 3.B show the distributions of participants’ projections for real GDP growth and the unemployment rate from 2019 to 2021 and in the longer run.
The distribution of individual projections for real GDP
growth for 2019 shifted down relative to that in the December SEP, while the distributions for 2020, 2021, and
the longer-run rate of GDP growth changed only
slightly. The distributions of individual projections for
the unemployment rate in 2019 and 2020 moved modestly higher relative to those in December, and the distribution in 2021 edged higher as well. Meanwhile, the
distribution for the longer-run unemployment rate
shifted down a touch.
Change in real GDP1 . . . . . . .
±1.4
±1.9
±1.9
±0.5
±1.3
±1.7
±0.9
±1.0
±1.1
±0.9
±2.0
±2.5
The Outlook for Inflation
As shown in table 1, the medians of projections for total
PCE price inflation were 1.8 percent in 2019 and
2.0 percent in both 2020 and 2021, each a touch lower
than in the December SEP. The medians of projections
for core PCE price inflation over the 2019–21 period
were 2.0 percent, the same as in December.
Figures 3.C and 3.D provide information on the distributions of participants’ views about the outlook for inflation. The distributions of projections for total PCE
price inflation and core PCE price inflation in 2019,
2020, and 2021 shifted down slightly from the December SEP. Almost all participants expected that total and
core PCE price inflation would be between 1.8 and
2.2 percent throughout the projection horizon.
Appropriate Monetary Policy
Figure 3.E shows distributions 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 2019 to 2021 and over the longer run.
The distributions for 2019 through 2021 shifted toward
lower values. Compared with the projections prepared
for the December SEP, the median federal funds rate
was 50 basis points lower each year over the 2019–21
period. At the end of 2019, the median of federal funds
rate projections was 2.38 percent, consistent with no rate
increases over the course of 2019. Thereafter, the medians of the projections were 2.63 percent at the end of
both 2020 and 2021, slightly lower than the median of
the longer-run projections of the federal funds rate of
2.75 percent. Muted inflationary pressures and riskmanagement considerations were both cited as factors
contributing to the downward revisions in participants’
assessments of the appropriate path for the policy rate.
The distribution of individual projections for the longerrun federal funds rate ticked down from December.
Percentage points
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 1999 through 2018 that were released in the spring 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), https://dx.
doi.org/10.17016/FEDS.2017.020.
1. Definitions of variables are in the general note to table 1.
2. Measure is the overall consumer price index, the price measure
that has been most widely used in government and private economic
forecasts. Projections are percent changes on a fourth quarter to fourth
quarter basis.
3. For Federal Reserve staff forecasts, measure is the federal funds
rate. For other forecasts, measure is the rate on 3-month Treasury bills.
Projection errors are calculated using average levels, in percent, in the
fourth quarter.
Uncertainty and Risks
In assessing the appropriate path of the federal funds
rate, 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 measures 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 PCE price inflation. Those measures are
represented graphically in the “fan charts” shown in the
top panels of figures 4.A, 4.B, and 4.C. The fan charts
display the SEP medians for the three variables surrounded by symmetric confidence intervals derived
from the forecast errors reported 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, then
future outcomes of these variables would have about a
70 percent probability of being within these confidence
intervals. For all three variables, this measure of uncertainty is substantial and generally increases as the forecast horizon lengthens.
Participants’ assessments of the level of uncertainty surrounding their individual economic projections are
shown in the bottom-left panels of figures 4.A, 4.B, and
4.C. A substantial majority of participants continued to
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Figure 3.A. Distribution of participants’ projections for the change in real GDP, 2019–21 and over the longer run
Number of participants
2019
March projections
December projections
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
Percent range
Number of participants
2020
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
Percent range
Number of participants
2021
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
Percent range
Number of participants
Longer run
18
16
14
12
10
8
6
4
2
1.2 1.3
1.4 1.5
1.6 1.7
1.8 1.9
2.0 2.1
2.2 2.3
Percent range
Note: Definitions of variables and other explanations are in the notes to table 1.
2.4 2.5
2.6 2.7
Summary of Economic Projections of the Meeting of March 19–20, 2019
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Figure 3.B. Distribution of participants’ projections for the unemployment rate, 2019–21 and over the longer run
Number of participants
2019
March projections
December projections
18
16
14
12
10
8
6
4
2
3.0 3.1
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
2020
18
16
14
12
10
8
6
4
2
3.0 3.1
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
2021
18
16
14
12
10
8
6
4
2
3.0 3.1
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
Longer run
18
16
14
12
10
8
6
4
2
3.0 3.1
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
Percent range
Note: Definitions of variables and other explanations are in the notes to table 1.
4.6 4.7
4.8 4.9
5.0 5.1
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Figure 3.C. Distribution of participants’ projections for PCE inflation, 2019–21 and over the longer run
Number of participants
2019
March projections
December projections
18
16
14
12
10
8
6
4
2
1.5 1.6
1.7 1.8
1.9 2.0
2.1 2.2
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
2021
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
18
16
14
12
10
8
6
4
2
1.5 1.6
1.7 1.8
1.9 2.0
2.1 2.2
Percent range
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 March 19–20, 2019
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Figure 3.D. Distribution of participants’ projections for core PCE inflation, 2019–21
Number of participants
2019
March projections
December projections
18
16
14
12
10
8
6
4
2
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
1.7 1.8
1.9 2.0
2.1 2.2
2.3 2.4
Percent range
Number of participants
2021
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
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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, 2019–21 and over the longer run
Number of participants
2019
March projections
December projections
18
16
14
12
10
8
6
4
2
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
4.38 4.62
4.63 4.87
4.88 5.12
Percent range
Number of participants
2020
18
16
14
12
10
8
6
4
2
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
4.38 4.62
4.63 4.87
4.88 5.12
Percent range
Number of participants
2021
18
16
14
12
10
8
6
4
2
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
4.38 4.62
4.63 4.87
4.88 5.12
Percent range
Number of participants
Longer run
18
16
14
12
10
8
6
4
2
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
Note: Definitions of variables and other explanations are in the notes to table 1.
4.38 4.62
4.63 4.87
4.88 5.12
Summary of Economic Projections of the Meeting of March 19–20, 2019
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view the degree of uncertainty attached to their economic projections for real GDP growth, unemployment,
and inflation as broadly similar to the average of the past
20 years. 2
Because the fan charts are constructed to be symmetric
around the median projections, they do not reflect any
asymmetries in the balance of risks that participants may
see in their economic projections. Participants’ assessments of the balance of risks to their current economic
projections are shown in the bottom-right panels of figures 4.A, 4.B, and 4.C. A majority of participants judged
the risks to the outlook for real GDP growth, the unemployment rate, total inflation, and core inflation as
broadly balanced—in other words, as broadly consistent
with a symmetric fan chart. The balance of risks to the
projection for real GDP growth shifted a bit lower, with
four participants assessing the risks as weighted to the
downside and no participant seeing it weighted to the
upside. The balance of risks to the projection for the
unemployment rate moved a touch higher, with three
participants judging the risks to the unemployment rate
as weighted to the upside and two participants viewing
the risks as weighted to the downside. In addition, the
balance of risks to the inflation projections shifted down
slightly relative to December. Two more participants
than in December saw the risks to the inflation projections as weighted to the downside, and no participant
judged the risks as weighted to the upside.
ments abroad were mentioned by participants as sources
of uncertainty or downside risk to the economic growth
outlook. For the inflation outlook, the effect of trade
restrictions was cited as an upside risk, while the concern
that inflation expectations could be drifting below the
FOMC’s objective and the potential for a stronger dollar
and weaker domestic demand to put downward pressure
on inflation were viewed as downside risks. A number
of participants mentioned that their assessments of risks
remained roughly balanced in part as a result of their
downward revisions to the appropriate federal funds rate
path.
Participants’ assessments of the appropriate future path
of the federal funds rate are also subject to considerable
uncertainty. Because the Committee adjusts the federal
funds rate in response to actual and prospective developments over time in key economic variables such as
real GDP growth, the unemployment rate, and inflation,
uncertainty surrounding the projected path for the federal funds rate importantly reflects the uncertainties
about the paths for these economic variables along with
other factors. Figure 5 provides a graphical representation of this uncertainty, plotting the SEP median for the
federal funds rate surrounded by confidence intervals
derived from the results presented in table 2. As with
the macroeconomic variables, the forecast uncertainty
surrounding the appropriate path of the federal funds
rate is substantial and increases for longer horizons.
In discussing the uncertainty and risks surrounding their
economic projections, trade tensions as well as develop-
At the end of this summary, the box “Forecast Uncertainty”
discusses the sources and interpretation of uncertainty surrounding the economic forecasts and explains the approach
2
used to assess the uncertainty and risks attending the participants’ projections.
Page 12
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
Actual
1
0
2014
2015
2016
2017
2018
2019
2020
2021
FOMC participants’ assessments of uncertainty and risks around their economic projections
Number of participants
Uncertainty about GDP growth
Risks to GDP growth
March projections
December projections
Lower
18
Broadly
similar
Number of participants
Higher
March projections
December projections
18
16
16
14
14
12
12
10
10
8
8
6
6
4
4
2
2
Weighted to
downside
Broadly
balanced
Weighted to
upside
Note: The blue and red lines in the top panel show actual values and median projected values, respectively, of the
percent change in real gross domestic product (GDP) from the fourth quarter of the previous year to the fourth quarter
of the year indicated. The confidence interval around the median projected values is assumed to be symmetric and is
based on root mean squared errors of various private and government forecasts made over the previous 20 years; more
information about these data is available in table 2. Because current conditions may differ from those that prevailed,
on average, over the previous 20 years, the width and shape of the confidence interval estimated on the basis of the
historical forecast errors may not reflect FOMC participants’ current assessments of the uncertainty and risks around
their projections; these current assessments are summarized in the lower panels. Generally speaking, participants who
judge the uncertainty about their projections as “broadly similar” to the average levels of the past 20 years would view
the width of the confidence interval shown in the historical fan chart as largely consistent with their assessments of
the uncertainty about their projections. Likewise, participants who judge the risks to their projections as “broadly
balanced” would view the confidence interval around their projections as approximately symmetric. For definitions of
uncertainty and risks in economic projections, see the box “Forecast Uncertainty.”
Summary of Economic Projections of the Meeting of March 19–20, 2019
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
5
Actual
4
3
2
1
2014
2015
2016
2017
2018
2019
2020
2021
FOMC participants’ assessments of uncertainty and risks around their economic projections
Number of participants
Uncertainty about the unemployment rate
Risks to the unemployment rate
March projections
December projections
Lower
18
Broadly
similar
Number of participants
Higher
March projections
December projections
18
16
16
14
14
12
12
10
10
8
8
6
6
4
4
2
2
Weighted to
downside
Broadly
balanced
Weighted to
upside
Note: The blue and red lines in the top panel show actual values and median projected values, respectively, of
the average civilian unemployment rate in the fourth quarter of the year indicated. The confidence interval around
the median projected values is assumed to be symmetric and is based on root mean squared errors of various private
and government forecasts made over the previous 20 years; more information about these data is available in table 2.
Because current conditions may differ from those that prevailed, on average, over the previous 20 years, the width
and shape of the confidence interval estimated on the basis of the historical forecast errors may not reflect FOMC
participants’ current assessments of the uncertainty and risks around their projections; these current assessments are
summarized in the lower panels. Generally speaking, participants who judge the uncertainty about their projections as
“broadly similar” to the average levels of the past 20 years would view the width of the confidence interval shown in the
historical fan chart as largely consistent with their assessments of the uncertainty about their projections. Likewise,
participants who judge the risks to their projections as “broadly balanced” would view the confidence interval around
their projections as approximately symmetric. For definitions of uncertainty and risks in economic projections, see the
box “Forecast Uncertainty.”
Page 14
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
2014
2015
2016
2017
2018
2019
2020
2021
FOMC participants’ assessments of uncertainty and risks around their economic projections
Number of participants
Uncertainty about PCE inflation
Risks to PCE inflation
March projections
December projections
Lower
18
Broadly
similar
Number of participants
March projections
December projections
18
16
16
14
14
12
12
10
10
8
8
6
6
4
4
2
2
Higher
Weighted to
downside
Broadly
balanced
Number of participants
Uncertainty about core PCE inflation
18
Broadly
similar
Number of participants
Risks to core PCE inflation
March projections
December projections
Lower
Weighted to
upside
Higher
March projections
December projections
18
16
16
14
14
12
12
10
10
8
8
6
6
4
4
2
2
Weighted to
downside
Broadly
balanced
Weighted to
upside
Note: The blue and red lines in the top panel show actual values and median projected values, respectively, of the
percent change in the price index for personal consumption expenditures (PCE) from the fourth quarter of the previous
year to the fourth quarter of the year indicated. The confidence interval around the median projected values is assumed
to be symmetric and is based on root mean squared errors of various private and government forecasts made over the
previous 20 years; more information about these data is available in table 2. Because current conditions may differ from
those that prevailed, on average, over the previous 20 years, the width and shape of the confidence interval estimated
on the basis of the historical forecast errors may not reflect FOMC participants’ current assessments of the uncertainty
and risks around their projections; these current assessments are summarized in the lower panels. Generally speaking,
participants who judge the uncertainty about their projections as “broadly similar” to the average levels of the past
20 years would view the width of the confidence interval shown in the historical fan chart as largely consistent with their
assessments of the uncertainty about their projections. Likewise, participants who judge the risks to their projections
as “broadly balanced” would view the confidence interval around their projections as approximately symmetric. For
definitions of uncertainty and risks in economic projections, see the box “Forecast Uncertainty.”
Summary of Economic Projections of the Meeting of March 19–20, 2019
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
2014
2015
2016
2017
2018
2019
2020
2021
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
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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 1.6 to 4.4 percent in the current year and
1.1 to 4.9 percent in the second and third years. The corresponding 70 percent confidence intervals for overall inflation would be 1.1 to 2.9 percent in the current year, 1.0 to
3.0 percent in the second year, and 0.9 to 3.1 percent in the
third 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’ current assessments of the uncertainty surrounding their projec-
tions are summarized in the bottom-left panels of those figures. Participants also provide judgments as to whether the
risks to their projections are weighted to the upside, are
weighted to the downside, or are broadly balanced. That is,
while the symmetric historical fan charts shown in the top
panels of figures 4.A through 4.C imply that the risks to participants’ projections are balanced, participants may judge that
there is a greater risk that a given variable will be above rather
than below their projections. These judgments are summarized in the lower-right panels of figures 4.A through 4.C.
As with real activity and inflation, the outlook for the
future path of the federal funds rate is subject to considerable
uncertainty. This uncertainty arises primarily because each
participant’s assessment of the appropriate stance of monetary policy depends importantly on the evolution of real activity and inflation over time. If economic conditions evolve
in an unexpected manner, then assessments of the appropriate setting of the federal funds rate would change from that
point forward. The final line in table 2 shows the error ranges
for forecasts of short-term interest rates. They suggest that
the historical confidence intervals associated with projections
of the federal funds rate are quite wide. It should be noted,
however, that these confidence intervals are not strictly consistent with the projections for the federal funds rate, as these
projections are not forecasts of the most likely quarterly outcomes but rather are projections of participants’ individual assessments of appropriate monetary policy and are on an endof-year basis. However, the forecast errors should provide a
sense of the uncertainty around the future path of the federal
funds rate generated by the uncertainty about the macroeconomic variables as well as additional adjustments to monetary
policy that would be appropriate to offset the effects of
shocks to the economy.
If at some point in the future the confidence interval
around the federal funds rate were to extend below zero, it
would be truncated at zero for purposes of the fan chart
shown in figure 5; zero is the bottom of the lowest target
range for the federal funds rate that has been adopted by the
Committee in the past. This approach to the construction of
the federal funds rate fan chart would be merely a convention;
it would not have any implications for possible future policy
decisions regarding the use of negative interest rates to provide additional monetary policy accommodation if doing so
were appropriate. In such situations, the Committee could
also employ other tools, including forward guidance and asset
purchases, to provide additional accommodation.
While figures 4.A through 4.C provide information on
the uncertainty around the economic projections, figure 1
provides information on the range of views across FOMC
participants. A comparison of figure 1 with figures 4.A
through 4.C shows that the dispersion of the projections
across participants is much smaller than the average forecast
errors over the past 20 years.
Cite this document
Federal Reserve (2019, March 19). FOMC Minutes. Fomc Minutes, Federal Reserve. https://whenthefedspeaks.com/doc/fomc_minutes_20190320
@misc{wtfs_fomc_minutes_20190320,
author = {Federal Reserve},
title = {FOMC Minutes},
year = {2019},
month = {Mar},
howpublished = {Fomc Minutes, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/fomc_minutes_20190320},
note = {Retrieved via When the Fed Speaks corpus}
}