FOMC Minutes
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Minutes of the Federal Open Market Committee
October 29–30, 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, October 29, 2019, at
9:00 a.m. and continued on Wednesday, October
30, 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
Rochelle M. Edge, Eric M. Engen, Anna Paulson,
Christopher J. Waller, William Wascher, and Beth
Anne Wilson, Associate Economists
Ann E. Misback, Secretary, Office of the Secretary,
Board of Governors
Eric Belsky,2 Director, Division of Consumer and
Community Affairs, Board of Governors; Matthew
J. Eichner,3 Director, Division of Reserve Bank
Operations and Payment Systems, Board of
Governors; Andreas Lehnert, Director, Division of
Financial Stability, Board of Governors
Jennifer J. Burns, Deputy Director, Division of
Supervision and Regulation, 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
Joshua Gallin, 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 Ivan Vidangos, 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; David
E. Lebow, Senior Associate Director, Division of
Research and Statistics, Board of Governors
Antulio N. Bomfim, Senior Adviser, Division of
Monetary Affairs, Board of Governors
Lorie K. Logan, Manager pro tem, System Open
Market Account
1 The Federal Open Market Committee is referenced as the
“FOMC” and the “Committee” in these minutes.
2 Attended the discussion of the review of monetary policy
strategy, tools, and communication practices.
Attended through the discussion of the review of options for
repo operations to support control of the federal funds rate.
3
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Federal Open Market Committee
Michael Hsu,4 Associate Director, Division of
Supervision and Regulation, Board of Governors;
David López-Salido and Min Wei, Associate
Directors, Division of Monetary Affairs, Board of
Governors
Glenn Follette, Deputy Associate Director, Division of
Research and Statistics, Board of Governors;
Christopher J. Gust, Deputy Associate Director,
Division of Monetary Affairs, Board of Governors;
Jeffrey D. Walker,3 Deputy Associate Director,
Division of Reserve Bank Operations and Payment
Systems, Board of Governors; Paul R. Wood,2
Deputy Associate Director, Division of
International Finance, Board of Governors
Eric C. Engstrom, Senior Adviser, Division of
Research and Statistics, and Deputy Associate
Director, Division of Monetary Affairs, Board of
Governors
Principal Economists, Division of Research and
Statistics, Board of Governors
Valerie Hinojosa, Senior Information Manager,
Division of Monetary Affairs, Board of Governors
Kelly J. Dubbert, First Vice President, Federal Reserve
Bank of Kansas City
David Altig, Kartik B. Athreya, Jeffrey Fuhrer, and
Glenn D. Rudebusch, Executive Vice Presidents,
Federal Reserve Banks of Atlanta, Richmond,
Boston, and San Francisco, respectively
Angela O’Connor,4 Marc Giannoni,2 Paolo A. Pesenti,
Samuel Schulhofer-Wohl,4 Raymond Testa,4 and
Nathaniel Wuerffel,4 Senior Vice Presidents,
Federal Reserve Banks of New York, Dallas, New
York, Chicago, New York, and New York,
respectively
Stephanie E. Curcuru, Assistant Director, Division of
International Finance, Board of Governors;
Giovanni Favara, Laura Lipscomb,4 Zeynep
Senyuz,4 and Rebecca Zarutskie,2 Assistant
Directors, Division of Monetary Affairs, Board of
Governors; Shane M. Sherlund, Assistant Director,
Division of Research and Statistics, Board of
Governors
Satyajit Chatterjee, Richard K. Crump,6 George A.
Kahn, Rebecca McCaughrin,4 and Patricia Zobel,7
Vice Presidents, Federal Reserve Banks of
Philadelphia, New York, Kansas City, New York,
and New York, respectively
Penelope A. Beattie,5 Section Chief, Office of the
Secretary, Board of Governors; Matthew Malloy,4
Section Chief, Division of Monetary Affairs, Board
of Governors
Edward S. Prescott, Senior Economic and Policy
Advisor, Federal Reserve Bank of Cleveland
Mark A. Carlson,3 Senior Economic Project Manager,
Division of Monetary Affairs, Board of Governors
David H. Small, Project Manager, Division of
Monetary Affairs, Board of Governors
Alyssa G. Anderson,4 Anna Orlik, and Bernd
Schlusche,2 Principal Economists, Division of
Monetary Affairs, Board of Governors; Cristina
Fuentes-Albero2 and Christopher J. Nekarda,6
Attended the discussion of developments in financial markets and open market operations through the discussion of the
review of options for repo operations to support control of
the federal funds rate.
5 Attended through the discussion of developments in financial markets and open market operations.
4
Larry Wall,2 Executive Director, Federal Reserve Bank
of Atlanta
Nicolas Petrosky-Nadeau,6 Senior Research Advisor,
Federal Reserve Bank of San Francisco
Stefania D’Amico2 and Thomas B. King,2 Senior
Economists and Research Advisors, Federal
Reserve Bank of Chicago
Alex Richter, Senior Research Economist and Advisor,
Federal Reserve Bank of Dallas
Benjamin Malin, Senior Research Economist, Federal
Reserve Bank of Minneapolis
Attended the discussion of economic developments and the
outlook.
7 Attended the discussion of developments in financial markets and open market operations through the end of the meeting.
6
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Minutes of the Meeting of October 29–30, 2019
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Review of Monetary Policy Strategy, Tools, and
Communication Practices
Committee participants continued their discussions related to the ongoing review of the Federal Reserve's
monetary policy strategy, tools, and communication
practices. Staff briefings provided an assessment of a
range of monetary policy tools that the Committee could
employ to provide additional economic stimulus and
bolster inflation outcomes, particularly in future episodes in which the policy rate would be constrained by
the effective lower bound (ELB). The staff first discussed policy rate tools, focusing on three forms of forward guidance—qualitative, which provides a nonspecific indication of the expected duration of accommodation; date-based, which specifies a date beyond which
accommodation could start to be reduced; and outcomebased, which ties the possible start of a reduction of accommodation to the achievement of certain macroeconomic outcomes. The briefing addressed communications challenges associated with each form of forward
guidance, including the need to avoid conveying a more
negative economic outlook than the FOMC expects.
Nonetheless, the staff suggested that forward guidance
generally had been effective in easing financial conditions and stimulating economic activity in circumstances
when the policy rate was above the ELB and when it was
at the ELB. The briefing also discussed negative interest
rates, a policy option implemented by several foreign
central banks. The staff noted that although the evidence so far suggested that this tool had provided accommodation in jurisdictions where it had been employed, there were also indications of possible adverse
side effects. Moreover, differences between the U.S. financial system and the financial systems of those jurisdictions suggested that the foreign experience may not
provide a useful guide in assessing whether negative
rates would be effective in the United States.
The second part of the staff briefing focused on balance
sheet policy tools. The staff discussed the benefits and
costs associated with the large-scale asset purchase programs implemented by the Federal Reserve after the financial crisis. In general, the staff’s review of the historical experience suggested that the benefits of large-scale
asset purchase programs were significant and that many
of the potential costs of such programs identified at the
time either did not materialize or materialized to a
smaller degree than initially feared. In addition, the staff
presentation noted that—taking account of investor expectations ahead of the announcement of each new program—the effects of asset purchases did not appear to
have diminished materially across consecutive programs.
However, going forward, such policies might not be as
effective because longer-term interest rates would likely
be much lower at the onset of a future asset purchase
program than they were before the financial crisis. The
staff also compared the benefits and costs associated
with asset purchase programs that are of a fixed cumulative size and those that are flow-based—where purchases continue at a specific pace until certain macroeconomic outcomes are achieved—and examined the potential effectiveness of using asset purchases to place
ceilings on interest rates. The briefing also discussed
lending programs that could facilitate the flow of credit
to households or businesses.
Participants discussed the relative merits of qualitative,
date-based, and outcome-based forward guidance. A
number of participants noted that each of these three
forms of forward guidance could be effective in providing accommodation, depending on circumstances both
at and away from the ELB. They also suggested that
different types of forward guidance would likely be
needed to address varying economic conditions, and that
the communications regarding forward guidance needed
to be tailored to explain the Committee’s evaluation of
the economic outlook. In particular, several participants
emphasized that to guard against the possibility of adverse feedback loops in which forward guidance is interpreted by the public as a sign of a sharply deteriorating
economic outlook, thus leading households and businesses to become even more cautious in their spending
decisions, the Committee would need to clearly communicate how its announced policy could help promote
better economic outcomes. Participants saw both benefits and costs associated with outcome-based forward
guidance relative to other forms of forward guidance.
On the one hand, relative to qualitative or date-based
forward guidance, outcome-based forward guidance has
the advantage of creating an explicit link between future
monetary policy actions and macroeconomic conditions,
thereby helping to support economic stabilization efforts and foster transparency and accountability. On the
other hand, outcome-based forward guidance could be
complex and difficult to explain and, hence, could potentially be less effective than qualitative or date-based
forward guidance if those hurdles could not be overcome. A few participants commented that outcomebased forward guidance, tied to inflation outcomes,
could be a useful tool to reinforce the Committee’s commitment to its symmetric 2 percent objective.
Participants also discussed the benefits and costs of using different types of balance sheet policy. Participants
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Federal Open Market Committee
generally agreed that the balance sheet policies implemented by the Federal Reserve after the crisis had eased
financial conditions and had contributed to the economic recovery, and that those tools had become an important part of the Committee’s current toolkit. However, some participants pointed out that research had
produced a sizable range of estimates of the magnitude
of the economic effects of balance sheet actions. In addition, some participants noted that the effectiveness of
these tools might be diminished in the future, as longerterm interest rates have declined to very low levels and
would likely be even lower following an adverse shock
that could lead to the resumption of large-scale asset
purchases; as a result, there might be limited scope for
balance sheet tools to provide accommodation. Several
participants commented on the advantages and disadvantages of flow-based asset purchase programs tied to
the achievement of economic outcomes. On the one
hand, such programs adjusted automatically in response
to the performance of the economy and, hence, were
more straightforward to implement and communicate.
On the other hand, flow-based asset purchase programs
may result in the balance sheet rising to undesirable levels. A few participants also commented that, barring significant dislocations to particular segments of the markets, they would restrict asset purchases to Treasury securities to avoid perceptions that the Federal Reserve
was engaging in credit allocation across sectors of the
economy.
In considering policy tools that the Federal Reserve had
not used in the recent past, participants discussed the
benefits and costs of using balance sheet tools to cap
rates on short- or long-maturity Treasury securities
through open market operations as necessary. A few
participants saw benefits to capping longer-term interest
rates that more directly influence household and business spending. In addition, capping longer-maturity interest rates using balance sheet tools, if judged as credible by market participants, might require a smaller
amount of asset purchases to provide a similar amount
of accommodation as a quantity-based program purchasing longer-maturity securities. However, many participants raised concerns about capping long-term rates.
Some of those participants noted that uncertainty regarding the neutral federal funds rate and regarding the
effects of rate ceiling policies on future interest rates and
inflation made it difficult to determine the appropriate
level of the rate ceiling or when that ceiling should be
removed; that maintaining a rate ceiling could result in
an elevated level of the Federal Reserve’s balance sheet
or significant volatility in its size or maturity composition; or that managing longer-term interest rates might
be seen as interacting with the federal debt management
process. By contrast, a majority of participants saw
greater benefits in using balance sheet tools to cap
shorter-term interest rates and reinforce forward guidance about the near-term path of the policy rate.
All participants judged that negative interest rates currently did not appear to be an attractive monetary policy
tool in the United States. Participants commented that
there was limited scope to bring the policy rate into negative territory, that the evidence on the beneficial effects
of negative interest rates abroad was mixed, and that it
was unclear what effects negative rates might have on
the willingness of financial intermediaries to lend and on
the spending plans of households and businesses. Participants noted that negative interest rates would entail
risks of introducing significant complexity or distortions
to the financial system. In particular, some participants
cautioned that the financial system in the United States
is considerably different from those in countries that implemented negative interest rate policies, and that negative rates could have more significant adverse effects on
market functioning and financial stability here than
abroad. Notwithstanding these considerations, participants did not rule out the possibility that circumstances
could arise in which it might be appropriate to reassess
the potential role of negative interest rates as a policy
tool.
Overall, participants generally agreed that the forward
guidance and balance sheet policies followed by the Federal Reserve after the financial crisis had been effective
in providing stimulus at the ELB. With estimates of
equilibrium real interest rates having declined notably
over recent decades, policymakers saw less room to reduce the federal funds rate to support the economy in
the event of a downturn. In addition, against a background of inflation undershooting the symmetric 2 percent objective for several years, some participants raised
the concern that the scope to reduce the federal funds
rate to provide support to economic activity in future
recessions could be reduced further if inflation shortfalls
continued and led to a decline in inflation expectations.
Therefore, participants generally agreed it was important
for the Committee to keep a wide range of tools available
and employ them as appropriate to support the economy. Doing so would help ensure the anchoring of inflation expectations at a level consistent with the Committee’s symmetric 2 percent inflation objective.
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Some participants noted that the form of the policy response would depend critically on the circumstances the
Committee faced at the time. Several participants suggested that communicating to the public clearly and convincingly in advance about how the Committee intended
to provide accommodation at the ELB would enhance
public confidence and support the effectiveness of
whichever tool the Committee selected. Some participants thought it would be helpful for the Committee to
evaluate how its tools could be utilized in different economic scenarios, such as when longer-term interest rates
were significantly below current levels, and discuss
which actions would best address the challenges posed
by each scenario. Several participants noted that, particularly if monetary policy became severely constrained at
the ELB, expansionary fiscal policy would be especially
important in addressing an economic downturn.
Participants expected that, at upcoming meetings, they
would continue their deliberations on the Committee’s
review of the monetary policy framework as well as the
Committee’s Statement on Longer-Run Goals and Monetary Policy Strategy. They also generally agreed that the
Committee’s consideration of possible modifications to
its policy strategy, tools, and communication practices
would take some time and that the process would be
careful, deliberate, and patient. A number of participants judged that the review could be completed around
the middle of 2020.
Developments in Financial Markets and Open Market Operations
The manager pro tem first reviewed developments in financial markets over the intermeeting period. Early in
the period, market participants focused on signs of
weakness in U.S. economic data with some soft data
from business surveys viewed as substantiating concerns
that global headwinds were spilling over to the U.S.
economy. Later in the period, markets responded to
news suggesting favorable developments around Brexit
and a partial U.S.-China trade deal. On balance, U.S. financial conditions ended the period little changed.
Regarding the outlook for U.S. monetary policy, the
Open Market Desk’s surveys and market-based indicators pointed to a high likelihood of a 25 basis point cut
in the target range at the October meeting. The probability that survey respondents placed on this outcome
was broadly similar to the probability of a 25 basis point
cut ahead of the July and September meetings. Further
ahead, the path implied by the medians of survey respondents’ modal forecasts for the federal funds rate remained essentially flat after this meeting. Meanwhile, the
market-implied path suggested that investors expected
around 25 basis points of additional easing by the end of
2020, after the anticipated easing at this meeting.
The manager pro tem next turned to a review of money
market developments since early October. On October 11, the Committee announced its decision to maintain reserves at or above the level that prevailed in early
September through a program of Treasury bill purchases
and repurchase agreement (repo) operations. After the
announcement, the Desk conducted regular operations
that offered at least $75 billion in overnight repo funding
and between $135 and $170 billion in term funding.
These operations fostered conditions that helped maintain the federal funds rate within the target range
through two channels. First, they provided funding in
repo markets that dampened repo market pressure that
would otherwise have passed through to the federal
funds market, and second, they increased the supply of
reserves in the banking system. In anticipation of another projected sharp decline in reserves and expected
rate pressures around October 31, the Desk announced
an increase in the size of overnight repos to $120 billion,
and an increase in the size of the two term repo operations that crossed the October month-end to $45 billion.
With respect to purchases of Treasury bills for reserve
management purposes, the Desk had purchased more
than half of the initial $60 billion monthly amount for
October, and propositions at the five operations conducted to date had been strong. Respondents to the
Desk surveys expected reserve management purchases
of Treasury bills to continue at the same pace for some
time. The combination of repo operations and bill purchases lifted reserve levels above those observed in early
September.
The manager pro tem noted that diminished willingness
of some dealers to intermediate across money markets
ahead of the year-end could result in upward pressure on
short-term money market rates. Forward measures of
market pricing continued to indicate expectations for
such pressures around the year-end. The Desk planned
to continue its close monitoring of reserves and money
market conditions, as well as dealer participation in repo
operations, particularly given balance sheet constraints
heading into year-end. The Desk discussed its intentions
to further adjust operations around year-end as needed
to mitigate the risk of money market pressures that could
adversely affect policy implementation, and to maintain
over time a level of reserve balances at or above those
that prevailed in early September.
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The manager pro tem finished by noting that the Federal
Reserve Bank of New York would soon release a request
for public comment on a plan to publish a series of backward looking Secured Overnight Financing Rate (SOFR)
averages and a daily SOFR index to support the transition away from instruments based on LIBOR (London
interbank offered rate). Publication of these series was
expected to begin in the first half of 2020.
By unanimous vote, the Committee ratified the Desk’s
domestic transactions over the intermeeting period.
There were no intervention operations in foreign currencies for the System’s account during the intermeeting period.
Review of Options for Repo Operations to Support
Control of the Federal Funds Rate
The staff briefed participants on the recent experience
with using repo operations to support control of the federal funds rate and on possibly maintaining a role for
repo operations in the monetary policy implementation
framework over the longer run. Ongoing capacity for
repo operations could be viewed as useful in an amplereserves regime as a way of providing insurance against
unexpected stresses in money markets that could drive
the federal funds rate outside the Committee’s target
range over a sustained period. The staff presented two
potential approaches for conducting repo operations if
the Committee decided to maintain an ongoing role for
such operations. Under the first approach, the Desk
would conduct modestly sized, relatively frequent repo
operations designed to provide a high degree of readiness should the need for larger operations arise; under
the second approach, the FOMC would establish a
standing fixed-rate facility that could serve as an automatic money market stabilizer.8 Assessing these two approaches involved several considerations, including the
degree of assurance of control over the federal funds
rate, the likelihood that participation in the Federal Reserve’s repo operations could become stigmatized, the
possibility that the operations could encourage the Federal Reserve’s counterparties to take on excessive liquidity risks in their portfolios, and the potential disintermediation of financial transactions currently undertaken by
private counterparties. Regular, modestly sized repo operations likely would pose relatively little risk of stigma
or moral hazard, but they may provide less assurance of
control over the federal funds rate because it might be
difficult for the Federal Reserve to anticipate money
The staff briefed the Committee in June 2019 on the possible
role of a standing repo facility in the monetary policy implementation framework.
8
market pressures and scale up its repo operations accordingly. A standing fixed-rate repo facility would
likely provide substantial assurance of control over the
federal funds rate, but use of the facility could become
stigmatized, particularly if the rate was set at a relatively
high level. Conversely, a standing facility with a rate set
at a relatively low level could result in larger and more
frequent repo operations than would be appropriate.
And by effectively standing ready to provide a form of
liquidity on an as-needed basis, such a facility could increase the risk that some institutions may take on an undesirably high amount of liquidity risk.
In their comments following the staff presentation, participants emphasized the importance of maintaining reserves at a level consistent with the Committee’s choice
of an ample-reserves monetary policy implementation
framework, in which control over the level of the federal
funds rate 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. Some participants indicated that, in such an environment, they would have some tolerance for allowing
the federal funds rate to vary from day to day and to
move occasionally outside its target range, especially in
those instances associated with easily identifiable technical events; a couple of participants expressed discomfort with such misses.
Participants expressed a range of views on the relative
merits of the two approaches described by the staff for
conducting repo operations. Many participants noted
that, once an ample supply of reserves is firmly established, there might be little need for a standing repo facility or for frequent repo operations. Some of these
participants indicated that a basic principle in implementing an ample-reserves framework is to maintain reserves on an ongoing basis at levels that would obviate
the need for open market operations to address pressures in funding markets in all but exceptional circumstances. Many participants remarked, however, that
even in an environment with ample reserves, a standing
facility could serve as a useful backstop to support control of the federal funds rate in the event of outsized
shocks to the system. Several of these participants also
suggested that, if a standing facility were created that allowed banks to monetize a portion of their securities
holdings at times of market stress, banks could possibly
reduce their demand for reserves in normal times, which
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Minutes of the Meeting of October 29–30, 2019
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could make it feasible for the monetary policy implementation framework to operate with a significantly
smaller quantity of reserves than would otherwise be
needed. A couple of participants pointed out that establishing a standing facility would be similar to the practice
of some other major central banks. A number of participants noted that, before deciding whether to implement
a standing repo facility, additional work would be necessary to assess the likely implications of different design
choices for a standing repo facility, such as pricing, eligible counterparties, and the set of acceptable collateral.
Echoing issues raised at the Committee’s June 2019
meeting, various participants commented on the need to
carefully evaluate these design choices to guard against
the potential for moral hazard, stigma, disintermediation
risk, or excessive volatility in the Federal Reserve’s balance sheet. A couple of other participants suggested that
an approach based on modestly sized, frequent repo operations that could be quickly and substantially ramped
up in response to emerging market pressures would mitigate the moral hazard, disintermediation, and stigmatization risks associated with a standing repo facility.
Labor Statistics’ benchmark revision to payroll employment, which will be incorporated in the published data
in February 2020. The unemployment rate moved down
to a 50-year low of 3.5 percent in September, while the
labor force participation rate held steady and the employment-to-population ratio moved up. The unemployment rates for Asians, Hispanics, and whites each
moved lower in September, but the rate for African
Americans was unchanged; the unemployment rate for
each group was below its level at the end of the previous
economic expansion, though persistent differentials between these rates remained. The average share of workers employed part time for economic reasons in September continued to be below its level in late 2007. The rate
of private-sector job openings declined in August, and
the rate of quits also edged down, but both readings were
still at relatively elevated levels. The four-week moving
average of initial claims for unemployment insurance
benefits through mid-October remained near historically
low levels. Average hourly earnings for all employees
rose 2.9 percent over the 12 months ending in September, roughly similar to the pace a year earlier.
Participants made no decisions at this meeting on the
longer-run role of repo operations in the ample-reserves
regime or on an approach for conducting repo operations over the longer run. They generally agreed that
they should continue to monitor the market effects of
the Federal Reserve’s ongoing repo operations and
Treasury bill purchases and that additional analysis of the
recent period of money market dislocations or of fluctuations in the Federal Reserve’s non-reserve liabilities was
warranted. Some participants called for further research
on the role that the financial regulatory environment or
other factors may have played in the recent dislocations.
Total consumer prices, as measured by the PCE price
index, increased 1.4 percent over the 12 months ending
in August. Core PCE price inflation (which excludes
changes in consumer food and energy prices) was
1.8 percent over that same 12-month period, while consumer food price inflation was well below core inflation,
and consumer energy prices declined. The trimmed
mean measure of 12-month PCE price inflation constructed by the Federal Reserve Bank of Dallas remained
at 2 percent in August. The consumer price index (CPI)
rose 1.7 percent over the 12 months ending in September, while core CPI inflation was 2.4 percent. Recent
readings on survey-based measures of longer-run inflation expectations—including those from the University
of Michigan Surveys of Consumers, the Blue Chip Economic Indicators, and the Desk’s Survey of Primary
Dealers and Survey of Market Participants—were little
changed, on balance, although the Michigan survey
measure ticked down to the low end of its recent range.
Staff Review of the Economic Situation
The information available for the October 29–30 meeting indicated that labor market conditions remained
strong and that real gross domestic product (GDP) increased at a moderate rate in the third quarter. Consumer price inflation, as measured by the 12-month percentage change in the price index for personal consumption expenditures (PCE), remained below 2 percent in
August. Survey-based measures of longer-run inflation
expectations were little changed.
Total nonfarm payroll employment expanded at a slower
pace in September than in the previous two months, but
the average pace for the third quarter was similar to that
for the first half of the year. However, the pace of job
gains so far this year was slower than last year, even after
accounting for the anticipated effects of the Bureau of
Real PCE rose solidly in the third quarter following a
stronger gain in the second quarter. Overall consumer
spending rose steadily in recent months, and sales of
light motor vehicles through September maintained their
robust second-quarter pace. Key factors that influence
consumer spending—including the low unemployment
rate, further gains in real disposable income, high levels
of households’ net worth, and generally low borrowing
rates—were supportive of solid real PCE growth in the
near term. The Michigan survey measure of consumer
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sentiment rose again in October and had mostly recovered from its August slump, while the Conference Board
survey measure of consumer confidence remained at a
favorable level.
Real residential investment turned up solidly in the third
quarter following six consecutive quarters of contraction. This upturn was consistent with the rise in singlefamily starts in the third quarter, and building permits
for such units—which tend to be a good indicator for
the underlying trend in the construction of such
homes—also increased. Both new and existing home
sales increased, on net, in August and September. Taken
together, the data on construction and sales suggested
that the decline in mortgage rates since late 2018 was
starting to show through to housing activity.
Real nonresidential private fixed investment declined
further in the third quarter. Nominal shipments of nondefense capital goods excluding aircraft decreased over
August and September, and forward-looking indicators
generally pointed to continued softness in business
equipment spending. Orders for nondefense capital
goods excluding aircraft decreased over those two
months and were still below the level of shipments, most
measures of business sentiment deteriorated, analysts’
expectations of firms’ longer-term profit growth declined somewhat further, and concerns about trade developments continued to weigh on firms’ investment decisions. Business expenditures for nonresidential structures decreased markedly further in the third quarter,
and the number of crude oil and natural gas rigs in operation—an indicator of business spending for structures in the drilling and mining sector—continued to decline through mid-October.
Industrial production declined in September and was
notably lower than at the beginning of the year. Production in September was held down by the strike at General Motors, and automakers’ schedules indicated that
assemblies of light motor vehicles would remain low in
October before rebounding in November. Overall manufacturing production appeared likely to remain soft in
coming months, reflecting generally weak readings on
new orders from national and regional manufacturing
surveys, declining domestic business investment, weak
GDP growth abroad, and a persistent drag from trade
developments.
Total real government purchases rose at a slower pace in
the third quarter than in the second quarter. Real federal
purchases decelerated, reflecting smaller increases in
both defense and nondefense spending. Federal hiring
of temporary workers for next year’s decennial census
was quite modest during the quarter. Real purchases by
state and local governments also rose at a slower pace,
as the boost from a faster expansion in state and local
payrolls was partially offset by a decrease in real construction spending by these governments.
The nominal U.S. international trade deficit widened in
August, reflecting a subdued pace of export growth and
a moderate pace of import growth. Export growth was
subdued due to lackluster exports of services and capital
goods. Advance estimates for September suggested that
goods imports fell more than exports, pointing to a narrowing of the monthly trade deficit. The Bureau of Economic Analysis estimated that net exports made a slight
negative contribution to real GDP growth in the third
quarter.
Incoming data suggested that growth in the foreign
economies remained subpar in the third quarter. In several advanced foreign economies (AFEs), indicators
showed continued weakness in the manufacturing sector, especially in the euro area and the United Kingdom.
Similarly, GDP growth remained subdued in China and
several other emerging economies in Asia, and indicators
suggested that growth in Latin America also remained
weak. Foreign inflation appeared to have moderated a
bit in the third quarter, reflecting declines in energy
prices. Inflation remained relatively low in most foreign
economies.
Staff Review of the Financial Situation
Investor sentiment weakened over the early part of the
intermeeting period, reflecting a few weaker-than-expected domestic data releases, but later strengthened on
increased optimism regarding ongoing trade negotiations between the United States and China and positive
Brexit news. On net, equity prices and corporate bond
spreads were little changed, and the Treasury yield curve
steepened a bit. Financing conditions for businesses and
households remained generally supportive of spending
and economic activity.
September FOMC communications were viewed as
slightly less accommodative than expected, with investors reportedly surprised by the Summary of Economic
Projections showing that a majority of FOMC participants anticipated no further easing this year. Incoming
data early in the intermeeting period—particularly the
disappointing readings on business activity—prompted
a decline in the market-implied path for the policy rate,
but that decline was later partly reversed as market participants apparently grew more optimistic on the prospects for a U.S.–China trade deal and Brexit negotiations. Late in the period, quotes on federal funds futures
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Minutes of the Meeting of October 29–30, 2019
Page 9
options contracts indicated that market participants assigned a very high probability to a 25 basis point reduction in the target range of the federal funds rate at the
October FOMC meeting. In addition, market-implied
expectations for the federal funds rate at year-end and
next year moved down.
Yields on nominal U.S. Treasury securities moved down
in the early part of the intermeeting period but later retraced their declines. On net, the Treasury yield curve
steepened a bit, mostly reflecting a modest decline in
short-term yields. Measures of inflation compensation
over the next 5 years and 5 to 10 years ahead based on
Treasury Inflation-Protected Securities inched down and
remained near multiyear low levels.
Broad stock price indexes fell by as much as 4 percent
during the first half of the intermeeting period but recovered afterward, ending the period roughly unchanged. Option-implied volatility on the S&P 500 index declined slightly and ended the period below the
middle of its historical distribution. On net, corporate
credit spreads were little changed.
Domestic short-term funding markets were volatile in
mid-September and exhibited additional, albeit modest,
pressures around the September quarter-end and the
mid-October Treasury settlement date. These pressures
were alleviated in part by the Desk’s overnight and term
repo operations that began on September 17. After
smoothing through rate volatility over the period, interest rates for overnight unsecured and secured funding
declined roughly in line with the reduction in the target
range for the federal funds rate at the September FOMC
meeting and the associated 30 basis point decrease in the
interest on excess reserves (IOER) rate. The effective
federal funds rate (EFFR) was more volatile than usual
over the intermeeting period, with the EFFR–IOER
spread ranging between 2 basis points and 10 basis
points. Rates on overnight commercial paper (CP) and
short-term negotiable certificates of deposit declined
fairly quickly following the announcement of Desk operations on September 17, although some CP rates remained elevated into October. The FOMC’s October 11 announcement of Treasury bill purchases and
repo operations to maintain reserves at or above their
early-September level appeared to improve expectations
about funding market conditions through the remainder
of the year. These communications reportedly did not
materially affect yields on longer-term Treasury securities.
Financial markets in the AFEs followed a pattern similar
to that seen in the United States. AFE financial conditions tightened early in the intermeeting period on disappointing activity data, both in the United States and
abroad, and subsequently recovered on perceived better
prospects for trade and Brexit negotiations. Movements
in the exchange value of the dollar against most currencies were relatively modest, and the broad dollar index
declined slightly. Relative to the dollar, the British
pound appreciated on Brexit developments, and the Argentinian peso continued to depreciate amid the country’s political developments.
The mid-September increases in U.S. Treasury repo rates
spilled over to borrowing rates in the international dollar
funding market. However, the measures taken by the
Federal Reserve to keep the federal funds rate in the target range also calmed dollar funding conditions in the
foreign exchange swap market.
Financing conditions for nonfinancial businesses remained generally accommodative during the intermeeting period. Gross issuance of corporate bonds, which
was strong in September, experienced a typical seasonal
decline in October. Gross issuance of institutional leveraged loans remained solid but slightly below 2019
monthly averages. Meanwhile, growth of commercial
and industrial (C&I) loans at banks was modest in the
third quarter as a whole. Respondents to the October
2019 Senior Loan Officer Opinion Survey on Bank
Lending Practices (SLOOS) reported that borrower demand weakened for C&I loans over the third quarter,
while lending standards on such loans were about unchanged. Gross equity issuance through both initial and
seasoned offerings picked up to a strong pace in September but moderated in October. The credit quality of
nonfinancial corporations deteriorated slightly in recent
months but remained solid on balance. Credit conditions for both small businesses and municipalities stayed
accommodative on net.
In the commercial real estate (CRE) sector, financing
conditions also remained generally accommodative. The
volume of agency and non-agency commercial mortgage-backed securities issuance was strong in September, in part supported by recent declines in interest rates.
Growth of CRE loans on banks’ books was little
changed in the third quarter. Banks in the October
SLOOS reported tighter lending standards for all types
of CRE loans; they also reported weaker demand for
construction lending and stronger demand for the other
CRE lending categories.
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Federal Open Market Committee
Financing conditions in the residential mortgage market
remained accommodative on balance. Mortgage rates
were little changed since the September FOMC meeting
and stayed near their lowest level since mid-2016. In
September, home-purchase originations remained
around the relatively high level seen during the previous
two months, while refinancing originations jumped to
their highest level since late 2012. In the October
SLOOS, banks left their lending standards basically unchanged for most residential real estate loan categories
over the third quarter. However, for subprime loans, a
moderate net percentage of banks reported tightening
standards.
Financing conditions in consumer credit markets remained generally supportive of household spending, although conditions continued to be tight for credit card
borrowers with nonprime credit scores. Interest rates
on auto loans fell, on net, since the beginning of the year,
and interest rates on credit card accounts leveled off
through August. According to the October SLOOS,
commercial banks tightened their standards on credit
cards and other consumer loans over the third quarter.
Additionally, banks reported that their standards on auto
loans and their willingness to make consumer installment loans were about unchanged on balance.
The staff provided an update on its assessments of potential risks to financial stability. On balance, the staff
characterized the financial vulnerabilities of the U.S. financial system as moderate. The staff judged that, for
many asset classes, valuation pressures eased over the
past year. Appetite for risk in the leveraged loan market
remained elevated, but less so than last year, especially
for lower-rated loans. In addition, CRE prices remained
high relative to rental income. In assessing vulnerabilities stemming from borrowing in the household and
business sectors, the staff noted that, while household
borrowing continued to decline relative to nominal
GDP, business leverage remained at or near record-high
levels. The risks associated with leverage at financial institutions were viewed as being low, as they have been
for some time, largely because of high capital ratios at
large banks. Nonetheless, the staff noted that the resilience of financial institutions could be undermined by
low interest rates and banks’ announced plans to increase payouts to shareholders. The staff assessed vulnerabilities stemming from funding risk as modest. In
addition, the staff discussed the potential for liquidity
transformation by open-ended mutual funds investing in
bank loans to lead to market dislocations under stress
scenarios, while noting that outflows from such funds
have not often been associated with such dislocations.
Staff Economic Outlook
The projection for U.S. real GDP growth prepared by
the staff for the October FOMC meeting was revised
down a little for the second half of this year relative to
the previous projection. This revision reflected the estimated effects of the strike at General Motors along with
some other small factors. Even without this downward
revision, real GDP was forecast to rise more slowly in
the second half of the year than in the first half, mostly
because of continued soft business investment and
slower increases in government spending. The mediumterm projection for real GDP growth was essentially unchanged, as revisions to the staff’s assumptions about
factors on which the forecast was conditioned, such as
financial market variables, were small and offsetting.
Real GDP was expected to decelerate modestly over the
medium term, mostly because of a waning boost from
fiscal policy. Output was forecast to expand at a rate a
little above the staff’s estimate of its potential rate of
growth in 2019 and 2020 and then to slow to a pace
slightly below potential output growth in 2021 and 2022.
The unemployment rate was projected to be roughly flat
through 2022 and to remain below the staff’s estimate of
its longer-run natural rate.
The staff’s forecast for core PCE price inflation this year
was revised down a little in response to recent data. Beyond this year, the projection for core inflation was unrevised, and the forecast for total inflation was a little
lower in 2020 because of a downward revision in projected consumer energy prices. Both total inflation and
core inflation were forecast to move up slightly next
year, as the low inflation readings early this year were
viewed as transitory; nevertheless, both inflation
measures were forecast to continue to run somewhat below 2 percent through 2022.
The staff continued to view 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. Moreover, the staff still judged that
the risks to the forecast for real GDP growth were tilted
to the downside, with a corresponding skew to the upside for the unemployment rate. Important factors in
that assessment were that international trade tensions
and foreign economic developments seemed more likely
to move in directions that could have significant negative effects on the U.S. economy than to resolve more
favorably than assumed. In addition, softness in business investment and manufacturing so far this year was
seen as pointing to the possibility of a more substantial
slowing in economic growth than the staff projected.
The risks to the inflation projection were also viewed as
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Minutes of the Meeting of October 29–30, 2019
Page 11
having a downward skew, in part because of the downside risks to the forecast for economic activity.
Participants’ Views on Current Conditions and the
Economic Outlook
Participants agreed that the labor market had remained
strong over the intermeeting period and that economic
activity had risen at a moderate rate. Job gains had been
solid, on average, in recent months, and the unemployment rate had remained low. Although household
spending had risen at a strong pace, business fixed investment and exports had remained weak. On a
12-month basis, overall inflation and inflation for items
other than food and energy were running below 2 percent. Market-based measures of inflation compensation
remained low; survey-based measures of longer-term inflation expectations were little changed.
Participants generally viewed the economic outlook as
positive. Participants judged that sustained expansion of
economic activity, strong labor market conditions, and
inflation near the Committee’s symmetric 2 percent objective were the most likely outcomes, and they indicated
that their views on these outcomes had changed little
since the September meeting. Uncertainties associated
with trade tensions as well as geopolitical risks had eased
somewhat, though they remained elevated. In addition,
inflation pressures remained muted. The risk that a
global growth slowdown would further weigh on the domestic economy remained prominent.
In their discussion of the household sector, participants
agreed that consumer spending was increasing at a
strong pace. They also generally expected that, in the
period ahead, household spending would likely remain
on a firm footing, supported by strong labor market conditions, rising incomes, and favorable financial conditions. In addition, survey measures of consumer confidence remained high, and a couple of participants commented that business contacts in consumer-facing industries reported strong demand. Many participants noted
that components of household spending that are
thought to be particularly sensitive to interest rates had
improved, including purchases of consumer durables.
In addition, residential investment had turned up. Most
participants who reported on spending by households in
their Districts also cited favorable conditions for consumer spending, although several participants reported
mixed data on spending or an increase in precautionary
savings in their Districts.
In their discussions of the business sector, participants
saw trade tensions and concerns about the global growth
outlook as the main factors contributing to weak business investment and exports and the associated restraint
on domestic economic growth. Moreover, participants
generally expected that trade uncertainty and sluggish
global growth would continue to damp investment
spending and exports. A number of participants judged
that tight labor market conditions were also causing
firms to forego investment expenditures, or invest in automation systems to reduce the need for additional hiring. However, business sentiment appeared to remain
strong for some industries, particularly those most
closely connected with consumer goods.
Participants discussed developments in the manufacturing, energy, and agricultural sectors of the U.S. economy.
Manufacturing production remained weak, and continuing concerns about global growth and trade uncertainty
suggested that conditions were unlikely to improve materially over the near term. In addition, the labor strike
at General Motors had disrupted motor vehicle output,
and ongoing issues at Boeing were slowing manufacturing in the commercial aircraft industry. A couple of participants noted that activity was particularly weak for the
energy industry, in part because of low petroleum prices.
In addition, a few participants noted ongoing challenges
in the agricultural sector, including those associated with
lower crop yields, tariffs, weak export demand, and difficult financial positions for many farmers. One bright
spot for the agricultural sector was that some commodity prices had firmed recently.
Participants judged that conditions in the labor market
remained strong, with the unemployment rate near historical lows and continued solid job gains, on average.
In addition, some participants commented on the
strength or improvement in labor force participation nationally or in their Districts. However, the pace of increases in employment had slowed some, on net, in recent months. On the one hand, the slowing could be
interpreted as a natural consequence of the economy being near full employment. On the other hand, slowing
job gains might also be indicative of some cooling in labor demand, which may be consistent with an observed
decline in the rate of job openings and decreases in other
measures of labor market tightness. Several participants
commented that the preliminary benchmark revision released in August by the Bureau of Labor Statistics had
indicated that payroll employment gains would likely
show less momentum coming into this year once those
revisions are incorporated in published data early next
year. Growth of wages had also slowed this year by
some measures. Consistent with strong national data on
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Federal Open Market Committee
the labor market, business contacts in many Districts indicated continued strong labor demand, with firms still
reporting difficulties finding qualified workers, or broadening their recruiting to include traditionally marginalized groups.
In their discussion of inflation developments, participants noted that readings on overall and core PCE inflation, measured on a 12-month change basis, had continued to run below the Committee's symmetric 2 percent
objective. While survey-based measures of longer-term
inflation expectations were generally little changed, some
measures of households’ inflation expectations had
moved down to historically low levels. Market-based
measures of inflation compensation remained low, with
some longer-term measures being at or near multi-year
lows. Weakness in the global economy, perceptions of
downside risks to growth, and subdued global inflation
pressures were cited as factors tilting inflation risk to the
downside, and a few participants commented that they
expected inflation to run below 2 percent for some time.
Some other participants, however, saw the recent inflation data as consistent with their previous assessment
that much of the weakness seen early in the year would
be transitory, or that some recent monthly readings
seemed broadly consistent with the Committee's longerrun inflation objective of 2 percent. A couple of participants noted that some measures of inflation could temporarily move above 2 percent early next year because of
the transitory effects of tariffs.
Participants also discussed risks regarding the outlook
for economic activity, which remained tilted to the
downside. Some risks were seen to have eased a bit, although they remained elevated. There were some tentative signs that trade tensions were easing, the probability
of a no-deal Brexit was judged to have lessened, and
some other geopolitical tensions had diminished. Several participants noted that statistical models designed to
gauge the probability of recession, including those based
on information from the yield curve, suggested that the
likelihood of a recession occurring over the medium
term had fallen somewhat over the intermeeting period.
However, other downside risks had not diminished. In
particular, some further signs of a global slowdown in
economic growth emerged; weakening in the global
economy could further restrain the domestic economy,
and the risk that the weakness in domestic business
spending, manufacturing, and exports could give rise to
slower hiring and weigh on household spending remained prominent.
Among those participants who commented on financial
stability, most highlighted the risks associated with high
levels of corporate indebtedness and elevated valuation
pressures for a variety of risky assets. Although financial
stability risks overall were seen as moderate, several participants indicated that imbalances in the corporate debt
market had grown over the economic expansion and
raised the concern that deteriorating credit quality could
lead to sharp increases in risk spreads in corporate bond
markets; these developments could amplify the effects
of an adverse shock to the economy. Several participants were concerned that some banks had reduced the
sizes of their capital buffers at a time when they should
be rising. A few participants observed that valuations in
equity and bond markets were high by historical standards and that CRE valuations were also elevated. A couple of participants indicated that market participants may
be overly optimistic in the pricing of risk for corporate
debt. A couple of participants judged that the monitoring of financial stability vulnerabilities should also encompass risks related to climate change.
In their consideration of the monetary policy options at
this meeting, most participants believed that a reduction
of 25 basis points in the target range for the federal funds
rate would be appropriate. In discussing the reasons for
such a decision, these participants continued to point to
global developments weighing on the economic outlook,
the need to provide insurance against potential downside
risks to the economic outlook, and the importance of
returning inflation to the Committee’s symmetric 2 percent objective on a sustained basis. A couple of participants who were supportive of a rate cut at this meeting
indicated that the decision to reduce the federal funds
rate by 25 basis points was a close call relative to the option of leaving the federal funds rate unchanged at this
meeting.
Many participants judged that an additional modest easing at this meeting was appropriate in light of persistent
weakness in global growth and elevated uncertainty regarding trade developments. Nonetheless, these participants noted that incoming data had continued to suggest that the economy had proven resilient in the face of
continued headwinds from global developments and
that previous adjustments to monetary policy would
continue to help sustain economic growth. In addition,
several participants suggested that a modest easing of
policy at this meeting would likely better align the target
range for the federal funds rate with a variety of indicators used to assess the appropriate policy stance, including estimates of the neutral interest rate and the slope of
the yield curve. A couple of participants judged that
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Minutes of the Meeting of October 29–30, 2019
Page 13
there was more room for the labor market to improve.
Accordingly, they saw further accommodation as best
supporting both of the Committee’s dual-mandate objectives.
Many participants continued to view the downside risks
surrounding the economic outlook as elevated, further
underscoring the case for a rate cut at this meeting. In
particular, risks to the outlook associated with global
economic growth and international trade were still seen
as significant despite some encouraging geopolitical and
trade-related developments over the intermeeting period. In light of these risks, a number of participants
were concerned that weakness in business spending,
manufacturing, and exports could spill over to labor
markets and consumer spending and threaten the economic expansion. A few participants observed that the
considerations favoring easing at this meeting were reinforced by the proximity of the federal funds rate to the
ELB. In their view, providing adequate accommodation
while still away from the ELB would best mitigate the
possibility of a costly return to the ELB.
Many participants also cited the level of inflation or inflation expectations as justifying a reduction of 25 basis
points in the federal funds rate at this meeting. Inflation
continued to run below the Committee’s symmetric
2 percent objective, and inflationary pressures remained
muted. Several participants raised concerns that
measures of inflation expectations remained low and
could decline further without a more accommodative
policy stance. A couple of these participants, pointing
to experiences in Japan and the euro area, were concerned that persistent inflation shortfalls could lead to a
decline in longer-run inflation expectations and less
room to reduce the federal funds rate in the event of a
future recession. In general, the participants who justified further easing at this meeting based on considerations related to inflation viewed this action as helping to
move inflation up to the Committee’s 2 percent objective on a sustained basis and to anchor inflation expectations at levels consistent with that objective.
Some participants favored maintaining the existing target range for the federal funds rate at this meeting.
These participants suggested that the baseline projection
for the economy remained favorable, with inflation expected to move up and stay near the Committee’s 2 percent objective. They also judged that policy accommodation was already adequate and, in light of lags in the
transmission of monetary policy, preferred to take some
time to assess the economic effects of the Committee’s
previous policy actions before easing policy further.
Several participants noted that downside risks had diminished over the intermeeting period and saw little indication that weakness in business sentiment was spilling
over into labor markets and consumer spending. A few
participants raised the concern that a further easing of
monetary policy at this meeting could encourage excessive risk-taking and exacerbate imbalances in the financial sector.
With regard to monetary policy beyond this meeting,
most participants judged that the stance of policy, after
a 25 basis point reduction at this meeting, would be well
calibrated to support the outlook of moderate growth, a
strong labor market, and inflation near the Committee’s
symmetric 2 percent objective and likely would remain
so as long as incoming information about the economy
did not result in a material reassessment of the economic
outlook. However, participants noted that policy was
not on a preset course and that they would be monitoring the effects of the Committee’s recent policy actions,
as well as other information bearing on the economic
outlook, in assessing the appropriate path of the target
range for the federal funds rate. A couple of participants
expressed the view that the Committee should reinforce
its postmeeting statement with additional communications indicating that another reduction in the federal
funds rate was unlikely in the near term unless incoming
information was consistent with a significant slowdown
in the pace of economic activity.
Committee Policy Action
In their discussion of monetary policy for this meeting,
members noted that information received since the September meeting indicated that the labor market remained strong and that economic activity had been rising at a moderate rate. Job gains had been solid, on average, in recent months, and the unemployment rate had
remained low. Household spending had been rising at a
strong pace. However, business fixed investment and
exports remained weak, as softness in global growth and
international trade developments continued to weigh on
those sectors. On a 12-month basis, both the overall
inflation rate and inflation for items other than food and
energy were running below 2 percent. Market-based
measures of inflation compensation remained low. Survey-based measures of longer-term inflation expectations were little changed.
In light of the implications of global developments for
the economic outlook as well as muted inflation pressures, most members agreed to lower the target range
for the federal funds rate to 1½ to 1¾ percent at this
meeting. The members who supported this action
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Federal Open Market Committee
viewed it as consistent with helping offset the effects on
aggregate demand of weak global growth and trade developments, insuring against downside risks arising from
those sources, and promoting a more rapid return of inflation to the Committee’s symmetric 2 percent objective. Two members preferred to maintain the current
target range for the federal funds rate at this meeting.
These members indicated that the economic outlook remained positive and that they anticipated, under an unchanged policy stance, continued strong labor market
conditions and solid growth in activity, with inflation
gradually moving up to the Committee’s 2 percent objective.
Members agreed that, in determining the timing and size
of future adjustments to the target range for the federal
funds rate, the Committee would assess realized and expected economic conditions relative to its maximumemployment objective and its symmetric 2 percent inflation objective. They also agreed that those assessments
would take into account a wide range of information, including measures of labor market conditions, indicators
of inflation pressures and inflation expectations, and
readings on financial and international developments.
With regard to the postmeeting statement, members
agreed to update the language of the Committee’s description of incoming data to acknowledge that investment spending and U.S. exports had remained weak. In
describing the monetary policy outlook, they also agreed
to remove the “act as appropriate” language and emphasize that the Committee would continue to monitor the
implications of incoming information for the economic
outlook as it assessed the appropriate path of the target
range for the federal funds rate. This change was seen
as consistent with the view that the current stance of
monetary policy was likely to remain appropriate as long
as the economy performed broadly in line with the Committee’s expectations and that policy was not on a preset
course and could change if developments emerged that
led to a material reassessment of the economic outlook.
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 October 31, 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 1½ to 1¾ percent. In light of recent and expected increases in the Federal Reserve’s nonreserve liabilities, the Committee directs the
Desk to purchase Treasury bills at least into the
second quarter of next year to maintain over
time ample reserve balances at or above the
level that prevailed in early September 2019.
The Committee also directs the Desk to conduct term and overnight repurchase agreement
operations at least through January of next year
to ensure that the supply of reserves remains
ample even during periods of sharp increases in
non-reserve liabilities, and to mitigate the risk of
money market pressures that could adversely affect policy implementation. In addition, the
Committee directs the Desk to conduct overnight reverse repurchase operations (and reverse repurchase operations with maturities of
more than one day when necessary to accommodate weekend, holiday, or similar trading
conventions) at an offering rate of 1.45 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 all principal payments
from the Federal Reserve’s holdings of Treasury
securities and to continue reinvesting all principal payments from the Federal Reserve’s holdings of agency debt and agency mortgagebacked securities received during each calendar
month. Principal payments from agency debt
and agency mortgage-backed securities up to
$20 billion per month will continue to be reinvested in Treasury securities to roughly match
the maturity composition of Treasury securities
outstanding; principal payments in excess of
$20 billion per month will continue to be reinvested in agency mortgage-backed securities.
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.:
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Minutes of the Meeting of October 29–30, 2019
Page 15
“Information received since the Federal Open
Market Committee met in September indicates
that the labor market remains strong and that
economic activity has been rising at a moderate
rate. Job gains have been solid, on average, in
recent months, and the unemployment rate has
remained low. Although household spending
has been rising at a strong pace, business fixed
investment and exports remain weak. On a
12-month basis, overall inflation and inflation
for items other than food and energy are running below 2 percent. Market-based measures
of inflation compensation remain low; surveybased measures of longer-term inflation expectations are little changed.
President George dissented at this meeting because she
believed that an unchanged setting of monetary policy
was appropriate based on incoming data and the outlook
for economic activity over the medium term. Recognizing risks to the outlook from the effects of trade developments and weaker global activity, President George
would be prepared to adjust policy should incoming data
point to a materially weaker outlook for the economy.
President Rosengren dissented because he judged that
monetary policy was already accommodative and that
additional accommodation was not needed for an economy in which labor markets are very tight. He judged
that providing additional accommodation posed risks of
further inflating the prices of risky assets and encouraging households and firms to take on too much leverage.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment
and price stability. In light of the implications
of global developments for the economic outlook as well as muted inflation pressures, the
Committee decided to lower the target range for
the federal funds rate to 1½ to 1¾ percent.
This action supports the Committee’s view that
sustained expansion of economic activity,
strong labor market conditions, and inflation
near the Committee’s symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain. The Committee will continue to monitor the implications
of incoming information for the economic outlook as it assesses the appropriate path of the
target range for the federal funds rate.
Consistent with the Committee’s decision to lower the
target range for the federal funds rate to 1½ to 1¾ percent, the Board of Governors voted unanimously to
lower the interest rate paid on required and excess reserve balances to 1.55 percent and voted unanimously to
approve a ¼ percentage point decrease in the primary
credit rate to 2.25 percent, effective October 31, 2019.
In determining the timing and size of future adjustments to the target range for the federal
funds rate, the Committee will assess realized
and expected economic conditions relative to its
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, and
Randal K. Quarles.
Voting against this action: Esther L. George and Eric
Rosengren.
It was agreed that the next meeting of the Committee
would be held on Tuesday–Wednesday, December 10–
11, 2019. The meeting adjourned at 9:50 a.m. on October 30, 2019.
Notation Vote
By notation vote completed on October 8, 2019, the
Committee unanimously approved the minutes of the
Committee meeting held on September 17–18, 2019.
Videoconference meeting of October 4, 2019
The Committee met by videoconference on October 4,
2019, to review developments in money markets and to
discuss steps the Committee could take to facilitate efficient and effective implementation of monetary policy.
The staff reviewed recent developments in money markets and the effect of the Desk’s continued offering of
overnight and term repo operations. Staff analysis and
market commentary suggested that many factors contributed to the funding stresses that emerged in mid-September. In particular, financial institutions’ internal risk
limits and balance sheet costs may have slowed the distribution of liquidity across the system at a time when
reserves had dropped sharply and Treasury issuance was
elevated. Although money market conditions had since
improved, market participants expressed uncertainty
about how funding market conditions may evolve over
coming months, especially around year-end. Further
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Federal Open Market Committee
out, the April 2020 tax season, with associated reductions in reserves around that time, was viewed as another
point at which money market pressures could emerge.
of monetary policy implementation not intended to affect the stance of monetary policy and should be communicated as such.
The manager pro tem reviewed options that the Committee could consider to boost the level of reserves in
the banking system and to address temporary money
market pressures that could adversely affect monetary
policy implementation. These options included a program of Treasury bill purchases coupled with overnight
and term repo operations to maintain reserves at or
above their early September level.
Most participants preferred not to wait until the October 29–30 FOMC meeting to issue a public statement
regarding the planned Treasury bill purchases and repo
operations. They noted that releasing a statement before
the October 29–30 FOMC meeting would help reinforce the point that these actions were technical and not
intended to affect the stance of policy. In addition, a few
participants remarked that an earlier release would allow
the Desk to begin boosting the level of reserves sooner.
A couple of participants, however, wanted to wait until
the October 29–30 FOMC meeting to announce the
plan so as not to surprise market participants or lead
them to infer that the Committee regarded the situation
as dire and thus requiring immediate action. The Chair
proposed having the staff produce a draft statement that
the Committee could comment on early in the following
week. Formal approval could occur by notation vote
with an anticipated release of a statement to the public
on October 11, 2019.
During their discussion, all FOMC participants agreed
that control over the federal funds rate was a priority and
that recent money market developments suggested it
was appropriate to consider steps at this time to maintain
a level of reserves consistent with the Committee’s chosen ample-reserves regime. Given the projected decline
in reserves around year-end and in the spring of 2020,
they judged that it was important to reach consensus
soon on a near-term plan and associated communications.
All participants expressed support for a plan to purchase
Treasury bills into the second quarter of 2020 and to
continue conducting overnight and term repo operations at least through January of next year. Many participants supported conducting operations to maintain reserve balances around the level that prevailed in early
September. Some others suggested moving to an even
higher level of reserves to provide an extra buffer and
greater assurance of control over the federal funds rate.
In discussing the pace of Treasury bill purchases, many
participants supported a relatively rapid pace to boost
reserve levels quickly, while others supported a more
moderate pace of purchases. Participants generally
judged that Treasury bill purchases and the associated
increase in reserves would, over time, result in a gradual
reduction in the need for repo operations. A few participants indicated that purchasing Treasury notes and
bonds with limited remaining maturities could also be
considered as a way to boost reserves, particularly if the
Federal Reserve faced constraints on the pace at which
it could purchase Treasury bills. Participants generally
acknowledged some uncertainty over the efficient and
effective level of reserves and noted it would be prudent
to continue to monitor money market developments and
stand ready to adjust the plan as necessary. Overall, participants agreed that the pace of purchases as well as the
parameters of the repo operations were technical details
Participants discussed longer-term issues that the Committee might want to study once the near-term plan was
in place. In particular, many participants mentioned that
the Committee may want to continue its previous discussion of a standing repo facility as a part of the longrun implementation framework. Almost all of these participants noted that such a facility was an option to provide a backstop to buffer shocks that could adversely affect policy implementation, and several of these participants mentioned the potential for the facility to support
banks’ liquidity risk management while reducing the demand for reserves. Other participants, instead, highlighted that policy implementation had worked well with
larger quantities of reserves and focused their discussion
on actions to firmly establish an ample supply of reserves
over the longer run. A number of participants noted that
a discussion of a broader range of factors that affect the
level and volatility of reserves may be appropriate at a
future meeting.
On October 11, 2019, the Committee approved by notation vote the following statement that outlines steps to
ensure that the supply of reserves remains ample so 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.
_____________________________________________________________________________________________
Minutes of the Meeting of October 29–30, 2019
Page 17
STATEMENT REGARDING MONETARY POLICY IMPLEMENTATION
(Adopted October 11, 2019)
Consistent with its January 2019 Statement Regarding
Monetary Policy Implementation and Balance Sheet
Normalization, the Committee reaffirms its intention 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.
To ensure that the supply of reserves remains ample, the
Committee approved by notation vote completed on
October 11, 2019, the following steps:
•
In light of recent and expected increases in the Federal Reserve’s non-reserve liabilities, the Federal Reserve will purchase Treasury bills at least into the
second quarter of next year in order to maintain
over time ample reserve balances at or above the
level that prevailed in early September 2019.
•
In addition, the Federal Reserve will conduct term
and overnight repurchase agreement operations at
least through January of next year to ensure that the
supply of reserves remains ample even during periods of sharp increases in non-reserve liabilities, and
to mitigate the risk of money market pressures that
could adversely affect policy implementation.
These actions are purely technical measures to support
the effective implementation of the FOMC’s monetary
policy, and do not represent a change in the stance of
monetary policy. The Committee will continue to monitor money market developments as it assesses the level
of reserves most consistent with efficient and effective
policy implementation. The Committee stands ready to
adjust the details of these plans as necessary to foster efficient and effective implementation of monetary policy.
In connection with these plans, the Federal Open
Market Committee voted unanimously to authorize and
direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the System
Open Market Account in accordance with the following
domestic policy directive:
“Effective October 15, 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 1-3/4 to 2 percent. In light of recent and expected increases in the Federal Reserve’s non-
reserve liabilities, the Committee directs the
Desk to purchase Treasury bills at least into the
second quarter of next year to maintain over
time ample reserve balances at or above the
level that prevailed in early September 2019.
The Committee also directs the Desk to conduct term and overnight repurchase agreement
operations at least through January of next year
to ensure that the supply of reserves remains
ample even during periods of sharp increases in
non-reserve liabilities, and to mitigate the risk of
money market pressures that could adversely affect policy implementation. In addition, the
Committee directs the Desk to conduct overnight reverse repurchase operations (and reverse repurchase operations with maturities of
more than one day when necessary to accommodate weekend, holiday, or similar trading
conventions) at an offering rate of 1.70 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 all principal payments
from the Federal Reserve’s holdings of Treasury
securities and to continue reinvesting all principal payments from the Federal Reserve’s holdings of agency debt and agency mortgagebacked securities received during each calendar
month. Principal payments from agency debt
and agency mortgage-backed securities up to
$20 billion per month will continue to be reinvested in Treasury securities to roughly match
the maturity composition of Treasury securities
outstanding; principal payments in excess of
$20 billion per month will continue to be reinvested in agency mortgage-backed securities.
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.”
_______________________
James A. Clouse
Secretary
Cite this document
Federal Reserve (2019, October 3). FOMC Minutes. Fomc Minutes, Federal Reserve. https://whenthefedspeaks.com/doc/fomc_minutes_20191004
@misc{wtfs_fomc_minutes_20191004,
author = {Federal Reserve},
title = {FOMC Minutes},
year = {2019},
month = {Oct},
howpublished = {Fomc Minutes, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/fomc_minutes_20191004},
note = {Retrieved via When the Fed Speaks corpus}
}