FOMC Minutes

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Minutes of the Federal Open Market Committee

December 10–11, 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, December 10, 2019,

at 10:00 a.m. and continued on Wednesday, December

11, 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

Lorie K. Logan, Manager, System Open Market

Account 2

Ann E. Misback, Secretary, Office of the Secretary,

Board of Governors

Eric Belsky, 3 Director, Division of Consumer and

Community Affairs, Board of Governors; Matthew

J. Eichner, 4 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

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; Diana

Hancock, Senior Associate Director, Division of

Research and Statistics, Board of Governors

Rochelle M. Edge, Eric M. Engen, Christopher J.

Waller, William Wascher, Jonathan L. Willis, and

Beth Anne Wilson, Associate Economists

Antulio N. Bomfim and Robert J. Tetlow, Senior

Advisers, Division of Monetary Affairs, Board of

Governors

The Federal Open Market Committee is referenced as the

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

2 The Committee appointed Lorie K. Logan to serve as the

manager of the System Open Market Account at the conclusion of the meeting.

Attended through the discussion of the review of the monetary policy framework.

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

1

3

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Eric C. Engstrom, Senior Adviser, Division of

Research and Statistics, and Deputy Associate

Director, Division of Monetary Affairs, Board of

Governors

Elizabeth K. Kiser, Associate Director, Division of

Research and Statistics, Board of Governors;

Elizabeth Klee, Associate Director, Division of

Financial Stability, Board of Governors; David

López-Salido, Associate Director, Division of

Monetary Affairs, Board of Governors

Glenn Follette, Patrick E. McCabe, 5 and John M.

Roberts, Deputy Associate Directors, Division of

Research and Statistics, Board of Governors;

Matteo Iacoviello and Andrea Raffo, 6 Deputy

Associate Directors, Division of International

Finance, Board of Governors; Jeffrey D. Walker,3

Deputy Associate Director, Division of Reserve

Bank Operations and Payment Systems, Board of

Governors

Etienne Gagnon, Assistant Director, Division of

Monetary Affairs, Board of Governors; Paul

Lengermann, Assistant Director, Division of

Research and Statistics, Board of Governors

Penelope A. Beattie,3 Section Chief, Office of the

Secretary, Board of Governors; Seung J. Lee, 7

Section Chief, Division of International Finance,

Board of Governors

David H. Small, Project Manager, Division of

Monetary Affairs, Board of Governors

Michele Cavallo and Kurt F. Lewis, Principal

Economists, Division of Monetary Affairs, Board

of Governors; Laura J. Feiveson,3 Principal

Economist, Division of Research and Statistics,

Board of Governors

Nils Goernemann,3 Senior Economist, Division of

International Finance, Board of Governors

Donielle A. Winford, Information Management

Analyst, Division of Monetary Affairs, Board of

Governors

Attended Tuesday’s session only.

Attended through the discussion of developments in financial markets and open market operations, and from the discussion of current monetary policy through the end of the

meeting.

5

6

Becky C. Bareford, First Vice President, Federal

Reserve Bank of Richmond

David Altig, Michael Dotsey, Jeffrey Fuhrer,3 and

Sylvain Leduc, Executive Vice Presidents, Federal

Reserve Banks of Atlanta, Philadelphia, Boston,

and San Francisco, respectively

Todd E. Clark, Marc Giannoni,3 and Spencer Krane,

Senior Vice Presidents, Federal Reserve Banks of

Cleveland, Dallas, and Chicago, respectively

Jonathan P. McCarthy, Alexander L. Wolman, and

Patricia Zobel, Vice Presidents, Federal Reserve

Banks of New York, Richmond, and New York,

respectively

Thomas D. Tallarini, Jr., Assistant Vice President,

Federal Reserve Bank of Minneapolis

Karel Mertens,3 Senior Economic Policy Advisor,

Federal Reserve Bank of Dallas

Daniel Cooper, Senior Economist and Policy Advisor,

Federal Reserve Bank of Boston

Scott Davis, Senior Research Economist and Advisor,

Federal Reserve Bank of Dallas

Julie Hotchkiss,3 Research Economist and Senior

Advisor, Federal Reserve Bank of Atlanta

Review of Monetary Policy Strategy, Tools, and

Communication Practices

Participants continued to discuss issues related to the

ongoing review of the Federal Reserve’s monetary policy

strategy, tools, and communication practices. The staff

summarized the feedback received through the Fed Listens initiative, a series of 14 public-facing events conducted around the country with a broad range of individuals and groups. These events engaged with the public directly on issues pertaining to the dual-mandate objectives of maximum employment and stable prices.

Representatives from underserved communities who

participated in the Fed Listens events generally saw the

current strong labor market as providing significant benefits to their communities, most notably by creating

Attended the discussion of economic developments and the

outlook.

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Minutes of the Meeting of December 10–11, 2019

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greater opportunities for individuals who have experienced difficulty finding jobs in the past. Nevertheless,

these representatives noted that the benefits from current labor market conditions flowing to people in their

communities were less than those implied by national

statistics, and they expressed concerns that the recent

gains might not be sustained in the event of an economic

downturn. Business representatives reported experiencing challenges finding qualified workers and described

several initiatives to attract and retain workers, including

training programs and a willingness to employ individuals who are unlikely to have been considered in less favorable labor market conditions. Inflation developments elicited fewer comments at these events and were

generally seen as posing less of a challenge than labor

market conditions. Representatives of retirees mentioned difficulties associated with the rising costs of

health care and prescription drugs, whereas those representing low- and middle-income communities pointed

to the rising costs of basic necessities such as housing,

utilities, and food. Business representatives emphasized

the importance of low and stable inflation for planning

and decisionmaking. Event participants were concerned

about rising costs of living and generally perceived low

inflation as desirable from that perspective. Event participants were asked about monetary policymakers’ concerns regarding overall inflation running persistently below 2 percent; they noted that the Federal Reserve could

better communicate its reasons for these concerns.

When asked about the effects of changes in interest

rates, representatives of underserved communities said

that such changes had little effect on many members of

their communities who have limited or no access to

credit. Representatives of retirees conveyed a more negative view of low interest rates, given the greater reliance

of wealthier retirees on interest income. Business representatives generally found the low interest rate environment beneficial.

The staff briefing also included an analysis of distributional considerations for monetary policy. Consistent

with the feedback received at the Fed Listens events, the

evidence reviewed by the staff showed that workers who

are young, less educated, African American, or Hispanic

tend to face a greater-than-average risk of losing their

jobs during recessions. The staff used simulations from

a specific macroeconomic model to explore how heterogeneity of households might affect the transmission of

economic shocks and changes in monetary policy to the

economy. The staff’s simulations embedded the assumption that households have limited ability to borrow,

which makes some households’ consumption spending

more sensitive to changes in income. As a result, in

these simulations, downturns lead to larger contractions

in aggregate demand than would be the case if all households could borrow to support their consumption

spending in response to a loss in income. The amplification of recessionary shocks was especially large when

the monetary policy response was constrained by the effective lower bound (ELB) on the policy interest rate.

Overall, the analysis suggested that the costs of recessions, as well as the benefits of economic stabilization,

might be larger than suggested by models that did not

account for differences across households regarding

their access to credit.

Participants agreed that the Fed Listens outreach efforts

had informed their understanding of the goals and

tradeoffs associated with monetary policy and had provided highly useful input into their deliberations. Several

participants voiced their desire to continue the conversations initiated at the Fed Listens events. Participants

also shared their appreciation of the feedback they receive on a regular basis from members of the public, including through the Federal Reserve System’s extensive

networks of contacts and community outreach efforts.

A few participants emphasized that policymakers’ engagement with the public helps build trust, fosters transparency, and reinforces the credibility of the Federal Reserve.

Participants generally saw the feedback from Fed Listens

events as reinforcing the importance of sustaining the

economic expansion so that the effects of a persistently

strong job market reach more of those who, in the past,

had experienced difficulty finding employment. Several

participants mentioned that sustaining strong labor market conditions helps workers build skills and cement

their attachment to the labor force in a manner that

might reduce the scarring effects of future downturns

and might increase the maximum sustainable level of

employment over the longer run. A number of participants also emphasized that sustaining strong labor market conditions is helpful for meeting the Committee’s

symmetric 2 percent inflation goal.

Some participants spoke to some of the challenges associated with assessing the maximum level of employment.

A few participants noted that aggregate statistics mask

significant heterogeneity in labor market outcomes. A

few others pointed to the continued absence of significant wage and price pressure—traditionally seen as a

symptom of a tight labor market—even as the unemployment rate had moved below most estimates of its

longer-run level. A few participants raised the possibility

that the maximum sustainable level of employment had

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increased as the expansion continued to draw workers

who would otherwise not be in the labor force.

Regarding inflation, participants recognized that segments of the public generally do not regard the fact that

aggregate inflation is running modestly below the Committee’s 2 percent goal as a problem. A few participants

noted that the public’s view on this issue was understandable from the perspective of households and businesses going about their daily lives in an economy with

low and stable inflation. That said, a couple of participants cautioned that inflation could emerge as a concern

among members of the public if it became more volatile

or ran at levels substantially away from the Committee’s

goal. Many participants also warned about the macroeconomic consequences of not achieving 2 percent on a

sustained basis. In particular, if inflation ran persistently

below the Committee’s objective, longer-term inflation

expectations could drift down, resulting in lower actual

inflation. With lower inflation, nominal interest rates

would be lower as well and therefore closer to the ELB.

As a result, the scope for monetary policy to support the

economy in a future downturn through interest rate cuts

would be reduced, a situation that would likely worsen

economic outcomes for households and businesses. In

light of these considerations, participants generally

agreed that they need to communicate more clearly to

the public their rationale for, and commitment to,

achieving 2 percent inflation on a sustained basis and of

ensuring that longer-run inflation expectations are anchored at levels consistent with this objective. To ensure

the effectiveness of these and other communications,

several participants stressed that the Federal Reserve

needs to adapt its communications to various audiences.

A few participants emphasized that communications

about the Committee’s resolve to return inflation to

2 percent need to be backed with actions and results to

ensure that the public sees these communications as

credible.

With respect to the role of distributional considerations

in the pursuit of the dual-mandate objectives, several

participants noted that it was important for policymakers

to be cognizant of how monetary policy affects different

segments of the population. Most participants commented on the large costs that recessions and high unemployment impose on communities, notably on their

most vulnerable constituents, and stressed the need for

monetary policy to seek to avoid recessions in the first

place or reduce their severity when they occur. A number of these participants emphasized that, while monetary policy actions can have different effects across

groups, monetary policy actions that are driven by the

pursuit of maximum employment and stable prices ultimately benefit all groups. Participants viewed the role

of monetary policy as supporting a strong, stable economy that benefits all Americans. Various participants

noted that monetary policy is a blunt instrument whose

effects cannot be targeted to specific communities. Several participants remarked that while monetary policy actions can improve the conditions of vulnerable communities, notably by supporting a strong job market, these

actions may not reduce inequality in wealth and income.

For these and other reasons, many participants emphasized that policies other than monetary policy are appropriate to directly address inequality. In addition, a couple

of participants cautioned that maintaining accommodative financial conditions could be counterproductive if

doing so fueled financial imbalances and exacerbated the

next economic downturn.

Participants agreed that their review of monetary policy

strategy, tools, and communication practices would continue at future meetings and, as a result, that the Committee would not reaffirm its existing Statement on

Longer-Run Goals and Monetary Policy Strategy at the

January 2020 meeting. The Committee plans to revisit

this statement closer to the conclusion of the review,

likely around the middle of 2020.

Developments in Financial Markets and Open Market Operations

The System Open Market Account manager first reviewed developments in financial markets over the intermeeting period. Market prices appeared to respond

mainly to signs of stabilization in the U.S. and global

economies and to developments associated with trade

policy. Market participants noted some risks to the outlook including Brexit and geopolitical factors.

Regarding expectations for U.S. monetary policy, the

Open Market Trading Desk’s surveys and market-based

indicators pointed to a very high perceived likelihood of

no change in the target range for the federal funds rate

at this meeting. The expected path of the federal funds

rate implied by the medians of survey respondents’

modal forecasts remained essentially flat through 2020.

Survey- and market-implied uncertainty about the nearterm outlook for monetary policy declined, with market

commentary attributing the decrease in part to the Committee’s October communications. Survey respondents

placed a higher probability on a reduction in the target

range over 2020 than an increase.

The manager turned next to a review of money market

developments since the October meeting, starting with

an update on the implementation of the Committee’s

Minutes of the Meeting of December 10–11, 2019

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strategy to ensure ample reserves. Reserve management

purchases of Treasury bills continued at a pace of

$60 billion per month, with propositions remaining

strong and little discernible effect on market functioning. While these purchases accumulated, the Desk continued to conduct regular repurchase agreement (repo)

operations in order to maintain reserves at or above the

level that prevailed in early September. Repos outstanding from these Desk operations totaled roughly $215 billion per day, consisting of both overnight and term operations.

As reserve levels increased, the distribution of reserves

across bank types became comparable with where it was

in early September. The federal funds rate and other

overnight money market rates fell modestly and were

close to the interest on excess reserves (IOER) rate for

most of the period. The intraday dispersion of rates was

also lower than when reserves were at similar levels before September. In addition to helping keep reserves

ample, repo operations likely have reduced pressures in

money markets and the dispersion in money market

rates.

stance of monetary policy. The manager also discussed

expectations to gradually transition away from active

repo operations next year as Treasury bill purchases supply a larger base of reserves. The calendar of repo operations starting in mid-January could reflect a gradual reduction in active repo operations. The manager indicated that some repos might be needed at least through

April, when tax payments will sharply reduce reserve levels.

As reserves remain ample, the manager noted that it may

become appropriate at some point to implement a technical adjustment to the IOER rate and the offered rate

on overnight reverse repurchase (ON RRP) agreements.

Should conditions warrant this adjustment, the IOER

rate could move closer to the middle of the target range

for the federal funds rate, and the ON RRP rate could

be realigned with the bottom of the target range.

The manager also noted that the Federal Reserve Bank

of New York communicated to its customers that the

remuneration rate on the foreign repo pool will be revised to be generally equivalent to the overnight reverse

repo rate. This action may reduce activity in the pool to

some extent and increase the level of reserves.

With respect to conditions around year-end, the manager noted that forward measures of market pricing continued to indicate expectations of temporary upward

pressures on some secured rates. Money market rates

are often volatile around year-end, and Federal Reserve

operations are not intended to eliminate all year-end

pressures but rather to ensure that reserve supply remains ample and to mitigate the risk that such pressures

could adversely affect the implementation of monetary

policy. The Desk had already conducted three longerterm repo operations spanning year-end—for a total of

$75 billion—and planned to announce an additional

longer-term operation, as well as increase the amount of

overnight repo offered around the year-end date. The

manager reported that the Desk is closely monitoring reserves and money market conditions and that it is prepared to adjust plans as needed.

Staff Review of the Economic Situation

The information available for the December 10–11

meeting indicated that labor market conditions remained

strong and that real gross domestic product (GDP) was

increasing at a moderate rate in the second half of 2019.

Consumer price inflation, as measured by the 12-month

percentage change in the price index for personal consumption expenditures (PCE), remained below 2 percent in October. Survey-based measures of longer-run

inflation expectations were little changed.

The manager discussed two operational considerations

around policy implementation. The first involved the

risk that future Treasury bill purchases could have a

larger effect on liquidity in the Treasury bill market in

light of expected seasonal declines in bill issuance and

the Federal Reserve’s growing ownership share of outstanding bills. If this risk were to materialize, the Federal

Reserve could consider expanding the universe of securities purchased for reserve management purposes to include coupon-bearing Treasury securities with a short

time to maturity. Purchases of these short-dated securities would not affect broader financial conditions or the

Total nonfarm payroll employment surged in November, boosted in part by the return of auto workers who

had previously been on strike in October. The average

pace of job gains over the three months ending in November, which is unaffected by the strike, was stronger

than earlier in 2019. However, the rate of increase in

payrolls so far this year was slower than last year, even

accounting for the anticipated effects of the Bureau of

Labor Statistics’ benchmark revision to payroll employment, which will be incorporated in the published data

in February 2020. The unemployment rate ticked up in

October but then moved back down to its 50-year low

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.

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of 3.5 percent in November; the labor force participation rate and the employment-to-population ratio held

steady, on balance, over those two months. The unemployment rates for African Americans, Asians, Hispanics, and whites were little changed, on net, over the past

two months; 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 November stayed below its level in late 2007. Both the rate of private-sector

job openings and the rate of quits edged down in September, but these readings were still at fairly elevated levels. The four-week moving average of initial claims for

unemployment insurance benefits through late November remained near historically low levels. In general, recent measures of nominal wage growth continued to be

moderate. Total labor compensation per hour in the

business sector increased 3.7 percent over the four quarters ending in the third quarter. The employment cost

index for private-sector workers rose 2.7 percent over

the 12 months ending in September, while average

hourly earnings for all employees increased 3.1 percent

over the 12 months ending in November.

Total consumer prices, as measured by the PCE price

index, increased 1.3 percent over the 12 months ending

in October. Core PCE price inflation (which excludes

changes in consumer food and energy prices) was

1.6 percent over that same 12-month period, while consumer food price inflation was lower than 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 October. The consumer price index

(CPI) rose 2.1 percent over the 12 months ending in November, while core CPI inflation was 2.3 percent. Recent readings on survey-based measures of longer-run

inflation expectations—including those from the University of Michigan Surveys of Consumers, the Survey

of Professional Forecasters, the Survey of Consumer

Expectations from the Federal Reserve Bank of New

York, and the Desk’s Survey of Primary Dealers and Survey of Market Participants—were little changed, on balance; the Michigan survey measure ticked back down in

early December to the bottom of its recent range after

ticking up in November.

Real PCE continued to expand in October following a

strong gain in the third quarter. Sales of light motor vehicles rose markedly in November. Key factors that influence consumer spending—including the low unem-

ployment rate, the upward trend in real disposable income, high levels of households’ net worth, and generally low interest rates—were supportive of solid real

PCE growth in the near term. The Michigan survey

measure of consumer sentiment rose again in early December to an upbeat level and had more than recovered

from its drop in August; the Conference Board survey

measure of consumer confidence remained at a favorable level in November.

Real residential investment appeared to be increasing

further after rising solidly in the third quarter. Both

starts and building permit issuance for single-family

homes increased in October, and starts of multifamily

units also rose. Existing home sales continued to increase in October, although new home sales edged down

following a solid gain in the third quarter. All told, the

data on construction and sales continued to suggest that

the decline in mortgage rates since late 2018 has been

boosting housing activity.

Real nonresidential private fixed investment remained

weak overall after declining in the second and third quarters. Nominal shipments and new orders of nondefense

capital goods excluding aircraft increased solidly in October following a string of decreases, although many forward-looking indicators pointed to continued softness in

business equipment spending. Most measures of business sentiment were still downbeat, analysts’ expectations of firms’ longer-term profit growth edged down

further, and concerns about trade developments continued to weigh on firms’ investment decisions. Nominal

business expenditures for nonresidential structures outside of the drilling and mining sector continued to decline in October, and the total number of crude oil and

natural gas rigs in operation—an indicator of business

spending for structures in the drilling and mining sector—fell further through early December.

Industrial production decreased in October and remained notably lower than at the beginning of the year.

Production in October continued to be held down by

the strike at General Motors, although the end of the

strike and automakers’ schedules suggested that assemblies of light motor vehicles would rebound 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, slow economic growth abroad, and a persistent drag from trade developments.

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Total real government purchases were increasing slowly

in the fourth quarter. Nominal defense spending in October pointed to only a modest rise in real federal government purchases. Real purchases by state and local

governments looked to be moving roughly sideways;

state and local payrolls expanded modestly, on net, over

October and November, and nominal construction

spending by these governments was about flat in October.

The nominal U.S. international trade deficit narrowed in

October. Exports fell a little, with declines in all export

categories except for services and industrial supplies.

Imports fell much more, and the declines were broad

based, with the largest contributions coming from imports of consumer goods and automotive products.

Available trade data suggested that the contribution of

net exports to real GDP growth, which was slightly negative in the third quarter, would turn somewhat positive

in the fourth quarter.

Foreign economic growth slowed further in the third

quarter amid continued weakness in the global manufacturing sector. Recent monthly indicators pointed to a

stabilization in the pace of economic growth in China

and several advanced foreign economies. However,

other indicators suggested that social unrest weighed

heavily on economic activity in several countries, most

notably in Hong Kong, and that weakness persisted in

parts of Latin America. Foreign inflation picked up

somewhat as energy prices stabilized, although inflation

remained relatively low in most foreign economies.

Staff Review of the Financial Situation

Investor sentiment fluctuated over the intermeeting period largely in response to ongoing trade negotiations between the United States and China. On net, equity prices

increased moderately while corporate bond spreads narrowed slightly. Yields on nominal Treasury securities

were little changed. Financing conditions for businesses

and households remained supportive of spending and

economic activity.

Federal Reserve communications over the intermeeting

period were viewed as suggesting that additional nearterm changes to the target range for the federal funds

rate were less likely than had previously been expected.

A straight read of the probability distribution for the federal funds rate implied by options prices suggested that

investors assigned a high probability to the target range

remaining unchanged at the December FOMC meeting.

Forward rates implied by overnight index swap quotes

declined slightly, on net, and implied about a 25 basis

point decline in the federal funds rate by the end of 2020.

Nominal Treasury yields fluctuated over the intermeeting period but, on net, the Treasury curve was little

changed. Measures of inflation compensation over the

next 5 years and 5 to 10 years ahead based on Treasury

Inflation-Protected Securities increased slightly from

near multiyear low levels.

Broad stock price indexes increased moderately over the

intermeeting period amid movements largely attributed

to trade-related developments and stronger-thanexpected U.S. employment reports. Option-implied volatility on the S&P 500 index increased modestly but remained near the low end of its historical distribution.

On net, corporate credit spreads narrowed slightly.

Conditions in short-term funding markets were stable

over the intermeeting period. Interest rates for overnight secured and unsecured loans fell in line with the

25 basis point decrease in the target range for the federal

funds rate at the October FOMC meeting. Trading in

money markets was orderly, with volumes in normal

ranges and spreads narrower relative to the IOER rate.

Pressures on rates at October month-end and November mid-month—both days with sizable settlements of

Treasury auctions—were muted compared with other

recent Treasury issuance days. The Desk’s open market

operations aimed at maintaining ample reserves proceeded smoothly.

As in U.S. markets, sentiment in foreign financial markets fluctuated in response to news on U.S.–China trade

negotiations. Most foreign equity price indexes and

long-term sovereign yields in Germany, the United

Kingdom, and Japan increased modestly on net. The

broad dollar index ended the period little changed. Political unrest in Hong Kong and Latin America garnered

some financial market attention and led to a weakening

of some Latin American currencies, notably the Chilean

peso, but the imprint on broader financial markets was

limited.

Financing conditions for nonfinancial businesses remained accommodative. Gross issuance of corporate

bonds was robust, on average, in October and November. Gross issuance of institutional leveraged loans remained near recent monthly averages. Meanwhile, commercial and industrial loans held by banks contracted in

October but increased modestly in November. The

credit quality of nonfinancial corporations deteriorated

slightly in recent months but remained solid overall. After particularly strong gross equity issuance in September, initial public offerings declined and seasoned offerings remained solid in October and November. Credit

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conditions for both small businesses and municipalities

stayed accommodative.

2022 and to remain below the staff’s estimate of its

longer-run natural rate.

In the commercial real estate (CRE) sector, financing

conditions also remained generally accommodative.

Commercial mortgage-backed securities (CMBS)

spreads widened slightly over the intermeeting period

but remained near the low end of their post-crisis range.

Agency and non-agency CMBS issuance increased in

October to a post-crisis high. CRE loan growth at banks

also increased in October relative to recent quarters.

The staff’s forecast for total PCE price inflation in 2019

was revised down a bit, as a downward revision to core

PCE prices in response to recent data was partly offset

by an upward revision to consumer energy prices. Beyond 2019, core inflation was expected to be above its

pace this year, and this projection was revised up a touch

because of the slightly tighter resource utilization in the

current forecast. The projection for total inflation in

2020 was a little lower than for core inflation due to a

projected decline in consumer energy prices. Over the

remainder of the medium-term projection, total inflation

was expected to be about the same as core inflation, although both inflation measures were forecast to continue to run a bit below 2 percent through 2022.

Financing conditions in the residential mortgage market

remained accommodative over the intermeeting period.

Mortgage rates were little changed since the October

FOMC meeting. Consistent with this year’s decline in

mortgage rates, home-purchase originations and refinancing originations both rose. Mortgage credit standards were little changed.

Financing conditions in consumer credit markets remained generally supportive of growth in consumer

spending, although conditions continued to be tight for

nonprime borrowers. Auto loans increased, consistent

with significant declines in auto loan interest rates this

year. Credit card debt grew at a solid pace, and interest

rates on credit card debt began to fall. Consumer

asset-backed securities issuance was strong through October as spreads stabilized at levels that were somewhat

above their post-crisis averages.

Staff Economic Outlook

The projection for U.S. real GDP growth prepared by

the staff for the December FOMC meeting was revised

up a little for the second half of 2019 relative to the previous projection. This revision primarily reflected incoming data for household spending and business investment that were somewhat stronger than expected.

Even with this upward 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 forecast for real GDP growth over the medium

term was also revised up a bit, on balance, primarily in

response to a somewhat higher projected path for equity

prices. Nevertheless, real GDP growth was still expected to slow modestly in the coming years, largely because of a fading 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 through 2021

and then to slow to a pace slightly below potential output

growth in 2022. The unemployment rate was projected

to be roughly flat at around its current level through

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. The staff viewed the downside risks

to economic activity as having eased a bit since the previous forecast but 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 influencing this 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 production so far this year were 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 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

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 2022 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 are described

Minutes of the Meeting of December 10–11, 2019

Page 9

_____________________________________________________________________________________________

in the Summary of Economic Projections (SEP), which

is an addendum to these minutes.

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 expected sustained expansion of

economic activity, strong labor market conditions, and

inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes. This outlook reflected, at least in part, the support provided by the current stance of monetary policy. Nevertheless, global developments, related to both persistent uncertainty regarding international trade and weakness in economic

growth abroad, continued to pose some risks to the outlook, and inflation pressures remained muted.

In their discussion of the household sector, participants

agreed that spending had increased at a strong pace.

They generally expected that consumption spending

would likely remain on a firm footing, supported by

strong labor market conditions, rising incomes, and solid

consumer confidence. In addition, residential investment had continued to pick up, reflecting, in part, the

effects of lower mortgage rates. Many participants commented that business contacts in consumer-related industries reported strong demand or that contacts were

optimistic about the holiday retail spending season.

However, some participants observed that recent data

on retail sales or motor vehicle spending had decelerated

slightly.

With respect to the business sector, participants saw

trade developments and concerns about the global economic growth outlook as the main factors contributing

to weak business investment and exports. Participants

generally expected these factors to continue to damp

business investment and exports. They expressed similar concerns about activity in manufacturing industries.

A few participants noted that the current weakness in

capital expenditures could lead to a slower pace of

productivity growth in future years. A few others observed that businesses were diversifying their supply

chains or investing in technology to adapt to persistent

uncertainty regarding international trade, which might

mitigate the effects of such uncertainty on future business spending.

A number of participants commented on challenges facing the energy and agriculture sectors. A few participants remarked that activity in the energy sector was especially weak, reflecting low petroleum prices, low profitability, and tight financing conditions for energyproducing firms. Several participants noted that the agricultural sector also faced a number of difficulties, including those associated with trade developments, weak

export demand, and challenging financial positions for

many farmers. A couple of participants noted that farm

subsidies from the federal government were offsetting a

portion of the financial strain on farmers.

Participants judged that conditions in the labor market

remained strong, with the unemployment rate at a

50-year low, job gains remaining solid, and some

measures of labor force participation increasing further.

The unemployment rate was likely to remain low going

forward, and various participants remarked that there

were some indications that further strengthening in

overall labor market conditions was possible without

creating undesirable pressures on resources. In particular, a number of participants noted that the labor force

participation rate could rise further still. Moreover,

measures of wage growth had generally remained moderate. However, a few participants commented that increases in the labor force would likely moderate as slack

in the labor market diminished. In addition, a couple of

participants remarked 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. A couple of other participants thought

it was important to better understand the quality of jobs

being created. Business contacts in many Districts indicated continued strong labor demand, with firms reporting difficulties in finding qualified workers or broadening their recruiting to include traditionally marginalized

groups. A number of participants noted that wage pressures were evident for some industries in their Districts,

and a couple of participants commented that firms were

responding to those pressures in a variety of ways, including investing in technology that could serve as a substitute for labor.

In their discussion of inflation developments, participants noted that recent readings on overall and core

PCE inflation, measured on a 12-month change basis,

had continued to run below 2 percent. Survey-based

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Federal Open Market Committee

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measures of longer-term inflation expectations were little changed, and market-based measures of inflation

compensation remained low. A few participants commented on factors that may temporarily exert upward

pressure on some measures of inflation in the coming

months. Assessing all these factors, participants generally expected that inflation would return to the 2 percent

objective as the economic expansion continued and resource utilization remained high. However, weakness

abroad and subdued global inflation pressures were cited

as sources of risk to this assessment. Participants who

expressed less confidence that inflation would return

promptly to the 2 percent objective commented that inflation had averaged less than 2 percent over the past

several years even as resource utilization had increased

or that global or technology-related factors were exerting

downward pressure on inflation that could be difficult

to overcome.

A number of participants agreed that maintaining the

current stance of monetary policy would give the Committee some time to assess the full effects on the economy of its policy decisions and communications over the

course of this year along with other information bearing

on the economic outlook. Participants also discussed

how maintaining the current stance of policy for a time

could be helpful for cushioning the economy from the

global developments that have been weighing on economic activity and for returning inflation to the Committee’s symmetric objective of 2 percent. Participants

generally expressed concerns regarding inflation continuing to fall short of 2 percent. Although a number of

participants noted that some of the factors currently

holding down inflation were likely to prove transitory,

various participants were concerned that indicators were

suggesting that the level of longer-term inflation expectations was too low.

Participants also discussed risks regarding the outlook

for economic activity. While many saw the risks as tilted

somewhat to the downside, some risks were seen to have

eased over recent months. In particular, there were

some tentative signs that trade tensions with China were

easing, and the probability of a no-deal Brexit was judged

to have lessened further. In addition, there were indications that the prospects for global economic growth may

be stabilizing. A number of participants observed that

the domestic economy was showing resilience in the face

of headwinds from global developments. Moreover, statistical models designed to gauge the probability of recession using financial market data, including those

based on information from the Treasury yield curve,

suggested that the likelihood of a recession occurring

over the medium term had fallen noticeably in recent

months. However, new uncertainties had emerged regarding trade policy with Argentina, Brazil, and France,

and political tensions in Hong Kong persisted.

A few participants raised the concern that keeping interest rates low over a long period might encourage excessive risk-taking, which could exacerbate imbalances in

the financial sector. These participants offered various

perspectives on the relationship between financial stability and policies that keep interest rates persistently low.

They remarked that such policies could be inconsistent

with sustaining maximum employment, could make the

next recession more severe than otherwise, or could

strengthen the case for the active use of macroprudential

tools to guard against emerging imbalances.

In their consideration of monetary policy at this meeting,

participants judged that it would be appropriate to maintain the target range for the federal funds rate at 1½ to

1¾ percent to support sustained expansion of economic

activity, strong labor market conditions, and inflation

near the Committee’s symmetric 2 percent objective. As

reflected in their SEP projections, participants regarded

the current stance of monetary policy as likely to remain

appropriate for a time as long as incoming information

about the economy remained broadly consistent with the

economic outlook. Of course, if developments emerged

that led to a material reassessment of the outlook, the

stance of policy would need to adjust in a way that fostered the Committee’s dual-mandate objectives.

Various participants remarked on issues related to the

implementation of monetary policy, highlighting topics

for further discussion at future meetings. Among the

topics mentioned were the potential role of a standing

repo facility in an ample-reserves regime, the setting of

administered rates, and the composition of the Federal

Reserve’s holdings of Treasury securities over the longer

run.

Committee Policy Action

In their discussion of monetary policy for this meeting,

members noted that information received since the

FOMC met in October 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. Although household spending had been

rising at a strong pace, business fixed investment and exports 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;

Minutes of the Meeting of December 10–11, 2019

Page 11

_____________________________________________________________________________________________

survey-based measures of longer-term inflation expectations were little changed.

Members agreed to maintain the target range for the federal funds rate at 1½ to 1¾ percent. Members judged

that the current stance of monetary policy is appropriate

to support sustained expansion of economic activity,

strong labor market conditions, and inflation near the

Committee’s symmetric 2 percent objective.

Members also 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 maximum

employment objective and its symmetric 2 percent inflation objective. And they concurred that this assessment

would take into account a wide range of information, including measures of labor market conditions, indicators

of inflation pressures and inflation expectations, and

readings on financial and international developments.

With regard to the postmeeting statement, members

agreed to state that they judged that “the current stance

of monetary policy is appropriate” to support the

achievement of the Committee’s policy objectives.

Members discussed their options regarding references to

global developments and muted inflation pressures in

the statement. In their judgment, these factors, cited in

previous postmeeting statements as part of the rationale

for adjusting the stance of policy, remained salient features of the outlook. Accordingly, they agreed to cite

them in the sentence indicating that “the Committee will

continue to monitor the implications of incoming information for the economic outlook.” With the retention

of these references to global developments and muted

inflation pressures, members agreed that the text on uncertainties about the outlook could be removed. A few

members suggested that the language stating that monetary policy would support inflation “near” 2 percent

could be misinterpreted as suggesting that policymakers

were comfortable with inflation running below that

level; they preferred language that referred to returning

inflation to the Committee’s symmetric 2 percent objective. Other members thought that the reference to

“near” 2 percent was intended to encompass modest deviations of inflation above and below 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 December 12, 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

non-reserve liabilities, the Committee directs

the Desk to continue purchasing Treasury bills

at least into the second quarter of 2020 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

continue conducting term and overnight repurchase agreement operations at least through

January 2020 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

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_____________________________________________________________________________________________

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 October 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.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment

and price stability. The Committee decided to

maintain the target range for the federal funds

rate at 1½ to 1¾ percent. The Committee

judges that the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market

conditions, and inflation near the Committee’s

symmetric 2 percent objective. The Committee

will continue to monitor the implications of incoming information for the economic outlook,

including global developments and muted inflation pressures, as it assesses the appropriate

path of the target range for the federal funds

rate.

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, Esther L.

George, Randal K. Quarles, and Eric S. Rosengren.

Voting against this action: None.

Consistent with the Committee’s decision to leave the

target range for the federal funds rate unchanged, the

Board of Governors voted unanimously to leave the interest rates on required and excess reserve balances unchanged at 1.55 percent and voted unanimously to approve establishment of the primary credit rate at the existing level of 2.25 percent, effective December 12,

2019.

Organizational Matters

By unanimous vote, Lorie K. Logan was selected to

serve at the pleasure of the Committee as manager, System Open Market Account, on the understanding that

her selection was subject to being satisfactory to the Federal Reserve Bank of New York.

Secretary’s note: Advice subsequently was received that the selection of Ms. Logan as manager was satisfactory to the Federal Reserve

Bank of New York.

It was agreed that the next meeting of the Committee

would be held on Tuesday–Wednesday, January 28–29,

2020. The meeting adjourned at 10:00 a.m. on December 11, 2019.

Notation Vote

By notation vote completed on November 19, 2019, the

Committee unanimously approved the minutes of the

Committee meeting held on October 29–30, 2019.

_______________________

James A. Clouse

Secretary

Page 1

_____________________________________________________________________________________________

Summary of Economic Projections

In conjunction with the Federal Open Market Committee (FOMC) meeting held on December 10–11, 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 2022 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 longerrun 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.

Almost all participants expected that, under appropriate

monetary policy, growth of real GDP in 2020 would run

at or slightly above 1.9 percent, the median of current

estimates of its longer-run rate. The median of the projections for the growth rate of real GDP edges down

each year over the projection horizon and, for 2022, is

modestly below the median of the current estimates of

its longer-run rate. The median of the current projections for the unemployment rate was lower than that in

the September Summary of Economic Projections

(SEP) for each year of the projection period, and some

participants reduced their estimates of the longer-run

normal rate of unemployment, resulting in a slight decline in the median estimate. The medians of the projections for both total and core inflation, as measured by

the four-quarter percent change in the price index for

personal consumption expenditures (PCE), increase significantly from 2019 to 2020 and more modestly in 2021

to reach 2 percent that year. Almost all participants expected that inflation would be at or slightly above the

Committee’s 2 percent objective in 2021 and 2022. A

couple more participants, relative to the September SEP,

projected inflation to exceed 2 percent at some point

1 One participant did not submit longer-run projections for

real GDP growth, the unemployment rate, or the federal funds

rate.

during the projection period. The medians of the projections for both total and core inflation were unchanged

for 2020 through 2022, compared with the September

SEP. Table 1 and figure 1 provide summary statistics

for the projections.

As shown in figure 2, a substantial majority of participants indicated that their expectations regarding the evolution of the economy, relative to the Committee’s objectives of maximum employment and 2 percent inflation, would likely warrant keeping the federal funds at its

current level through the end of 2020. Compared with

the September SEP submissions, the median projection

for the federal funds rate was 25 basis points lower in

each year over the projection period and retained its

modest upward tilt in 2021 and 2022. The median of

participants’ assessments of the appropriate level for the

federal funds rate in 2022 was slightly below the median

of estimates of its longer-run level; the median estimate

of the longer-run level was unchanged from its value in

the September SEP.

Most participants regarded the uncertainties around

their projections as broadly similar to the average over

the past 20 years. The majority of participants continued

to assess the risks to their outlooks for real GDP growth

as weighted to the downside and for the unemployment

rate as weighted to the upside. However, compared with

the September submissions, several participants shifted

their assessments of the balance of risks around these

projections to being broadly balanced. Most participants

judged the risks to their inflation outlook as broadly balanced, though one-third of participants viewed the risks

to their inflation projections as weighted to the downside; no participant assessed the risks to his or her inflation outlook as weighted to the upside. The uncertainties and risks around participants’ projections for headline and core inflation were little changed from the September SEP.

The Outlook for Real GDP Growth and Unemployment

As shown in table 1, the medians of participants’ projections for real GDP growth in 2019 and 2020, conditional

on their individual assessments of appropriate monetary

policy, were 2.2 percent and 2.0 percent, respectively, a

touch above the median estimate of the longer-run

1.5

1.5

1.6

1.8

PCE inflation

September projection

Core PCE inflation4

September projection

1.6

1.9

1.9

1.9

1.9

1.9

3.5

3.7

2.0

2.0

1.9

2.1

2.0

2.0

2.0

2.0

3.6

3.8

1.9

1.9

2.1

2.4

2.0

2.0

2.0

2.0

3.7

3.9

1.8

1.8

2.5

2.5

2.0

2.0

4.1

4.2

1.9

1.9

1.6

1.6–2.1

1.6–1.7

1.7–1.8

1.4–1.5

1.5–1.6

3.5–3.6

3.6–3.7

2.1–2.2

2.1–2.3

2019

1.6–1.9

1.6–2.1

1.9–2.0

1.9–2.0

1.8–1.9

1.8–2.0

3.5–3.7

3.6–3.8

2.0–2.2

1.8–2.1

2020

1.6–2.1

1.6–2.4

2.0–2.1

2.0

2.0–2.1

2.0

3.5–3.9

3.6–3.9

1.8–2.0

1.8–2.0

2021

1.9–2.6

1.9–2.6

2.0–2.2

2.0–2.2

2.0–2.2

2.0–2.2

3.5–4.0

3.7–4.0

1.8–2.0

1.7–2.0

2022

Central Tendency2

2.4–2.8

2.5–2.8

2.0

2.0

3.9–4.3

4.0–4.3

1.8–2.0

1.8–2.0

Longer

run

1.6

1.6–2.1

1.6–1.8

1.6–1.8

1.4–1.7

1.4–1.7

3.5–3.6

3.5–3.8

2.1–2.3

2.1–2.4

2019

1.6–1.9

1.6–2.4

1.7–2.1

1.7–2.1

1.7–2.1

1.7–2.1

3.3–3.8

3.3–4.0

1.8–2.3

1.7–2.3

2020

1.6–2.4

1.6–2.6

1.8–2.3

1.8–2.3

1.8–2.3

1.8–2.3

3.3–4.0

3.3–4.1

1.7–2.2

1.7–2.1

2021

Range3

1.6–2.9

1.6–2.9

1.8–2.2

1.8–2.2

1.8–2.2

1.8–2.2

3.3–4.1

3.3–4.2

1.5–2.2

1.6–2.1

2022

2.0–3.3

2.0–3.3

2.0

2.0

3.5–4.5

3.6–4.5

1.7–2.2

1.7–2.1

Longer

run

Note: Projections of change in real gross domestic product (GDP) and projections for both measures of inflation are percent changes from the fourth

quarter of the previous year to the fourth quarter of the year indicated. PCE inflation and core PCE inflation are the percentage rates of change in, respectively,

the price index for personal consumption expenditures (PCE) and the price index for PCE excluding food and energy. Projections for the unemployment rate

are for the average civilian unemployment rate in the fourth quarter of the year indicated. Each participant’s projections are based on his or her assessment of

appropriate monetary policy. Longer-run projections represent each participant’s assessment of the rate to which each variable would be expected to converge

under appropriate monetary policy and in the absence of further shocks to the economy. The projections for the federal funds rate are the value of the midpoint

of the projected appropriate target range for the federal funds rate or the projected appropriate target level for the federal funds rate at the end of the specified

calendar year or over the longer run. The September projections were made in conjunction with the meeting of the Federal Open Market Committee on

September 17-18, 2019. One participant did not submit longer-run projections for the change in real GDP, the unemployment rate, or the federal funds rate in

conjunction with the September 17-18, 2019, meeting, and one participant did not submit such projections in conjunction with the December 10-11, 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

September projection

1.6

1.9

3.6

3.7

Unemployment rate

September projection

Memo: Projected

appropriate policy path

Median1

2019 2020 2021 2022 Longer

run

2.2

2.2

Variable

Change in real GDP

September projection

Percent

Table 1. Economic projections of Federal Reserve Board members and Federal Reserve Bank presidents,

under their individual assumptions of projected appropriate monetary policy, December 2019

Page 2

Federal Open Market Committee

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Summary of Economic Projections of the Meeting of December 10–11, 2019

Page 3

_____________________________________________________________________________________________

Figure 1. Medians, central tendencies, and ranges of economic projections, 2019-22 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

2022

Longer

run

Percent

Unemployment rate

7

6

5

4

3

2014

2015

2016

2017

2018

2019

2020

2021

2022

Longer

run

Percent

PCE inflation

3

2

1

2014

2015

2016

2017

2018

2019

2020

2021

2022

Longer

run

Percent

Core PCE inflation

3

2

1

2014

2015

2016

2017

2018

2019

2020

2021

2022

Longer

run

Note: Definitions of variables and other explanations are in the notes to table 1. The data for the actual values

of the variables are annual.

Page 4

Federal Open Market Committee

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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

2022

Longer run

Note: Each shaded circle indicates the value (rounded to the nearest 1/8 percentage point) of an individual

participant’s judgment of the midpoint of the appropriate target range for the federal funds rate or the appropriate

target level for the federal funds rate at the end of the specified calendar year or over the longer run. One participant

did not submit longer-run projections for the federal funds rate.

Summary of Economic Projections of the Meeting of December 10–11, 2019

Page 5

_____________________________________________________________________________________________

growth rate of 1.9 percent. The median of the projections for the growth rate of real GDP declines slowly

over the projection horizon and, in 2022, is modestly below the median of the current estimates of its longer-run

rate. The medians of the projections for real GDP

growth in all four years of the projection period, as well

as in the longer run, were unchanged from the September SEP.

A majority of participants marked down their projections of the unemployment rate in each year of the projection period, and some participants lowered their estimates of the longer-run normal rate of unemployment.

As a result, the medians of the projections for the unemployment rate in the fourth quarter of 2020 through

2022 were 3.5 percent, 3.6 percent, and 3.7 percent, respectively, each 0.2 percentage point lower than in the

September projections. The median estimate of the

longer-run normal rate of unemployment was 4.1 percent, 0.1 percentage point lower than in September.

Figures 3.A and 3.B show the distributions of participants’ projections for real GDP growth and the unemployment rate, respectively, from 2019 to 2022 and in

the longer run. The distribution of individual projections for real GDP growth for 2020 tilted slightly higher,

as many participants upgraded their projections a bit relative to those in the September SEP, although the median projection was unchanged. The distributions of individual projections of real GDP growth in 2021 and

2022 and in the longer run were little changed overall.

The distributions of individual projections for the unemployment rate from 2020 to 2022 and in the longer run

shifted lower relative to those in September.

The Outlook for Inflation

As shown in table 1, the median projection for core PCE

price inflation was 1.6 percent for 2019, a modest decrease from the September projections. The medians of

the projections for both total and core PCE price inflation were each 1.9 percent in 2020 and 2.0 percent in

both 2021 and 2022—all unchanged from September.

Figures 3.C and 3.D show the distributions of participants’ views about their outlooks for inflation. Although the medians of the projections for total and core

PCE price inflation from 2020 through 2022 were unchanged from the September SEP, a couple more participants projected inflation to be slightly above the

Committee’s 2 percent objective in 2022.

Appropriate Monetary Policy

Figure 3.E shows the 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 2022 and over the longer run. A

substantial majority of participants projected a federal

funds rate of 1.63 percent for the end of 2020. Four

participants assessed that the most likely appropriate rate

at year-end for 2020 would be 1.88 percent. For subsequent years, the medians of the projections were

1.88 percent at the end of 2021 and 2.13 percent at the

end of 2022. The distribution of participants’ estimates

of the longer-run level of the federal funds rate was little

changed, and the median estimate was unchanged from

September at 2.50 percent.

Compared with the projections prepared for the September SEP, a number of participants marked down

their assessments of the appropriate level of the federal

funds rate at the end of 2020, reflecting in part the reduction in the target range at the October meeting and

causing both the range and central tendency of projections for 2020 to narrow considerably. Some participants lowered their projections for the appropriate level

in 2021 and 2022. The median projection for the federal

funds rate was 25 basis points lower in each year in the

projection period. Realized inflation running persistently below target and risks associated with trade policy

and foreign economic growth were cited as key factors

informing participants’ judgments about the appropriate

path for the federal funds rate.

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.

Page 6

Federal Open Market Committee

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Figure 3.A. Distribution of participants’ projections for the change in real GDP, 2019-22 and over the longer run

Number of participants

2019

18

16

14

12

10

8

6

4

2

December projections

September projections

1.4−

1.5

1.6−

1.7

1.8−

1.9

2.0−

2.1

2.2−

2.3

2.4−

2.5

Percent range

Number of participants

2020

18

16

14

12

10

8

6

4

2

1.4−

1.5

1.6−

1.7

1.8−

1.9

2.0−

2.1

2.2−

2.3

2.4−

2.5

Percent range

Number of participants

2021

18

16

14

12

10

8

6

4

2

1.4−

1.5

1.6−

1.7

1.8−

1.9

2.0−

2.1

2.2−

2.3

2.4−

2.5

Percent range

Number of participants

2022

18

16

14

12

10

8

6

4

2

1.4−

1.5

1.6−

1.7

1.8−

1.9

2.0−

2.1

2.2−

2.3

2.4−

2.5

Percent range

Number of participants

Longer run

18

16

14

12

10

8

6

4

2

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

Summary of Economic Projections of the Meeting of December 10–11, 2019

Page 7

_____________________________________________________________________________________________

Figure 3.B. Distribution of participants’ projections for the unemployment rate, 2019-22 and over the longer run

Number of participants

2019

18

16

14

12

10

8

6

4

2

December projections

September projections

3.2−

3.3

3.4−

3.5

3.6−

3.7

3.8−

3.9

4.0−

4.1

4.2−

4.3

4.4−

4.5

4.6−

4.7

Percent range

Number of participants

2020

18

16

14

12

10

8

6

4

2

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

Percent range

Number of participants

2021

18

16

14

12

10

8

6

4

2

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

Percent range

Number of participants

2022

18

16

14

12

10

8

6

4

2

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

Percent range

Number of participants

Longer run

18

16

14

12

10

8

6

4

2

3.2−

3.3

3.4−

3.5

3.6−

3.7

3.8−

3.9

4.0−

4.1

4.2−

4.3

Percent range

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

4.4−

4.5

4.6−

4.7

Page 8

Federal Open Market Committee

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Figure 3.C. Distribution of participants’ projections for PCE inflation, 2019-22 and over the longer run

Number of participants

2019

December projections

September projections

1.3−

1.4

1.5−

1.6

1.7−

1.8

1.9−

2.0

2.1−

2.2

18

16

14

12

10

8

6

4

2

2.3−

2.4

Percent range

Number of participants

2020

18

16

14

12

10

8

6

4

2

1.3−

1.4

1.5−

1.6

1.7−

1.8

1.9−

2.0

2.1−

2.2

2.3−

2.4

Percent range

Number of participants

2021

18

16

14

12

10

8

6

4

2

1.3−

1.4

1.5−

1.6

1.7−

1.8

1.9−

2.0

2.1−

2.2

2.3−

2.4

Percent range

Number of participants

2022

18

16

14

12

10

8

6

4

2

1.3−

1.4

1.5−

1.6

1.7−

1.8

1.9−

2.0

2.1−

2.2

2.3−

2.4

Percent range

Number of participants

Longer run

18

16

14

12

10

8

6

4

2

1.3−

1.4

1.5−

1.6

1.7−

1.8

1.9−

2.0

2.1−

2.2

Percent range

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

2.3−

2.4

Summary of Economic Projections of the Meeting of December 10–11, 2019

Page 9

_____________________________________________________________________________________________

Figure 3.D. Distribution of participants’ projections for core PCE inflation, 2019-22

Number of participants

2019

18

16

14

12

10

8

6

4

2

December projections

September projections

1.5−

1.6

1.7−

1.8

1.9−

2.0

2.1−

2.2

2.3−

2.4

Percent range

Number of participants

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

2022

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

Page 10

Federal Open Market Committee

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Figure 3.E. Distribution of participants’ judgments of the midpoint of the appropriate target range for the

federal funds rate or the appropriate target level for the federal funds rate, 2019-22 and over the longer run

Number of participants

2019

December projections

September projections

1.38−

1.62

1.63−

1.87

1.88−

2.12

2.13−

2.37

2.38−

2.62

2.63−

2.87

2.88−

3.12

3.13−

3.37

18

16

14

12

10

8

6

4

2

3.38−

3.62

Percent range

Number of participants

2020

18

16

14

12

10

8

6

4

2

1.38−

1.62

1.63−

1.87

1.88−

2.12

2.13−

2.37

2.38−

2.62

2.63−

2.87

2.88−

3.12

3.13−

3.37

3.38−

3.62

Percent range

Number of participants

2021

18

16

14

12

10

8

6

4

2

1.38−

1.62

1.63−

1.87

1.88−

2.12

2.13−

2.37

2.38−

2.62

2.63−

2.87

2.88−

3.12

3.13−

3.37

3.38−

3.62

Percent range

Number of participants

2022

18

16

14

12

10

8

6

4

2

1.38−

1.62

1.63−

1.87

1.88−

2.12

2.13−

2.37

2.38−

2.62

2.63−

2.87

2.88−

3.12

3.13−

3.37

3.38−

3.62

Percent range

Number of participants

Longer run

18

16

14

12

10

8

6

4

2

1.38−

1.62

1.63−

1.87

1.88−

2.12

2.13−

2.37

2.38−

2.62

2.63−

2.87

2.88−

3.12

Percent range

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

3.13−

3.37

3.38−

3.62

Summary of Economic Projections of the Meeting of December 10–11, 2019

Page 11

_____________________________________________________________________________________________

Table 2. Average historical projection error ranges

Percentage points

Variable

Change in real

GDP1

2019

2020

2021

2022

. . . . . . ±0.8

±1.6

±2.0

±2.0

......

±0.1

±0.8

±1.5

±1.9

±0.2

±0.9

±1.0

±0.9

. . . ±0.1

±1.4

±2.0

±2.4

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

assumptions, there is about a 70 percent probability that actual outcomes for real GDP, unemployment, consumer prices, and the federal

funds rate will be in ranges implied by the average size of projection

errors made in the past. For more information, see David Reifschneider and Peter Tulip (2017), “Gauging the Uncertainty of the Economic

Outlook Using Historical Forecasting Errors: The Federal Reserve’s

Approach,” Finance and Economics Discussion Series 2017-020

(Washington: Board of Governors of the Federal Reserve System,

February), 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.

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 viewed the

uncertainty surrounding each of the four economic variables as being broadly similar to the average over the

past 20 years.

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. Relative to the September SEP,

more participants saw the risks to the outlook for real

GDP growth and the unemployment rate as broadly balanced, although a small majority continued to view the

risks to their outlooks for real GDP growth as weighted

to the downside and for the unemployment rate as

weighted to the upside. Most participants continued to

judge the risks to their inflation outlook as broadly balanced, while some participants viewed the risks to their

inflation outlook as weighted to the downside. No participant assessed the risks to his or her inflation outlook

as weighted to the upside.

In discussing the uncertainty and risks surrounding their

economic projections, some participants mentioned

trade developments and concerns about foreign economic growth as sources of uncertainty or downside risk

to the U.S. economic growth outlook. In contrast, the

underlying strength of both consumer spending and the

labor market was cited as balancing the risks around the

growth outlook. In addition, most of the participants

who shifted their balance of risks for output growth to

“broadly balanced” cited more accommodative monetary policy as a contributing factor. For the inflation outlook, the possibility that inflation expectations could be

drifting below levels consistent with the FOMC’s 2 percent inflation objective was viewed as a downside risk.

A couple of participants mentioned higher tariffs as a

source of upside risk to their inflation outlook.

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 graphic representation of this uncertainty, plotting the SEP median for

the federal funds rate surrounded by symmetric 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.

Page 12

Federal Open Market Committee

_____________________________________________________________________________________________

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

Actual

2

1

0

2014

2015

2016

2017

2018

2019

2020

2021

2022

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

Number of participants

Uncertainty about GDP growth

December projections

September projections

Lower

Broadly

similar

Number of participants

Risks to GDP growth

18

16

14

12

10

8

6

4

2

Higher

December projections

September projections

Weighted to

downside

Broadly

balanced

18

16

14

12

10

8

6

4

2

Weighted to

upside

Note: The blue and red lines in the top panel show actual values and median projected values, respectively, of the

percent change in real gross domestic product (GDP) from the fourth quarter of the previous year to the fourth

quarter of the year indicated. The confidence interval around the median projected values is assumed to be symmetric

and is based on root mean squared errors of various private and government forecasts made over the previous 20 years;

more information about these data is available in table 2. Because current conditions may differ from those that

prevailed, on average, over the previous 20 years, the width and shape of the confidence interval estimated on the

basis of the historical forecast errors may not reflect FOMC participants’ current assessments of the uncertainty and

risks around their projections; these current assessments are summarized in the lower panels. Generally speaking,

participants who judge the uncertainty about their projections as “broadly similar” to the average levels of the past 20

years would view the width of the confidence interval shown in the historical fan chart as largely consistent with their

assessments of the uncertainty about their projections. Likewise, participants who judge the risks to their projections

as “broadly balanced” would view the confidence interval around their projections as approximately symmetric. For

definitions of uncertainty and risks in economic projections, see the box “Forecast Uncertainty.”

Summary of Economic Projections of the Meeting of December 10–11, 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

Median of projections

70% confidence interval

10

9

8

7

Actual

6

5

4

3

2

1

2014

2015

2016

2017

2018

2019

2020

2021

2022

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

Number of participants

Uncertainty about the unemployment rate

December projections

September projections

Lower

Broadly

similar

18

16

14

12

10

8

6

4

2

Higher

Number of participants

Risks to the unemployment rate

December projections

September projections

Weighted to

downside

Broadly

balanced

18

16

14

12

10

8

6

4

2

Weighted to

upside

Note: The blue and red lines in the top panel show actual values and median projected values, respectively, of the

average civilian unemployment rate in the fourth quarter of the year indicated. The confidence interval around the

median projected values is assumed to be symmetric and is based on root mean squared errors of various private and

government forecasts made over the previous 20 years; more information about these data is available in table 2.

Because current conditions may differ from those that prevailed, on average, over the previous 20 years, the width

and shape of the confidence interval estimated on the basis of the historical forecast errors may not reflect FOMC

participants’ current assessments of the uncertainty and risks around their projections; these current assessments are

summarized in the lower panels. Generally speaking, participants who judge the uncertainty about their projections as

“broadly similar” to the average levels of the past 20 years would view the width of the confidence interval shown in the

historical fan chart as largely consistent with their assessments of the uncertainty about their projections. Likewise,

participants who judge the risks to their projections as “broadly balanced” would view the confidence interval around

their projections as approximately symmetric. For definitions of uncertainty and risks in economic projections, see the

box “Forecast Uncertainty.”

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

2022

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

Number of participants

Uncertainty about PCE inflation

December projections

September projections

Lower

Broadly

similar

Number of participants

Risks to PCE inflation

18

16

14

12

10

8

6

4

2

Higher

December projections

September projections

Weighted to

downside

Broadly

balanced

Number of participants

Uncertainty about core PCE inflation

Broadly

similar

Weighted to

upside

Number of participants

Risks to core PCE inflation

December projections

September projections

Lower

18

16

14

12

10

8

6

4

2

18

16

14

12

10

8

6

4

2

Higher

December projections

September projections

Weighted to

downside

Broadly

balanced

18

16

14

12

10

8

6

4

2

Weighted to

upside

Note: The blue and red lines in the top panel show actual values and median projected values, respectively,

of the percent change in the price index for personal consumption expenditures (PCE) from the fourth quarter of

the previous year to the fourth quarter of the year indicated. The confidence interval around the median projected

values is assumed to be symmetric and is based on root mean squared errors of various private and government

forecasts made over the previous 20 years; more information about these data is available in table 2. Because current

conditions may differ from those that prevailed, on average, over the previous 20 years, the width and shape of the

confidence interval estimated on the basis of the historical forecast errors may not reflect FOMC participants’ current

assessments of the uncertainty and risks around their projections; these current assessments are summarized in the

lower panels. Generally speaking, participants who judge the uncertainty about their projections as “broadly similar”

to the average levels of the past 20 years would view the width of the confidence interval shown in the historical fan

chart as largely consistent with their assessments of the uncertainty about their projections. Likewise, participants

who judge the risks to their projections as “broadly balanced” would view the confidence interval around their

projections as approximately symmetric. For definitions of uncertainty and risks in economic projections, see the box

“Forecast Uncertainty.”

Summary of Economic Projections of the Meeting of December 10–11, 2019

Page 15

_____________________________________________________________________________________________

Figure 5. Uncertainty and risks in projections of the federal funds rate

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

2022

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 onset the effects of shocks to the economy.

The confidence interval is assumed to be symmetric except when it is truncated at zero - the bottom of the lowest

target range for the federal funds rate that has been adopted in the past by the Committee. This truncation would

not be intended to indicate the likelihood of the use of negative interest rates to provide additional monetary policy

accommodation if doing so was judged appropriate. In such situations, the Committee could also employ other tools,

including forward guidance and large-scale asset purchases, to provide additional accommodation. Because current

conditions may differ from those that prevailed, on average, over the previous 20 years, the width and shape of the

confidence interval estimated on the basis of the historical forecast errors may not reflect FOMC participants’ current

assessments of the uncertainty and risks around their projections.

* The confidence interval is derived from forecasts of the average level of short-term interest rates in the fourth

quarter of the year indicated; more information about these data is available in table 2. The shaded area encompasses

less than a 70 percent confidence interval if the confidence interval has been truncated at zero.

Page 16

Federal Open Market Committee

_____________________________________________________________________________________________

Forecast Uncertainty

The economic projections provided by the members of

the Board of Governors and the presidents of the Federal

Reserve Banks inform discussions of monetary policy among

policymakers and can aid public understanding of the basis

for policy actions. Considerable uncertainty attends these

projections, however. The economic and statistical models

and relationships used to help produce economic forecasts

are necessarily imperfect descriptions of the real world, and

the future path of the economy can be affected by myriad

unforeseen developments and events. Thus, in setting the

stance of monetary policy, participants consider not only

what appears to be the most likely economic outcome as embodied in their projections, but also the range of alternative

possibilities, the likelihood of their occurring, and the potential costs to the economy should they occur.

Table 2 summarizes the average historical accuracy of a

range of forecasts, including those reported in past Monetary

Policy Reports and those prepared by the Federal Reserve

Board’s staff in advance of meetings of the Federal Open

Market Committee (FOMC). The projection error ranges

shown in the table illustrate the considerable uncertainty associated with economic forecasts. For example, suppose a

participant projects that real gross domestic product (GDP)

and total consumer prices will rise steadily at annual rates of,

respectively, 3 percent and 2 percent. If the uncertainty attending those projections is similar to that experienced in the

past and the risks around the projections are broadly balanced, the numbers reported in table 2 would imply a probability of about 70 percent that actual GDP would expand

within a range of 2.2 to 3.8 percent in the current year, 1.4 to

4.6 percent in the second year, and 1.0 to 5.0 percent in the

third and fourth years. The corresponding 70 percent confidence intervals for overall inflation would be 1.8 to 2.2 percent in the current year, 1.1 to 2.9 percent in the second year,

1.0 to 3.0 percent in the third year, and 1.1 to 2.9 percent in

the fourth year. Figures 4.A through 4.C illustrate these confidence bounds in “fan charts” that are symmetric and centered on the medians of FOMC participants’ projections for

GDP growth, the unemployment rate, and inflation. However, in some instances, the risks around the projections may

not be symmetric. In particular, the unemployment rate cannot be negative; furthermore, the risks around a particular

projection might be tilted to either the upside or the downside, in which case the corresponding fan chart would be

asymmetrically positioned around the median projection.

Because current conditions may differ from those that

prevailed, on average, over history, participants provide

judgments as to whether the uncertainty attached to their

projections of each economic variable is greater than, smaller

than, or broadly similar to typical levels of forecast uncertainty seen in the past 20 years, as presented in table 2 and

reflected in the widths of the confidence intervals shown in

the top panels of figures 4.A through 4.C. Participants’ 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.