FOMC Minutes
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Minutes of the Federal Open Market Committee
January 28–29, 2020
A joint meeting of the Federal Open Market Committee
and the Board of Governors was held in the offices of
the Board of Governors of the Federal Reserve System
in Washington, D.C., on Tuesday, January 28, 2020, at
10:00 a.m. and continued on Wednesday, January 29,
2020, at 9:00 a.m.1
PRESENT:
Jerome H. Powell, Chairman
John C. Williams, Vice Chairman
Michelle W. Bowman
Lael Brainard
Richard H. Clarida
Patrick Harker
Robert S. Kaplan
Neel Kashkari
Loretta J. Mester
Randal K. Quarles
Thomas I. Barkin, Raphael W. Bostic, Mary C. Daly,
Charles L. Evans, and Michael Strine,2 Alternate
Members of the Federal Open Market Committee
James Bullard, Esther L. George, and Eric Rosengren,
Presidents of the Federal Reserve Banks of St.
Louis, Kansas City, and Boston, respectively
James A. Clouse, Secretary
Matthew M. Luecke, Deputy Secretary
Michelle A. Smith, Assistant Secretary
Mark E. Van Der Weide, General Counsel
Michael Held, Deputy General Counsel
Thomas Laubach, Economist
Stacey Tevlin, Economist
Beth Anne Wilson, Economist
Shaghil Ahmed, Marc Giannoni, Joseph W. Gruber,
David E. Lebow, Trevor A. Reeve, Ellis W.
Tallman, William Wascher, and Mark L.J. Wright,
Associate Economists
The Federal Open Market Committee is referenced as the
“FOMC” and the “Committee” in these minutes.
2 Attended Tuesday’s session only.
3 Attended through the discussion of the review of the monetary policy framework.
1
Lorie K. Logan, Manager, System Open Market
Account
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; Steven B. Kamin, Director, Division of
International Finance, Board of Governors;
Andreas Lehnert, Director, Division of Financial
Stability, Board of Governors
Rochelle M. Edge, Deputy Director, Division of
Monetary Affairs, Board of Governors; Michael T.
Kiley, Deputy Director, Division of Financial
Stability, 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
Antulio N. Bomfim, Brian M. Doyle, Wendy E. Dunn,
Ellen E. Meade, and Ivan Vidangos, Special
Advisers to the Board, Office of Board Members,
Board of Governors
Linda Robertson and David W. Skidmore, Assistants to
the Board, Office of Board Members, Board of
Governors
David Bowman,5 Senior Associate Director, Division
of Monetary Affairs, Board of Governors; Eric M.
Engen and Michael G. Palumbo, Senior Associate
Directors, Division of Research and Statistics,
Board of Governors; John W. Schindler, Senior
Attended through the discussion of developments in financial markets and open market operations.
5 Attended the discussion of developments in financial markets and open market operations.
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Federal Open Market Committee
Associate Director, Division of Financial Stability,
Board of Governors
Don H. Kim and Edward Nelson, Senior Advisers,
Division of Monetary Affairs, Board of Governors
Eric C. Engstrom, Senior Adviser, Division of
Research and Statistics, and Deputy Associate
Director, Division of Monetary Affairs, Board of
Governors
Elizabeth Klee,3 Associate Director, Division of
Financial Stability, Board of Governors
Christopher J. Gust,5 Deputy Associate Director,
Division of Monetary Affairs, Board of Governors;
Norman J. Morin and Steven A. Sharpe, Deputy
Associate Directors, Division of Research and
Statistics, Board of Governors; Jeffrey D. Walker,4
Deputy Associate Director, Division of Reserve
Bank Operations and Payment Systems, Board of
Governors; Paul R. Wood,3 Deputy Associate
Director, Division of International Finance, Board
of Governors
Ricardo Correa and Stephanie E. Curcuru,6 Assistant
Directors, Division of International Finance, Board
of Governors; Giovanni Favara and Zeynep
Senyuz,5 Assistant Directors, Division of Monetary
Affairs, Board of Governors
Penelope A. Beattie,3 Section Chief, Office of the
Secretary, Board of Governors; Dana L. Burnett,
Section Chief, Division of Monetary Affairs, Board
of Governors
Hess T. Chung,3 Group Manager, Division of Research
and Statistics, Board of Governors
David H. Small, Project Manager, Division of
Monetary Affairs, Board of Governors
Michele Cavallo, Jonathan E. Goldberg, Judit
Temesvary, and Francisco Vazquez-Grande,
Principal Economists, Division of Monetary
Affairs, Board of Governors; Daniel J. Vine,
Principal Economist, Division of Research and
Statistics, Board of Governors
Attended the discussion of economic developments and the
outlook.
6
Francesco Ferrante, Senior Economist, Division of
International Finance, Board of Governors;
Michael Siemer,3 Senior Economist, Division of
Research and Statistics, Board of Governors;
Manjola Tase, Senior Economist, Division of
Monetary Affairs, Board of Governors
James Hebden,3 Senior Technology Analyst, Division
of Monetary Affairs, Board of Governors
Mark A. Gould, First Vice President, Federal Reserve
Bank of San Francisco
David Altig,3 Kartik B. Athreya, Jeffrey Fuhrer, Anna
Paulson, and Christopher J. Waller, Executive Vice
Presidents, Federal Reserve Banks of Atlanta,
Richmond, Boston, Chicago, and St. Louis,
respectively
Julie Ann Remache,5 Samuel Schulhofer-Wohl,5 and
Keith Sill, Senior Vice Presidents, Federal Reserve
Banks of New York, Chicago, and Philadelphia,
respectively
Jonathan P. McCarthy, Ed Nosal, Matthew D. Raskin,5
and Patricia Zobel, Vice Presidents, Federal
Reserve Banks of New York, Atlanta, New York,
and New York, respectively
Larry Wall,3 Executive Director, Federal Reserve Bank
of Atlanta
Òscar Jordà, Senior Policy Advisor, Federal Reserve
Bank of San Francisco
Edward S. Prescott,3 Senior Economist and Policy
Advisor, Federal Reserve Bank of Cleveland
Brent Bundick, Research and Policy Advisor, Federal
Reserve Bank of Kansas City
Annual Organizational Matters7
The agenda for this meeting reported that advices of the
election of the following members and alternate members of the Federal Open Market Committee for a term
beginning January 28, 2020, were received and that these
individuals executed their oaths of office.
Committee organizational documents are available at
https://www.federalreserve.gov/monetarypolicy/rules_authorizations.htm.
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The elected members and alternate members were as follows:
John C. Williams, President of the Federal Reserve Bank
of New York, with Michael Strine, First Vice President
of the Federal Reserve Bank of New York, as alternate
Patrick Harker, President of the Federal Reserve Bank
of Philadelphia, with Thomas I. Barkin, President of the
Federal Reserve Bank of Richmond, as alternate
Loretta J. Mester, President of the Federal Reserve Bank
of Cleveland, with Charles L. Evans, President of the
Federal Reserve Bank of Chicago, as alternate
Robert S. Kaplan, President of the Federal Reserve Bank
of Dallas, with Raphael W. Bostic, President of the Federal Reserve Bank of Atlanta, as alternate
Neel Kashkari, President of the Federal Reserve Bank of
Minneapolis, with Mary C. Daly, President of the Federal
Reserve Bank of San Francisco, as alternate
By unanimous vote, the following officers of the Committee were selected to serve until the selection of their
successors at the first regularly scheduled meeting of the
Committee in 2021:
Jerome H. Powell
John C. Williams
James A. Clouse
Matthew M. Luecke
Michelle A. Smith
Mark E. Van Der Weide
Michael Held
Richard M. Ashton
Thomas Laubach
Stacey Tevlin
Beth Anne Wilson
Chairman
Vice Chairman
Secretary
Deputy Secretary
Assistant Secretary
General Counsel
Deputy General Counsel
Assistant General Counsel
Economist
Economist
Economist
Shaghil Ahmed
Michael Dotsey
Marc Giannoni
Joseph W. Gruber
Beverly Hirtle
David E. Lebow
Trevor A. Reeve
Ellis W. Tallman
William Wascher
Mark L.J. Wright
Associate Economists
By unanimous vote, the Committee selected the Federal
Reserve Bank of New York to execute transactions for
the System Open Market Account (SOMA).
By unanimous vote, the Committee selected Lorie K.
Logan to serve at the pleasure of the Committee as manager of the SOMA, on the understanding that her selection was subject to being satisfactory to the Federal Reserve Bank of New York.
Secretary’s note: The Federal Reserve Bank of
New York subsequently sent advice that the
manager selection indicated previously was satisfactory.
By unanimous vote, the Committee voted to reaffirm
without revision the Authorization for Domestic Open
Market Operations as shown below. The Guidelines for
the Conduct of System Open Market Operations in Federal-Agency Issues remained suspended.
AUTHORIZATION FOR DOMESTIC OPEN MARKET OPERATIONS
(As reaffirmed effective January 28, 2020)
OPEN MARKET TRANSACTIONS
1. The Federal Open Market Committee (the “Committee”) authorizes and directs the Federal Reserve Bank
selected by the Committee to execute open market transactions (the “Selected Bank”), to the extent necessary to
carry out the most recent domestic policy directive
adopted by the Committee:
A. To buy or sell in the open market securities that
are direct obligations of, or fully guaranteed as to principal and interest by, the United States, and securities
that are direct obligations of, or fully guaranteed as to
principal and interest by, any agency of the United
States, that are eligible for purchase or sale under Section 14(b) of the Federal Reserve Act (“Eligible Securities”) for the System Open Market Account
(“SOMA”):
i.
As an outright operation with securities dealers
and foreign and international accounts maintained
at the Selected Bank: on a same-day or deferred delivery basis (including such transactions as are commonly referred to as dollar rolls and coupon swaps)
at market prices; or
ii. As a temporary operation: on a same-day or
deferred delivery basis, to purchase such Eligible Securities subject to an agreement to resell (“repo
transactions”) or to sell such Eligible Securities subject to an agreement to repurchase (“reverse repo
transactions”) for a term of 65 business days or less,
at rates that, unless otherwise authorized by the
Committee, are determined by competitive bidding,
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after applying reasonable limitations on the volume
of agreements with individual counterparties;
B. To allow Eligible Securities in the SOMA to mature without replacement;
C. To exchange, at market prices, in connection
with a Treasury auction, maturing Eligible Securities in
the SOMA with the Treasury, in the case of Eligible
Securities that are direct obligations of the United
States or that are fully guaranteed as to principal and
interest by the United States; and
D. To exchange, at market prices, maturing Eligible
Securities in the SOMA with an agency of the United
States, in the case of Eligible Securities that are direct
obligations of that agency or that are fully guaranteed
as to principal and interest by that agency.
SECURITIES LENDING
2. In order to ensure the effective conduct of open
market operations, the Committee authorizes the Selected Bank to operate a program to lend Eligible Securities held in the SOMA to dealers on an overnight basis
(except that the Selected Bank may lend Eligible Securities for longer than an overnight term to accommodate
weekend, holiday, and similar trading conventions).
A. Such securities lending must be:
i.
At rates determined by competitive bidding;
ii. At a minimum lending fee consistent with the
objectives of the program;
iii. Subject to reasonable limitations on the total
amount of a specific issue of Eligible Securities that
may be auctioned; and
iv. Subject to reasonable limitations on the
amount of Eligible Securities that each borrower
may borrow.
B. The Selected Bank may:
i.
Reject bids that, as determined in its sole discretion, could facilitate a bidder’s ability to control a
single issue;
ii. Accept Treasury securities or cash as collateral
for any loan of securities authorized in this paragraph 2; and
iii. Accept agency securities as collateral only for a
loan of agency securities authorized in this paragraph 2.
OPERATIONAL READINESS TESTING
3. The Committee authorizes the Selected Bank to
undertake transactions of the type described in para-
graphs 1 and 2 from time to time for the purpose of testing operational readiness, subject to the following limitations:
A. All transactions authorized in this paragraph 3
shall be conducted with prior notice to the Committee;
B. The aggregate par value of the transactions authorized in this paragraph 3 that are of the type described in paragraph 1.A.i, 1.B, 1.C and 1.D shall not
exceed $5 billion per calendar year; and
C. The outstanding amount of the transactions described in paragraphs 1.A.ii and 2 shall not exceed
$5 billion at any given time.
TRANSACTIONS WITH CUSTOMER ACCOUNTS
4. In order to ensure the effective conduct of open
market operations, while assisting in the provision of
short-term investments or other authorized services for
foreign central bank and international accounts maintained at a Federal Reserve Bank (the “Foreign Accounts”) and accounts maintained at a Federal Reserve
Bank as fiscal agent of the United States pursuant to section 15 of the Federal Reserve Act (together with the
Foreign Accounts, the “Customer Accounts”), the Committee authorizes the following when undertaken on
terms comparable to those available in the open market:
A. The Selected Bank, for the SOMA, to undertake
reverse repo transactions in Eligible Securities held in
the SOMA with the Customer Accounts for a term of
65 business days or less; and
B. Any Federal Reserve Bank that maintains Customer Accounts, for any such Customer Account,
when appropriate and subject to all other necessary
authorization and approvals, to:
i.
Undertake repo transactions in Eligible Securities with dealers with a corresponding reverse repo
transaction in such Eligible Securities with the Customer Accounts; and
ii. Undertake intra-day repo transactions in Eligible Securities with Foreign Accounts.
Transactions undertaken with Customer Accounts under the provisions of this paragraph 4 may provide for a
service fee when appropriate. Transactions undertaken
with Customer Accounts are also subject to the authorization or approval of other entities, including the Board
of Governors of the Federal Reserve System and, when
involving accounts maintained at a Federal Reserve
Bank as fiscal agent of the United States, the United
States Department of the Treasury.
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ADDITIONAL MATTERS
5. The Committee authorizes the Chairman of the
Committee, in fostering the Committee’s objectives during any period between meetings of the Committee, to
instruct the Selected Bank to act on behalf of the Committee to:
A. Adjust somewhat in exceptional circumstances
the stance of monetary policy and to take actions that
may result in material changes in the composition and
size of the assets in the SOMA; or
B. Undertake transactions with respect to Eligible
Securities in order to appropriately address temporary
disruptions of an operational or highly unusual nature
in U.S. dollar funding markets.
Any such adjustment described in subparagraph A of
this paragraph 5 shall be made in the context of the
Committee’s discussion and decision about the stance of
policy at its most recent meeting and the Committee’s
long-run objectives to foster maximum employment and
price stability, and shall be based on economic, financial,
and monetary developments since the most recent meeting of the Committee. The Chairman, whenever feasible, will consult with the Committee before making any
instruction under this paragraph 5.
The Committee voted unanimously to reaffirm without
revision the Authorization for Foreign Currency Operations and the Foreign Currency Directive as shown below.
AUTHORIZATION FOR FOREIGN CURRENCY
OPERATIONS
(As reaffirmed effective January 28, 2020)
IN GENERAL
1. The Federal Open Market Committee (the “Committee”) authorizes the Federal Reserve Bank selected by
the Committee (the “Selected Bank”) to execute open
market transactions for the System Open Market Account as provided in this Authorization, to the extent
necessary to carry out any foreign currency directive of
the Committee:
A. To purchase and sell foreign currencies (also
known as cable transfers) at home and abroad in the
open market, including with the United States Treasury, with foreign monetary authorities, with the Bank
for International Settlements, and with other entities
in the open market. This authorization to purchase
and sell foreign currencies encompasses purchases and
sales through standalone spot or forward transactions
and through foreign exchange swap transactions. For
purposes of this Authorization, foreign exchange
swap transactions are: swap transactions with the
United States Treasury (also known as warehousing
transactions), swap transactions with other central
banks under reciprocal currency arrangements, swap
transactions with other central banks under standing
dollar liquidity and foreign currency liquidity swap arrangements, and swap transactions with other entities
in the open market.
B. To hold balances of, and to have outstanding forward contracts to receive or to deliver, foreign currencies.
2. All transactions in foreign currencies undertaken
pursuant to paragraph 1 above shall, unless otherwise
authorized by the Committee, be conducted:
A. In a manner consistent with the obligations regarding exchange arrangements under Article IV of
the Articles of Agreement of the International Monetary Fund (IMF).1
B. In close and continuous cooperation and consultation, as appropriate, with the United States Treasury.
C. In consultation, as appropriate, with foreign
monetary authorities, foreign central banks, and international monetary institutions.
D. At prevailing market rates.
STANDALONE SPOT AND FORWARD TRANSACTIONS
3. For any operation that involves standalone spot or
forward transactions in foreign currencies:
A. Approval of such operation is required as follows:
i.
The Committee must direct the Selected Bank
in advance to execute the operation if it would result
in the overall volume of standalone spot and forward transactions in foreign currencies, as defined
in paragraph 3.C of this Authorization, exceeding
$5 billion since the close of the most recent regular
meeting of the Committee. The Foreign Currency
Subcommittee (the “Subcommittee”) must direct
the Selected Bank in advance to execute the operation if the Subcommittee believes that consultation
with the Committee is not feasible in the time available.
ii. The Committee authorizes the Subcommittee
to direct the Selected Bank in advance to execute the
operation if it would result in the overall volume of
standalone spot and forward transactions in foreign
currencies, as defined in paragraph 3.C of this Authorization, totaling $5 billion or less since the close
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of the most recent regular meeting of the Committee.
B. Such an operation also shall be:
i.
Generally directed at countering disorderly
market conditions; or
ii. Undertaken to adjust System balances in light
of probable future needs for currencies; or
iii. Conducted for such other purposes as may be
determined by the Committee.
C. For purposes of this Authorization, the overall
volume of standalone spot and forward transactions
in foreign currencies is defined as the sum (disregarding signs) of the dollar values of individual foreign currencies purchased and sold, valued at the time of the
transaction.
WAREHOUSING
4. The Committee authorizes the Selected Bank, with
the prior approval of the Subcommittee and at the request of the United States Treasury, to conduct swap
transactions with the United States Exchange Stabilization Fund established by section 10 of the Gold Reserve
Act of 1934 under agreements in which the Selected
Bank purchases foreign currencies from the Exchange
Stabilization Fund and the Exchange Stabilization Fund
repurchases the foreign currencies from the Selected
Bank at a later date (such purchases and sales also known
as warehousing).
RECIPROCAL CURRENCY ARRANGEMENTS,
AND STANDING DOLLAR AND FOREIGN
CURRENCY LIQUIDITY SWAPS
5. The Committee authorizes the Selected Bank to
maintain reciprocal currency arrangements established
under the North American Framework Agreement,
standing dollar liquidity swap arrangements, and standing foreign currency liquidity swap arrangements as provided in this Authorization and to the extent necessary
to carry out any foreign currency directive of the Committee.
A. For reciprocal currency arrangements all drawings must be approved in advance by the Committee
(or by the Subcommittee, if the Subcommittee believes that consultation with the Committee is not feasible in the time available).
B. For standing dollar liquidity swap arrangements
all drawings must be approved in advance by the
Chairman. The Chairman may approve a schedule of
potential drawings, and may delegate to the manager,
System Open Market Account, the authority to approve individual drawings that occur according to the
schedule approved by the Chairman.
C. For standing foreign currency liquidity swap arrangements all drawings must be approved in advance
by the Committee (or by the Subcommittee, if the
Subcommittee believes that consultation with the
Committee is not feasible in the time available).
D. Operations involving standing dollar liquidity
swap arrangements and standing foreign currency liquidity swap arrangements shall generally be directed
at countering strains in financial markets in the United
States or abroad, or reducing the risk that they could
emerge, so as to mitigate their effects on economic
and financial conditions in the United States.
E. For reciprocal currency arrangements, standing
dollar liquidity swap arrangements, and standing foreign currency liquidity swap arrangements:
i.
All arrangements are subject to annual review
and approval by the Committee;
ii.
Any new arrangements must be approved by
the Committee; and
iii. Any changes in the terms of existing arrangements must be approved in advance by the Chairman. The Chairman shall keep the Committee informed of any changes in terms, and the terms shall
be consistent with principles discussed with and
guidance provided by the Committee.
OTHER OPERATIONS IN FOREIGN CURRENCIES
6. Any other operations in foreign currencies for
which governance is not otherwise specified in this Authorization (such as foreign exchange swap transactions
with private-sector counterparties) must be authorized
and directed in advance by the Committee.
FOREIGN CURRENCY HOLDINGS
7. The Committee authorizes the Selected Bank to
hold foreign currencies for the System Open Market Account in accounts maintained at foreign central banks,
the Bank for International Settlements, and such other
foreign institutions as approved by the Board of Governors under Section 214.5 of Regulation N, to the extent
necessary to carry out any foreign currency directive of
the Committee.
A. The Selected Bank shall manage all holdings of
foreign currencies for the System Open Market Account:
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i.
Primarily, to ensure sufficient liquidity to enable the Selected Bank to conduct foreign currency
operations as directed by the Committee;
ii. Secondarily, to maintain a high degree of
safety;
iii. Subject to paragraphs 7.A.i and 7.A.ii, to provide the highest rate of return possible in each currency; and
iv. To achieve such other objectives as may be authorized by the Committee.
B. The Selected Bank may manage such foreign currency holdings by:
i.
Purchasing and selling obligations of, or fully
guaranteed as to principal and interest by, a foreign
government or agency thereof (“Permitted Foreign
Securities”) through outright purchases and sales;
ii. Purchasing Permitted Foreign Securities under
agreements for repurchase of such Permitted Foreign Securities and selling such securities under
agreements for the resale of such securities; and
iii. Managing balances in various time and other
deposit accounts at foreign institutions approved by
the Board of Governors under Regulation N.
C. The Subcommittee, in consultation with the
Committee, may provide additional instructions to the
Selected Bank regarding holdings of foreign currencies.
ADDITIONAL MATTERS
8.
The Committee authorizes the Chairman:
A. With the prior approval of the Committee, to enter into any needed agreement or understanding with
the Secretary of the United States Treasury about the
division of responsibility for foreign currency operations between the System and the United States Treasury;
B. To advise the Secretary of the United States
Treasury concerning System foreign currency operations, and to consult with the Secretary on policy matters relating to foreign currency operations;
C. To designate Federal Reserve System persons authorized to communicate with the United States
Treasury concerning System Open Market Account
foreign currency operations; and
D. From time to time, to transmit appropriate reports and information to the National Advisory Council on International Monetary and Financial Policies.
9. The Committee authorizes the Selected Bank to
undertake transactions of the type described in this Authorization, and foreign exchange and investment
transactions that it may be otherwise authorized to
undertake, from time to time for the purpose of testing
operational readiness. The aggregate amount of such
transactions shall not exceed $2.5 billion per calendar
year. These transactions shall be conducted with prior
notice to the Committee.
10. All Federal Reserve banks shall participate in the
foreign currency operations for System Open Market
Account in accordance with paragraph 3G(1) of the
Board of Governors’ Statement of Procedure with Respect to Foreign Relationships of Federal Reserve Banks
dated January 1, 1944.
11. Any authority of the Subcommittee pursuant to
this Authorization may be exercised by the Chairman if
the Chairman believes that consultation with the Subcommittee is not feasible in the time available. The
Chairman shall promptly report to the Subcommittee
any action approved by the Chairman pursuant to this
paragraph.
12. The Committee authorizes the Chairman, in exceptional circumstances where it would not be feasible to
convene the Committee, to foster the Committee’s objectives by instructing the Selected Bank to engage in
foreign currency operations not otherwise authorized
pursuant to this Authorization. Any such action shall be
made in the context of the Committee’s discussion and
decisions regarding foreign currency operations. The
Chairman, whenever feasible, will consult with the Committee before making any instruction under this paragraph.
__________________________
1 In general, as specified in Article IV, each member of the
IMF undertakes to collaborate with the IMF and other members to assure orderly exchange arrangements and to promote
a stable system of exchange rates. These obligations include
seeking to direct the member’s economic and financial policies
toward the objective of fostering orderly economic growth
with reasonable price stability. These obligations also include
avoiding manipulating exchange rates or the international
monetary system in such a way that would impede effective
balance of payments adjustment or to give an unfair competitive advantage over other members.
FOREIGN CURRENCY DIRECTIVE
(As reaffirmed effective January 28, 2020)
1. The Committee directs the Federal Reserve Bank
selected by the Committee (the “Selected Bank”) to execute open market transactions, for the System Open
Market Account, in accordance with the provisions of
the Authorization for Foreign Currency Operations (the
“Authorization”) and subject to the limits in this Directive.
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2. The Committee directs the Selected Bank to execute warehousing transactions, if so requested by the
United States Treasury and if approved by the Foreign
Currency Subcommittee (the “Subcommittee”), subject
to the limitation that the outstanding balance of United
States dollars provided to the United States Treasury as
a result of these transactions not at any time exceed
$5 billion.
3. The Committee directs the Selected Bank to maintain, for the System Open Market Account:
A. Reciprocal currency arrangements with the following foreign central banks:
Foreign central bank Maximum amount
(millions of dollars
or equivalent)
Bank of Canada
Bank of Mexico
2,000
3,000
B. Standing dollar liquidity swap arrangements with
the following foreign central banks:
Bank of Canada
Bank of England
Bank of Japan
European Central Bank
Swiss National Bank
C. Standing foreign currency liquidity swap arrangements with the following foreign central banks:
Bank of Canada
Bank of England
Bank of Japan
European Central Bank
Swiss National Bank
4. The Committee directs the Selected Bank to hold
and to invest foreign currencies in the portfolio in accordance with the provisions of paragraph 7 of the Authorization.
5. The Committee directs the Selected Bank to report
to the Committee, at each regular meeting of the Committee, on transactions undertaken pursuant to paragraphs 1 and 6 of the Authorization. The Selected Bank
is also directed to provide quarterly reports to the Committee regarding the management of the foreign currency holdings pursuant to paragraph 7 of the Authorization.
6. The Committee directs the Selected Bank to conduct testing of transactions for the purpose of operational readiness in accordance with the provisions of
paragraph 9 of the Authorization.
By unanimous vote, the Committee amended its Program for Security of FOMC Information (Program) with
three sets of changes, effective February 1, 2020. These
changes consisted of (1) an update to the rules for eligibility for access to FOMC information to reflect two
new policies approved by the Board; (2) the addition of
references to existing Federal Reserve polices that help
safeguard FOMC information; and (3) organizational
and technical changes to improve the consistency and
accuracy of Program language.
By unanimous vote, the Committee provided approval
for the publication of a Federal Register notice of proposed
rulemaking that seeks public comment on minor and
technical updates to the FOMC Rules Regarding Availability of Information, which are the Committee’s Freedom of Information Act rules.
Review of Monetary Policy Strategy, Tools, and
Communication Practices
Participants continued their discussion related to the ongoing review of the Federal Reserve’s monetary policy
strategy, tools, and communication practices. At this
meeting, the discussion focused on two topics: the potential interactions between monetary policy and financial stability and the potential use of inflation ranges
around the Committee’s 2 percent inflation objective.
The staff briefing on the first topic noted that in the current environment of low neutral rates, achieving the
Committee’s dual-mandate goals of maximum employment and price stability would require low policy rates
frequently, regardless of the monetary policy strategy
and tools chosen. Consequently, policy strategies and
tools that help support a stronger economy and anchor
inflation expectations at a level consistent with the Committee’s objective in a low-neutral-rate environment can
help promote financial stability. In addition, the staff
reported that the available empirical evidence suggests
that the effects of changes in policy rates on asset prices
and risk premiums tend to be modest relative to the historical fluctuations in those measures. However, there
may be circumstances in which a persistently accommodative policy stance that is otherwise consistent with the
dual-mandate goals may contribute to an increase in financial system vulnerabilities, including through increased borrowing, financial leverage, and valuation
pressures. The staff noted that clear communications of
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the Committee’s ongoing assessments of the interactions between monetary policy and financial stability
could help avoid large interest rate surprises that could
otherwise contribute to financial vulnerabilities. The
briefing concluded with a short review of how other central banks have approached this issue, including the use
of financial instability escape clauses to provide leeway
for the central bank to deviate from its usual monetary
policy strategy if financial vulnerabilities become significant.
In their discussion of the effects that alternative monetary policy strategies and tools might have on financial
stability, participants noted that macroeconomic stability
and the achievement of the Committee’s dual mandate
depended on a stable financial system. An unstable financial system may amplify shocks to the economy and
exacerbate increases in unemployment or drive inflation
further away from the Committee’s goal. With respect
to the relationship between monetary policy and financial stability, some participants noted that evidence regarding the link between the policy stance and elevated
financial vulnerabilities was limited, with a couple of participants further observing that there were not many episodes of persistently low interest rates. In addition,
some past episodes of heightened financial vulnerabilities were associated with excessive risk-taking behavior
that did not seem to be very responsive to typical
changes in interest rates. A number of participants
judged that, under some circumstances, low policy rates
might help foster financial stability provided they are
needed to support strong economic conditions and price
stability. Some participants remarked, however, that
keeping policy rates low to achieve both of the Committee’s dual-mandate objectives may contribute to a
buildup of financial vulnerabilities, especially at times
when the economy is at or above full employment, a development that could pose future risks to the economy
and to the ability of the Committee to achieve its dual
mandate.
Participants discussed how financial stability considerations should be incorporated in the conduct of monetary
policy. They generally agreed that supervisory, regulatory, and macroprudential tools should be the primary
means to address financial stability risks. A few participants commented that this is especially the case when
addressing risks associated with structural features such
as the current low level of neutral interest rates. A number of participants noted that countercyclical macroprudential tools, such as the countercyclical capital buffer,
could be used to address cyclical financial stability risks.
However, various participants noted that while these
tools could be deployed proactively to lean against the
buildup of financial vulnerabilities, they have some limitations in the context of the U.S. financial system, where
the few available tools are, for the most part, not designed to address vulnerabilities outside the banking sector. In addition, these tools are not within the authority
of the Committee, and their use requires coordination
with other prudential regulators. Recognizing these limitations, many participants remarked that the Committee
should not rule out the possibility of adjusting the stance
of monetary policy to mitigate financial stability risks,
particularly when those risks have important implications for the economic outlook and when macroprudential tools had been or were likely to be ineffective at mitigating those risks. Nevertheless, many participants
noted that the current knowledge of the interactions between the stance of monetary policy and financial vulnerabilities is too imprecise to warrant systematically adjusting monetary policy in response to the evolution of
financial stability risks. As a result, monetary policy
should be guided primarily by the outlook for employment and inflation, and it should respond to financial
stability risks only insofar as such risks significantly
threaten the achievement of the Committee’s mandate.
Several participants observed that the monetary policy
measures needed to curb financial stability risks could be
quite large, and the resulting effects on employment and
inflation could place a high hurdle for such measures.
Some participants remarked that, because financial stability risks are a consideration for achieving the Committee’s dual mandate, a clear communications strategy
would be needed to convey the Committee’s assessments of financial vulnerabilities and their potential implications for the monetary policy outlook. Several participants noted that a communications strategy could include the possible use of financial instability escape
clauses to help explain the rationale for policy actions
when a buildup of financial vulnerabilities poses risks to
the achievement of the Committee’s goals.
The staff’s briefing on considerations regarding the use
of an inflation range focused on three different concepts
of an inflation range. First, an uncertainty range could
communicate the magnitude of the inherent variability
of inflation that would still be consistent with achieving
the Committee’s symmetric inflation objective. Second,
an operational range could signal that, under some conditions, the Committee would prefer inflation to be away
from its longer-run objective for a time; such a range
could potentially be used as part of a makeup policy
strategy, including one based on average inflation targeting, or in other strategies aimed at offsetting the adverse
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Federal Open Market Committee
effects of a binding effective lower bound on policy
rates. Third, an indifference range could communicate that
monetary policy would not respond to deviations of inflation within that range. The briefing also summarized
the experiences of foreign central banks that use inflation ranges; these ranges were typically put in place many
years ago, often in conjunction with adopting an inflation target. The staff highlighted the communications
challenges that could arise if an inflation range were introduced at a time when inflation had been running below the central bank’s objective for a number of years.
In this environment, the introduction of a symmetric
range around the point objective could be misinterpreted as a sign that the central bank was not concerned
about inflation remaining below its stated goal, a situation that could lead to inflation expectations drifting
down to the lower end of the range.
Participants expressed a range of views on the potential
benefits and costs of different types of inflation ranges.
Most participants expressed concern that introducing a
symmetric inflation range around the 2 percent objective
following an extended period of inflation mostly running
somewhat below 2 percent could be misperceived as a
signal that the Committee was comfortable with continued misses below its symmetric inflation objective.
Many participants agreed that an uncertainty range could
be misinterpreted as an indifference range and hence as
a lack of commitment by the Committee to its symmetric 2 percent inflation objective. Some participants suggested that it was not clear that introducing a range
would help much in achieving the Committee’s inflation
objective; they noted that introducing a range could
make that objective less clear to the public. Instead of
establishing a range, the Committee could continue to
communicate that its inflation objective was symmetric
around 2 percent. While inflation is inherently variable,
the Committee then could emphasize its intention for
inflation to be centered on the 2 percent objective. Nevertheless, in view of the inherent variability of inflation,
several participants judged that there could be some benefit in communicating the inflation objective with a symmetric range around the point target. In addition, a few
participants suggested that an inflation range could convey the uncertainty associated with the available array of
inflation measures or that the Committee’s communications could more explicitly reference other measures of
inflation. Several participants also stated that employing
an asymmetric operational range for a time—with 2 percent being at or near the lower end of that range—while
still maintaining the longer-run target of 2 percent could
help communicate that the Committee intended inflation to average 2 percent over time, which in turn could
help keep longer-run inflation expectations at levels consistent with its objective.
Participants expected that, at upcoming meetings, they
would continue their deliberations on the Committee’s
review of monetary policy strategy, tools, and communication practices. Participants continued to anticipate
that the review will likely be completed around the middle of this year.
Developments in Financial Markets and Open Market Operations
The SOMA manager reviewed developments in financial
markets over the intermeeting period. For most of the
period, risk asset prices rose as market participants focused on a perceived reduction in downside risks to the
economic outlook, favorable data on foreign economic
activity, and expectations of continued monetary policy
accommodation in the United States and other major
economies. Some market participants suggested that the
Federal Reserve’s actions in the fourth quarter to maintain ample reserve levels might have contributed to some
degree to the rise in equity and other risk asset prices.
Over the final few days of the intermeeting period, financial markets responded to news of the spread of the
coronavirus that started in China, which reportedly contributed to downward moves in Treasury yields and, to
a lesser extent, U.S. equity prices. On balance, U.S. financial conditions became more accommodative over
the intermeeting period, with equity prices rising notably.
Despite signs of reduced risks to the outlook and of
some stabilization in economic activity abroad, financial
market participants’ views on the likely course of U.S.
monetary policy appeared to have changed little over the
intermeeting period. Market-based indicators continued
to point to expectations that the target range for the federal funds rate will be lowered by roughly 30 basis points
this year. This was consistent with responses to the
Open Market Desk’s survey, which continued to indicate that, while market participants viewed no change
this year in the target range as the most likely outcome,
they placed a higher probability on a reduction in the
target range over the year than on an increase. Market
commentary attributed the stability in federal funds rate
expectations despite the perceived reduction in downside risks partly to the Committee’s communications;
some market participants reportedly regarded those
communications as signaling a relatively high bar for
changes to the target range. In addition, results from the
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Desk’s surveys suggested that, notwithstanding the
abatement in some risks over recent months, many market participants continued to see risks to the economic
outlook as skewed to the downside.
The manager turned next to a review of money market
developments and Desk operations. The federal funds
rate was stable over the year-end date and remained
close to the interest on excess reserves (IOER) rate. Ongoing reserve management purchases of Treasury bills
and the Desk’s repurchase agreement (repo) operations
kept aggregate reserves above the level that prevailed in
early September, contributing to relatively calm money
market conditions around year-end. Market participants
cited funding from the additional longer-term repo operations spanning year-end and increased capacity in
daily operations as helping to maintain stable conditions
in short-term funding markets. In addition, market participants prepared earlier than usual for year-end, with
borrowers increasing their term borrowing from private
lenders and lenders apparently expanding their lending
capacity.
Since year-end, money market rates remained stable,
with the Desk’s longer-term repos maturing with no discernible effect on market conditions and reserve management purchases of Treasury bills proceeding
smoothly. At the current pace of $60 billion per month,
the staff’s estimates suggested that after April of this
year, the Desk’s reserve management purchases will restore the permanent base of reserves to levels above
those prevailing in early September 2019. Although reserves are projected to be above $1.5 trillion before
April, a surge in the Treasury General Account balance
during the April tax season is expected to briefly reduce
reserve levels and, in the absence of repo operations,
bring reserves down temporarily to around $1.5 trillion.
The manager discussed a potential plan for gradually
transitioning to an operational approach designed to
maintain ample reserve levels without the active use of
repo operations to supply reserves. Under this plan,
repo operations would be maintained at least through
April to ensure ample reserve conditions. However, the
Desk would continue the gradual reduction and consolidation of its repo offerings ahead of April, with the plan
of phasing out term repo operations after April. As part
of this transition, the minimum bid rate on repo operations could be gradually lifted, and the Committee could
consider whether there is a role for repo operations in
the implementation framework.
In the second quarter, the manager expected reserve
conditions to support slowing the pace of Treasury bill
purchases, with the goal of eventually aligning growth of
the Federal Reserve’s Treasury holdings with trend
growth in its liabilities. As that time approaches, the
Committee might wish to consider the appropriate maturity composition of reserve management purchases of
Treasury securities. The manager noted that, although
the pace of Treasury purchases would likely continue
into the second quarter, the rate of expansion in the Federal Reserve’s balance sheet would moderate during the
first half of 2020 as repo outstanding was gradually reduced.
The manager’s briefing addressed the possibility of a
small technical adjustment to the Federal Reserve’s administered rates in light of the stability in money market
conditions over recent months. With this adjustment,
the Board would lift the interest rates on required and
excess reserves by 5 basis points, and the FOMC would
implement an equal-sized upward adjustment to the
overnight reverse repurchase agreement offer rate. This
technical adjustment would reverse the small downward
adjustment to administered rates made in September,
when money markets were volatile.
By unanimous vote, the Committee ratified the Desk’s
domestic transactions over the intermeeting period. No
intervention operations occurred in foreign currencies
for the System’s account during the intermeeting period.
Staff Review of the Economic Situation
The information available for the January 28–29 meeting
indicated that labor market conditions remained strong
and that real gross domestic product (GDP) increased at
a moderate rate in the fourth quarter 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 November. Survey-based measures of longer-run inflation expectations were little changed.
Total nonfarm payroll employment rose in December,
and the solid pace of job gains over the second half of
2019 was somewhat above that for the first half. However, the rate of increase in payrolls in 2019 was slower
than in 2018, whether or not one accounted for the anticipated effects of the Bureau of Labor Statistics’ benchmark revision to payroll employment, which was scheduled for early February. The unemployment rate held
steady at its 50-year low of 3.5 percent in December, and
the labor force participation rate and the employmentto-population ratio were unchanged as well. The unemployment rates for African Americans, Asians, Hispanics, and whites were below their levels at the end of the
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previous economic expansion. Although persistent differentials between these rates remained, they have generally narrowed during the expansion. The average share
of workers employed part time for economic reasons in
November stayed below its level in late 2007. The rate
of private-sector job openings declined, on net, in October and November but was still at a fairly high level; the
rate of quits, which was also at a high level, edged up.
The four-week moving average of initial claims for unemployment insurance benefits through mid-January remained near historically low levels. Nominal wage
growth was moderate, with average hourly earnings for
all employees increasing 2.9 percent over the 12 months
ending in December.
Total consumer prices, as measured by the PCE price
index, increased 1.5 percent over the 12 months ending
in November. Core PCE price inflation (which excludes
changes in consumer food and energy prices) was
1.6 percent over that same 12-month period. 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 November. The consumer price index (CPI) and
the core CPI both rose 2.3 percent over the 12 months
ending in December. Recent readings on survey-based
measures of longer-run inflation expectations were little
changed, on balance, in recent months. The University
of Michigan Surveys of Consumers’ measure for the next
5 to 10 years moved back up in early January after having
fallen to its lowest value on record in December. Meanwhile, the 3-year-ahead measure from the Federal Reserve Bank of New York’s Survey of Consumer Expectations remained near its historical low in December.
Real PCE appeared to have risen more slowly in the
fourth quarter than in the third quarter. Retail sales were
soft during the fourth quarter, and sales of light motor
vehicles declined in December after a strong gain in November. However, key factors that influence consumer
spending—including the low unemployment rate, the
upward trend in real disposable income, high levels of
households’ net worth, and generally low interest rates—
remained supportive of solid real PCE growth in the
near term. In addition, recent readings on consumer
confidence from both the University of Michigan and
the Conference Board surveys were strong.
Real residential investment appeared to have increased
solidly again in the fourth quarter. Starts for single-family homes increased sharply over the November and December period, building permit issuance for such homes
rose on net, and starts of multifamily units also moved
up. Existing home sales increased, on balance, in November and December, while new home sales declined.
All told, the data on residential construction and sales
continued to suggest that the decline in mortgage rates
since late 2018 had been boosting housing activity.
The available data pointed to another decline in real nonresidential private fixed investment in the fourth quarter,
with a further contraction in structures investment more
than offsetting a modest rise in investment in equipment
and intangibles. Nominal shipments and new orders of
nondefense capital goods excluding aircraft were little
changed in the fourth quarter. Although some measures
of business sentiment improved, analysts’ expectations
of firms’ longer-term profit growth edged down further,
concerns about trade developments continued to weigh
on firms’ investment decisions, and reduced deliveries of
the Boeing 737 Max were likely restraining investment.
Nominal business expenditures for nonresidential structures outside of the drilling and mining sector continued
to decline in November. 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—was little changed, on net, through mid-January,
though still below levels seen over the latter part of 2019.
Industrial production (IP) increased, on net, in November and December, partly because of a pickup in motor
vehicle production following the strike at General Motors. Even so, IP was lower than a year earlier, with declines in manufacturing production and the output of
utilities only partly offset by an increase in mining output. Automakers’ schedules suggested that assemblies
of light motor vehicles would increase in the first quarter, but that gain appeared likely to be offset by Boeing’s
curtailed production of the 737 Max aircraft and, more
generally, by mixed readings on new orders from national and regional manufacturing surveys.
Total real government purchases appeared to have increased moderately in the fourth quarter. Nominal defense spending in November and December pointed to
only a moderate rise in real federal government purchases. Real purchases by state and local governments
looked to have risen a little faster than in the third quarter; nominal construction spending by these governments increased solidly in November, and state and local
payrolls expanded modestly in December.
Real net exports were estimated to have provided a substantial boost to real GDP growth in the fourth quarter.
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Minutes of the Meeting of January 28–29, 2020
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Available monthly data suggested that imports fell significantly, led by declines in consumer goods and automobiles, while exports were about flat.
implied by overnight index swap quotes, moved down
slightly, on net, and implied about a 30 basis point decline in the federal funds rate from its current level.
Incoming data suggested that foreign economic growth
slowed further in the fourth quarter to a very subdued
pace. In the advanced foreign economies (AFEs),
growth appeared to have remained weak as the manufacturing slump continued and a consumption tax hike
in Japan led to a sharp contraction in household spending. In the emerging economies, social unrest weighed
heavily on economic activity in Hong Kong and Chile,
while the labor strike at General Motors was a further
drag on Mexico’s already weak economy. In contrast,
early GDP releases showed a pickup in growth in China
and some other Asian economies, though news of the
coronavirus outbreak raised questions about the sustainability of that pickup. Foreign inflation rose in the wake
of temporary factors in India and China, while it remained soft in most AFEs, in part reflecting previous
declines in energy prices and muted core inflation pressures.
Yields on nominal Treasury securities declined, on net,
across the maturity spectrum over the intermeeting period, while the spread between the yields on nominal
10- and 2-year Treasury securities was little changed.
Measures of inflation compensation over the next
5 years and 5 to 10 years ahead based on Treasury Inflation-Protected Securities decreased, on net, but remained above their October 2019 lows.
Staff Review of the Financial Situation
Investor sentiment improved, on balance, over the intermeeting period, mostly reflecting progress related to the
phase-one trade deal between the United States and
China and its subsequent signing, the perception that the
probability of a disorderly Brexit had declined, signs of
stabilization in the global economic outlook, and, reportedly, continued confidence that monetary policy in the
United States and other major economies would remain
accommodative in the near term. Late in the period,
concerns about the spread of the coronavirus and uncertainty about its potential economic effect weighed negatively on investor sentiment and led to moderate declines
in the prices of risky assets. On net, equity prices increased notably over the intermeeting period, while corporate bond spreads were little changed and yields on
nominal Treasury securities declined. Financing conditions for businesses and households eased a bit further
and generally remained supportive of spending and economic activity.
Federal Reserve communications over the intermeeting
period reportedly reinforced investors’ beliefs that a
near-term change to the target range for the federal
funds rate was unlikely. Consistent with those reports, a
straight read of the probability distributions for the federal funds rate implied by options prices suggested that
investors assigned a high probability to the target range
remaining unchanged over the next few months. Expectations for the federal funds rate at the end of 2020, as
Broad stock price indexes increased notably, on balance,
over the intermeeting period, with gains largely attributed to improved market sentiment about trade negotiations and a perceived lower probability of a disorderly Brexit. Late in the period, equity prices retraced
some of their gains, as concerns about the spread of the
coronavirus weighed negatively on risk sentiment.
Overall movements in stock prices varied widely across
economic sectors, with stocks of firms in the information technology and utilities sectors significantly outperforming aggregate indexes, while stock prices of
firms in the energy sector declined markedly. Optionimplied volatility on the S&P 500 index increased a bit,
on balance, while corporate credit spreads were little
changed.
Conditions in domestic short-term funding markets, including in secured financing, were stable over the intermeeting period, even over year-end. Rates declined
slightly, likely reflecting increased liquidity and a higher
level of reserves provided by the Desk’s open market
operations. The effective federal funds rate remained
close to the IOER rate, and spreads for term unsecured
commercial paper and negotiable certificates of deposit
narrowed substantially, particularly after year-end. The
Desk’s open market operations proceeded smoothly.
For most of the intermeeting period, foreign equity
prices rose amid progress on U.S.–China trade negotiations, generally favorable data on global economic activity, and the reduced risk of a disorderly Brexit following
the U.K. general election. Late in the period, however,
concerns about the coronavirus outbreak in China
weighed on risk sentiment. On balance, most major foreign equity indexes increased modestly, and AFE longterm sovereign yields ended the period somewhat lower.
U.K. and Canadian yields declined more than elsewhere
against the backdrop of central bank communications
that were interpreted as increasing the likelihood of policy easing in those countries.
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Federal Open Market Committee
The broad dollar index weakened slightly over the period, predominantly against emerging market currencies.
The Chinese renminbi appreciated notably against the
dollar on positive trade policy developments, but this
gain was more than undone late in the period by concerns about the coronavirus. The Mexican peso
strengthened against the dollar, supported by progress
on the U.S.-Mexico-Canada Agreement (USMCA) and
Bank of Mexico communications that were perceived as
less accommodative than expected.
Financing conditions for nonfinancial firms remained
accommodative, on balance, with corporate borrowing
costs staying near historical lows during the intermeeting
period. Gross issuance of investment-grade corporate
bonds was subdued in January and December after surging in November. Issuance of speculative-grade bonds
over the intermeeting period remained about in line with
the average pace over December and January in recent
years. Institutional leveraged loan issuance continued to
be robust in December, reflecting solid refinancing activity and moderate new money issuance. Meanwhile,
commercial and industrial (C&I) loans on banks’ balance
sheets contracted in the fourth quarter. Respondents to
the January 2020 Senior Loan Officer Opinion Survey
on Bank Lending Practices (SLOOS) reported that borrower demand weakened for C&I loans over the fourth
quarter, and lending standards on such loans were little
changed. Gross equity issuance through seasoned offerings remained robust in December, while initial public
offerings continued to be quite light. The credit quality
of nonfinancial corporations and the earnings outlook
remained generally stable in recent months. Credit conditions for both small businesses and municipalities remained accommodative on net.
In the commercial real estate (CRE) sector, financing
conditions also remained generally accommodative. The
volume of agency and non-agency commercial mortgage-backed securities issuance grew notably in the
fourth quarter, buoyed by lower interest rates, and the
growth of CRE loans on banks’ books picked up over
this period. Responses to the January 2020 SLOOS suggested that lending standards and demand for most CRE
loan categories were unchanged in the fourth quarter.
Financing conditions in the residential mortgage market
remained accommodative on balance. Mortgage rates
decreased notably during the intermeeting period, reaching recent-year lows. Home-purchase originations remained around post-crisis highs, and mortgage refinancing activity continued at a strong pace through December.
Financing conditions in consumer credit markets remained supportive of growth in consumer spending, although the supply of credit remained relatively tight for
nonprime borrowers. The growth of credit card balances slowed in the fourth quarter, and, according to the
January SLOOS, commercial banks tightened their
standards on credit card loans over this period. Auto
loan growth maintained a solid pace in recent months
amid declining interest rates through year-end.
The staff provided an update on its assessments of potential risks to financial stability. On balance, the financial vulnerabilities of the U.S. financial system were characterized as moderate. The staff judged that asset valuation pressures had increased in recent months to an elevated level. Asset valuation pressures were characterized as fairly widespread across a number of markets,
similar to the situation in much of 2017 and 2018. In
assessing vulnerabilities stemming from borrowing in
the household and business sectors, the staff noted that,
while the ratio of household debt to nominal GDP was
fairly low, the ratio of business debt to nominal GDP
was high by historical standards. At the same time, major financial institutions were viewed as resilient, in part
because of high levels of capital at banks. Nonetheless,
the staff noted that banks had announced that they intend to allow their capital ratios to decline closer to regulatory requirements over the medium term. Vulnerabilities stemming from funding risk were characterized
as moderate. While the money market strains in September raised some questions about vulnerabilities in
funding markets, the staff assessed that the core of the
financial system remains resilient to vulnerabilities from
maturity and liquidity transformation.
Staff Economic Outlook
The projection for U.S. real GDP growth prepared by
the staff for the January FOMC meeting was stronger
than in the previous forecast. Data pertaining to the
fourth quarter of 2019, particularly on imports, suggested output rose faster at the end of the year than was
previously projected, and this faster pace seemed consistent with the solid employment gains in the fourth
quarter. In addition, more supportive financial conditions and the anticipated effects of the phase-one trade
deal between the United States and China pushed up the
staff’s GDP forecast for this year and next. All told, real
GDP growth was projected to be about the same in 2020
as in 2019 and then to slow modestly in the coming
years, partly 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 2020 and
2021 and then to slow to a pace slightly below potential
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Minutes of the Meeting of January 28–29, 2020
Page 15
output growth in 2022. The unemployment rate was
projected to decline a little further this year and to remain at that lower level through 2022; the unemployment rate was anticipated to be below the staff’s estimate
of its longer-run natural rate throughout the forecast period.
The staff’s forecasts for both total and core PCE price
inflation over the 2020–22 period were essentially unrevised. Core inflation was still projected to step up a little
in 2020 but to run a bit below 2 percent both this year
and over the next two years. Total PCE price inflation
was projected to be a little lower than core inflation in
2020 because of a projected decline in consumer energy
prices and to be the same as core inflation in 2021 and
2022.
The staff continued to view the uncertainty around its
projections for real GDP growth, the unemployment
rate, and inflation as generally similar to the average of
the past 20 years. The staff viewed the downside risks
to economic activity as having diminished a bit further
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 foreign economic and geopolitical developments still 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 last year, as well as the
recent weakness in imports, was seen as pointing to the
possibility of a more substantial slowing in economic
growth than the staff projected. The risks to the inflation projection were also viewed as having a downward
skew, in part because of the downside risks to the forecast for economic activity.
Participants’ Views on Current Conditions and the
Economic Outlook
Participants agreed that the labor market had remained
strong over the intermeeting period and that economic
activity had risen at a moderate rate. Job gains had been
solid, on average, in recent months, and the unemployment rate had remained low. Although household
spending had risen at a moderate 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 judged that the current stance of
monetary policy was appropriate to support sustained
expansion of economic activity, strong labor market
conditions, and inflation returning to the Committee’s
symmetric 2 percent objective. They expected economic
growth to continue at a moderate pace, supported by accommodative monetary and financial conditions. In addition, some trade uncertainties had diminished recently,
and there were some signs of stabilization in global
growth. Nonetheless, uncertainties about the outlook
remained, including those posed by the outbreak of the
coronavirus.
In their discussion of the household sector, participants
noted that spending growth had moderated in the fourth
quarter. However, they generally expected that, in the
period ahead, consumption spending would likely remain on a firm footing, supported by strong labor market conditions, rising incomes, and healthy household
balance sheets. Some participants noted the upbeat tone
of consumer surveys, and a few commented that their
District contacts had reported solid retail sales during
the holiday shopping season. In addition, many participants were encouraged by the significant pickup since
last summer in residential investment, a development
that reflected, in part, the effects of lower mortgage
rates.
With respect to the business sector, participants observed that business investment and exports remained
weak and that manufacturing output had declined over
the past year. Looking ahead, participants were generally
cautiously optimistic about the effects on the business
sector of the recent favorable trade developments and
the signs of stabilization in global growth. Many participants expressed the view that these developments might
boost business confidence or raise export demand,
which would help strengthen or at least stabilize business
investment. A few participants remarked that contacts
in their Districts had noted that business sentiment was
brighter or that companies were intending to expand
their capital expenditures this year. Several other participants, however, judged that the effect of the recent
trade agreement with China would be relatively limited,
as trade uncertainty would likely remain elevated, with
the possibility remaining of the emergence of new tensions as well as the reescalation of existing tensions.
They noted that the agreement would still leave a large
portion of tariffs in place and that many firms had already been making production and supply chain adjustments in response to trade tensions.
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Participants also commented on ongoing challenges facing the energy and agriculture sectors. A couple of participants remarked that activity in the energy sector continued to be weak, and a few noted that financial conditions in the agricultural sector would likely remain challenging for many despite farm subsidies from the federal
government and recent optimism surrounding trade
prospects.
Participants judged that conditions in the labor market
remained strong, with the unemployment rate at a
50-year low and continued solid job gains, on average.
Although the upcoming annual benchmark revision was
expected to reduce estimates of recent payroll growth,
participants expected payroll employment to expand at
a healthy pace this year. Business contacts in many Districts indicated continued strong labor demand, with
several participants mentioning that contacts reported
difficulties in finding qualified workers or that observed
wage growth might currently understate the degree of
tightness in the labor market. However, a number of
participants indicated that aggregate measures of nominal wages continued to rise at a moderate pace broadly
in line with productivity growth and the rate of inflation.
Several participants commented on potential reasons for
the absence of stronger broad-based wage pressures, including technological changes that could substitute for
labor, increased willingness of employees to forgo wage
gains for greater job stability, adjustments in nonwage
portions of compensation packages, and the possibility
that the labor market was not as tight as the historically
low unemployment rate would suggest. Many participants pointed to the strong performance of labor force
participation despite the downward pressures associated
with an aging population, and several raised the possibility that there was some room for labor force participation to rise further.
In their discussion of inflation developments, participants noted that recent readings on overall and core
PCE price inflation, measured on a 12-month basis, had
continued to run below 2 percent. Overall, participants
described their inflation outlook as having changed little
since December. Participants generally expected inflation to move closer to 2 percent in the coming months
as the unusually low readings in early 2019 drop out of
the 12-month calculation. Participants also expected
that, as the economic expansion continues and resource
utilization remains high, inflation would return to the
2 percent objective on a sustainable basis. A few participants expressed less confidence in this outlook for inflation and commented that inflation had averaged less
than 2 percent over the past several years even as resource utilization had increased, or pointed to downward pressures from global or technology-related factors
that could continue to suppress inflation. A couple of
participants, however, noted that some alternative inflation indicators, including trimmed mean measures, suggested that there had been a modest step-up in underlying inflation during 2019 or that underlying inflation
could already be at a level consistent with the Committee’s goal.
Participants generally saw the distribution of risks to the
outlook for economic activity as somewhat more favorable than at the previous meeting, although a number of
downside risks remained prominent. The easing of trade
tensions resulting from the recent agreement with China
and the passage of the USMCA as well as tentative signs
of stabilization in global economic growth helped reduce
downside risks and appeared to buoy business sentiment. The risk of a “hard” Brexit had appeared to recede further. In addition, statistical models designed to
estimate the probability of recession using financial market data suggested that the likelihood of a recession occurring over the next year had fallen notably in recent
months. Still, participants generally expected trade-related uncertainty to remain somewhat elevated, and they
were mindful of the possibility that the tentative signs of
stabilization in global growth could fade. Geopolitical
risks, especially in connection with the Middle East, remained. The threat of the coronavirus, in addition to its
human toll, had emerged as a new risk to the global
growth outlook, which participants agreed warranted
close watching.
In their discussion of financial stability, participants
acknowledged the staff report suggesting that overall financial vulnerabilities remained moderate and that the
financial system remained resilient. Nonetheless, several
participants observed that equity, corporate debt, and
CRE valuations were elevated and drew attention to high
levels of corporate indebtedness and weak underwriting
standards in leveraged loan markets. Some participants
expressed the concern that financial imbalances—including overvaluation and excessive indebtedness—
could amplify an adverse shock to the economy, that the
current conditions of low interest rates and labor market
tightness could increase risks to financial stability, or that
cyber attacks could affect the U.S. financial system. Several participants noted that planned increases in dividend
payouts by large banks and the associated decline in capital buffers might leave those banks with less capacity to
weather adverse shocks—which could have negative implications for the economy—or that lower bank capital
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Minutes of the Meeting of January 28–29, 2020
Page 17
ratios could be associated with greater tail risks to GDP
growth. On the other hand, capital levels at U.S. banks
were quite high relative to other sectors of the financial
system, raising questions about the potential migration
of lending activities away from the U.S. banking sector
to areas outside the oversight of federal banking supervisors.
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 returning to the Committee’s symmetric 2 percent objective. With regard to monetary policy beyond this meeting, participants viewed the current stance of policy as
likely to remain appropriate for a time, provided that incoming information about the economy remained
broadly consistent with this economic outlook. Of
course, if developments emerged that led to a material
reassessment of the outlook, an adjustment to the stance
of monetary policy would be appropriate, in order to
foster achievement of the Committee’s dual-mandate
objectives.
In commenting on the monetary policy outlook, participants concurred that maintaining the current stance of
policy would give the Committee time for a fuller assessment of the ongoing effects on economic activity of last
year’s shift to a more accommodative policy stance and
would also allow policymakers to accumulate further information bearing on the economic outlook. Participants discussed how maintaining the current policy
stance for a time could be helpful in supporting U.S. economic activity and employment in the face of global developments that have been weighing on spending decisions.
With regard to the Committee’s price-stability objective,
participants observed that the current degree of monetary policy accommodation would be useful in facilitating a return of inflation to 2 percent. Several participants
noted that inflation returning to 2 percent would help
ensure that longer-term inflation expectations remained
consistent with the Committee’s longer-run inflation objective. A few participants stressed that the Committee
should be more explicit about the need to achieve its inflation goal on a sustained basis. Several participants
suggested that inflation modestly exceeding 2 percent
for a period would be consistent with the achievement
of the Committee’s longer-run inflation objective and
that such mild overshooting might underscore the symmetry of that objective. With regard to the Committee’s
maximum employment objective, a few participants observed that the actual level of employment might still be
below maximum employment and that maintaining the
present monetary policy stance would allow the economy to achieve that maximum level. A couple of other
participants expressed concern that tight labor markets
have in the past been associated with economic and financial imbalances and that the emergence of such imbalances might jeopardize the longer-run attainment of
the Committee’s dual-mandate goals.
Participants discussed the open market operations that
the Federal Reserve had undertaken since September to
implement monetary policy, as well as forthcoming operational measures. Participants agreed that the operations undertaken by the Desk since mid-September had
been effective in helping to stabilize conditions in money
markets and that implementation of the plan that the
Committee announced in October to purchase Treasury
bills and conduct repo operations had proceeded
smoothly. Participants observed that enactment of this
plan had succeeded in replenishing reserve balances to
levels at or above those prevailing in early September
2019 and in ensuring continued control of the federal
funds rate. Many participants stressed that, as reserves
approached durably ample levels, the need for sizable
Treasury bill purchases and repo operations would diminish and that such operations could be gradually
scaled back or phased out. Beyond that point, regular
open market operations would be required over time in
order to accommodate the trend growth in the Federal
Reserve’s liabilities and maintain an ample level of reserves. Participants who commented on the Desk’s proposal for the transition to the ample-reserves regime indicated that they were comfortable with that proposal.
They remarked that the details of the Committee’s plans
would be adjusted as appropriate to support effective
implementation of monetary policy. Participants noted
that it would be important to continue to communicate
to the public that open market operations now and in
the period ahead were technical operations aimed at
achieving and maintaining ample reserves and that any
adjustments to those operations were not intended to
represent a change in the stance of monetary policy.
Several participants suggested that the Committee
should resume before long its discussion of the role that
repo operations might play in an ample-reserves regime,
including the possible creation of a standing repo facility.
A couple of these participants cited the potential for
such a facility to reduce the banking system’s demand
for reserves over the longer term.
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Page 18
Federal Open Market Committee
Committee Policy Action
In their discussion of monetary policy for this meeting,
members noted that information received since the
FOMC met in December 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 moderate 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; 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 was appropriate to support sustained expansion of economic activity,
strong labor market conditions, and inflation returning
to 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 that incoming data warranted a change in the
statement’s description of recent rises in household
spending from “strong” to “moderate.” They also
agreed to describe the current monetary policy stance as
consistent with inflation “returning to,” rather than being “near,” their symmetric 2 percent longer-run objective. In commenting on this change in wording, a few
members noted that the new language would make the
postmeeting statement more consistent with the Committee’s outlook or might usefully affirm the symmetry
of the Committee’s inflation goal and indicate that policymakers were not satisfied with inflation outcomes that
were persistently 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, for release at 2:00 p.m.:
“Effective January 30, 2020, 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 April 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 1.50 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 percounterparty 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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Minutes of the Meeting of January 28–29, 2020
Page 19
Reserve’s agency mortgage-backed securities
transactions.”
The vote also encompassed approval of the statement
below for release at 2:00 p.m.:
“Information received since the Federal Open
Market Committee met in December 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 moderate 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 returning to
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, Richard
H. Clarida, Patrick Harker, Robert S. Kaplan, Neel
Kashkari, Loretta J. Mester, and Randal K. Quarles.
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 raise the interest rates on required and excess reserve balances to
1.60 percent. Setting the interest rate paid on required
and excess reserve balances 10 basis points above the
bottom of the target range for the federal funds rate is
intended to foster trading in the federal funds market at
rates well within the FOMC’s target range. The Board
of Governors also voted unanimously to approve establishment of the primary credit rate at the existing level of
2.25 percent, effective January 30, 2020.
It was agreed that the next meeting of the Committee
would be held on Tuesday–Wednesday, March 17–18,
2020. The meeting adjourned at 9:50 a.m. on January 29,
2020.
Notation Vote
By notation vote completed on January 2, 2020, the
Committee unanimously approved the minutes of the
Committee meeting held on December 10–11, 2019.
_______________________
James A. Clouse
Secretary
Cite this document
Federal Reserve (2020, January 28). FOMC Minutes. Fomc Minutes, Federal Reserve. https://whenthefedspeaks.com/doc/fomc_minutes_20200129
@misc{wtfs_fomc_minutes_20200129,
author = {Federal Reserve},
title = {FOMC Minutes},
year = {2020},
month = {Jan},
howpublished = {Fomc Minutes, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/fomc_minutes_20200129},
note = {Retrieved via When the Fed Speaks corpus}
}