FOMC Minutes

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Minutes of the Federal Open Market Committee

September 15–16, 2020

A joint meeting of the Federal Open Market Committee

and the Board of Governors was held by

videoconference on Tuesday, September 15, 2020, at

11:00 a.m. and continued on Wednesday, September 16,

2020, at 9:00 a.m. 1

PRESENT:

Jerome H. Powell, Chair

John C. Williams, Vice Chair

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, 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

Stacey Tevlin, Economist

Beth Anne Wilson, Economist

Shaghil Ahmed, Michael Dotsey, Marc Giannoni,

Trevor A. Reeve, Ellis W. Tallman, William

Wascher, and Mark L.J. Wright, Associate

Economists

Lorie K. Logan, Manager, System Open Market

Account

Matthew J. Eichner, 2 Director, Division of Reserve

Bank Operations and Payment Systems, Board of

Governors; Michael S. Gibson, Director, Division

of Supervision and Regulation, Board of

Governors; Andreas Lehnert, Director, Division of

Financial Stability, Board of Governors

Sally Davies and Brian M. Doyle, Deputy Directors,

Division of International Finance, 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, Division

of Board Members, Board of Governors

Joshua Gallin, Special Adviser to the Chair, Division of

Board Members, Board of Governors

William F. Bassett, Antulio N. Bomfim, Wendy E.

Dunn, Ellen E. Meade, Chiara Scotti, and Ivan

Vidangos, Special Advisers to the Board, Division

of Board Members, Board of Governors

Linda Robertson, Assistant to the Board, Division of

Board Members, Board of Governors

David Bowman, Senior Associate Director, Division of

Monetary Affairs, Board of Governors; Eric M.

Engen, Diana Hancock, and John J. Stevens,

Senior Associate Directors, Division of Research

and Statistics, Board of Governors

Jeremy B. Rudd, Senior Adviser, Division of Research

and Statistics, Board of Governors

Glenn Follette, Associate Director, Division of

Research and Statistics, Board of Governors;

David López-Salido, Associate Director, Division

of Monetary Affairs, Board of Governors

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

Board of Governors

Christopher J. Gust, Deputy Associate Director,

Division of Monetary Affairs, Board of Governors;

John M. Roberts, Deputy Associate Director,

The Federal Open Market Committee is referenced as the

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

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

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Division of Research and Statistics, Board of

Governors; Jeffrey D. Walker,2 Deputy Associate

Director, Division of Reserve Bank Operations

and Payment Systems, Board of Governors

Brian J. Bonis and Laura Lipscomb, 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

and Felicia Ionescu, Section Chiefs, Division of

Monetary Affairs, Board of Governors

Mark A. Carlson, Senior Economic Project Manager,

Division of Monetary Affairs, Board of Governors

David H. Small, Project Manager, Division of

Monetary Affairs, Board of Governors

Michele Cavallo, Jonathan E. Goldberg, and Kurt F.

Lewis, Principal Economists, Division of Monetary

Affairs, Board of Governors

Randall A. Williams, Senior Information Manager,

Division of Monetary Affairs, Board of Governors

Meredith Black, First Vice President, Federal Reserve

Bank of Dallas

David Altig, Kartik B. Athreya, Joseph W. Gruber,

Sylvain Leduc, Anna Paulson, Daleep Singh, and

Christopher J. Waller, Executive Vice Presidents,

Federal Reserve Banks of Atlanta, Richmond,

Kansas City, San Francisco, Chicago, New York,

and St. Louis, respectively

Argia M. Sbordone and Patricia Zobel, Vice Presidents,

Federal Reserve Bank of New York

Jenny Tang, Senior Economic Policy Advisor, Federal

Reserve Bank of Boston

Opening Remarks

The Chair, Vice Chair Williams, and Governor Clarida

opened the meeting with remarks in memory of Thomas

Laubach.

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Attended Tuesday’s session only.

Chair Powell:

“Thomas was unquestionably one of the great

economic minds of his generation, and his research has been central to some of our biggest

discussions and policy actions over the past several years. He had a rare and underappreciated

gift for translating arcane and academic theory

into real world practice. That ability made a real

difference in the conduct and communication

of monetary policy. From his work on r*, to the

balance sheet, to leading the steering committee

for our monetary policy review, Thomas Laubach’s intellectual fingerprints are all over the

Committee’s decisions that will define this era

of the Federal Reserve.

Thomas was also an exceptional colleague,

leader, and friend. No one here will be surprised to know that as condolences pour in, the

admiration for his kindness and equanimity

match, if not exceed, the esteem for his intellect.

Thomas was a model of leadership who fiercely

believed that every member of his team is critical to our collective success, and he made certain they knew it. Even as he battled his own

health problems, working through treatment to

help fight the economic fallout of a global pandemic, his concern lay with others. Amid a deluge of emergency work to fight a historic downturn and the upending of daily life, Thomas

urged people to take care of themselves and

their families first. It is a testament to the mutual respect and amity that it was Thomas’s team

who proposed the Tealbook dedication in his

memory.

As friends, colleagues, and collaborators, we all

grieve his loss. His absence leaves a space that

cannot truly be filled. We will miss Thomas

Laubach’s intellect and his insight. More importantly, we will miss Thomas Laubach.”

Vice Chair Williams:

“Thomas and I started working together

20 years ago. He had just arrived at the Board

from the Kansas City Fed, and I had returned

from my stint at the Council of Economic Advisers. And it was truly serendipitous. We immediately recognized the shared interest in figuring out how to estimate this thing called the

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natural rate of interest. And more importantly,

Thomas was an expert in Kalman filtering. So

we were off to the races on that project. Ironically, given subsequent events, the question of

the time was whether the productivity boom

had driven r* higher. In fact, if you go back to

our December 2000 memo, our first memo to

the Board on r*, our original estimates had r* at

4¼ percent, and that’s real, not nominal. So

that’s a 6¼ percent nominal r*. Those were the

days.

Jumping ahead 15 years, following his appointment as Director of Monetary Affairs, Thomas

would frequently, and very earnestly, ask me

how he could be most effective in his role as an

adviser to the FOMC. And I’d remind him that

the Committee has at times been compared to a

herd of cats. But he was always looking for

ways to raise his game, and hopefully ours, and

help the Committee grapple with issues and decisions before us. Sometimes that effort led to

briefings with a labyrinth of charts and figures,

where Thomas heroically tried to make sense of

our Summary of Economic Projections (SEP)

projections and the implicit policy rule that

must be embedded in them if you only looked

hard enough. Or it goes without saying how

everything makes more sense once you factor in

r*.

His role as trusted adviser was never more on

display or important than during the framework

review as Chair Powell just commented.

Thomas focused on making sure the Committee was prepared with the very best information

and analysis. He consistently moved us towards

the goal line, even as he engaged in a complex

range of issues and dealt with the effects of the

pandemic. And he scrupulously played the role

of honest broker throughout. Indeed, he perfected the formula for herding cats. It’s one

part keen intellect, a dollop of understated humor, and a big helping of patience and perseverance.”

Governor Clarida:

“Thomas Laubach was a remarkable human being who just happened to be a world class economist. His passing last week represents of

course an incalculable loss for his family, but is

also a devastating blow felt by each and every

one of us in the Federal Reserve System, and

indeed, in major central banks around the world

that he frequently visited.

Before I arrived at the Board, I knew Thomas

primarily through his research. His book on inflation targeting with Ben Bernanke, Rick Mishkin, and Adam Posen is a classic reference on

the subject, as is his work with President Williams on r*. I would say Thomas had a talent

for picking co-authors. Thomas and I first met

when he was a Ph.D. student working on the

book and we were both visiting the New York

Fed.

I remember well our first meeting 25 years ago,

and I was struck then by Thomas’s enthusiasm

that he brought to economics as a graduate student. Thomas of course never lost that spark

and joy for the practice of monetary policy, and

we are all fortunate that he did not. I—and I’m

sure Chair Powell, and before him, Chair

Yellen—trusted him implicitly. And speaking

for myself, I always sought his insight and advice privately in my office and counsel on all of

the big policy decisions I’ve had to consider in

my two years as Vice Chair.

Thomas made everyone that he worked with

better and inspired to put forth their best energy

and effort to achieve larger goals. That was

most certainly the case in the framework review,

and I’ll second what Vice Chair Williams and

Chair Powell said. Thomas brought peerless

leadership, energy, and a commitment to the entire framework review. We simply would not

have achieved the evolution of our framework

and strategy without Thomas and the insight,

inspiration, and good judgment he brought to

the project and the ambitious process that he

designed and worked with us to implement.

I understand that in Thomas’s last days, he was

able to watch the Chair’s speech at Jackson

Hole rolling out the new framework, and that

he was so proud to have been part of what the

Wall Street Journal called a landmark change in

U.S. monetary policy. I’m sure I speak for all of

us when I conclude by saying that it is we who

are proud to have had the privilege of working

with Thomas Laubach during his 20 years at the

Fed. He is and will be deeply missed, but his

spirit and inspiration to us all will endure.”

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Developments in Financial Markets and Open

Market Operations

The System Open Market Account (SOMA) manager

first discussed developments in financial markets. On

net, financial conditions eased over the intermeeting period. Equity prices rose and the broad dollar continued

to depreciate from its crisis-driven peak in March.

Yields on Treasury inflation-protected securities fell,

while longer-dated nominal Treasury yields increased

modestly.

Market participants attributed these developments to a

stronger economic outlook, better news on the COVID19 trajectory, better-than-feared corporate earnings reports, and accommodative policy. Against this backdrop, most respondents to the Open Market Desk’s Survey of Primary Dealers and Survey of Market Participants perceived downside risks to U.S. gross domestic

product (GDP) growth this year as having declined notably since the July survey, and their forecasts for overall

growth for 2020 were revised up significantly.

While the economic outlook had brightened, market

participants continued to see significant risks ahead.

Some noted concerns about elevated asset valuations in

certain sectors. Many also cited geopolitical events as

heightening uncertainty. In addition, most forecasters

were assuming that an additional pandemic-related fiscal

package would be approved this year, and noted that,

absent a new package, growth could decelerate at a

faster-than-expected pace in the fourth quarter. In light

of these and other risks, as well as the ongoing pandemic, market participants continued to suggest that the

supportive policy environment and the backstops to

market functioning remained important stabilizers.

The release of the revised Statement on Longer-Run

Goals and Monetary Policy Strategy (consensus statement) elicited relatively modest immediate reaction

across markets. However, market participants generally

viewed the completion of the review as an important

milestone; many indicated that growing expectations for

the Committee to adopt a flexible average-inflationtargeting regime had influenced asset prices over recent

months. In particular, these expectations were viewed

as contributing to the recent rise in far-forward measures

of inflation compensation, though market participants

noted that these measures were still somewhat low by

historical standards.

Market participants continued to anticipate that the

Committee would update its forward guidance for the

federal funds rate. Most respondents to the Desk’s surveys continued to indicate that they expected the FOMC

to adopt outcome-based forward guidance linked to inflation; some noted that employment measures could be

part of the forward guidance as well. Survey respondents’ expectations for the economic conditions that

would prevail when the FOMC first lifted the target

range had shifted notably since the previous survey, with

many respondents projecting somewhat higher inflation

and lower unemployment than in July. Expectations for

asset purchases this year remained tightly centered

around the current pace; however, many survey respondents revised up the amount of asset purchases expected in 2021 and 2022.

The manager turned next to a discussion of funding market conditions and open market operations over the period. Conditions in short-term dollar funding markets

remained stable over the period. Overnight secured and

unsecured rates continued to trade in narrow ranges near

the interest on excess reserves rate. Forward measures

of funding rates implied that conditions were expected

to remain stable in coming months.

Markets for Treasury securities and agency mortgagebacked securities (MBS) continued to function

smoothly, with bid-ask spreads and a range of other indicators remaining near pre-pandemic levels. Indicators

of functioning in the market for agency commercial

mortgage-backed securities (CMBS) also remained stable. In light of the improved conditions, the staff proposed that the Desk no longer be required to increase

agency CMBS holdings or reinvest principal payments

for agency CMBS. For the time being, the Desk would

continue to conduct regular agency CMBS operations to

maintain backstop capacity.

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.

Staff Review of the Economic Situation

The COVID-19 pandemic and the measures undertaken

to contain its spread continued to affect economic activity in the United States and abroad. The information

available at the time of the September 15–16 meeting

suggested that U.S. real GDP was rebounding at a rapid

rate in the third quarter. Labor market conditions continued to improve markedly in July and August, but employment was still below its level at the beginning of the

year. Consumer price inflation—as measured by the

12-month percentage change in the price index for personal consumption expenditures (PCE) through July—

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remained well below the rates that prevailed early in the

year.

Total nonfarm payroll employment expanded strongly in

July and August, although payrolls had retraced only

about half of the jobs lost at the onset of the pandemic.

The unemployment rate moved down further to 8.4 percent in August. The unemployment rates for African

Americans, Asians, and Hispanics declined over the past

two months but remained well above the national average. The labor force participation rate rose, on net, and

the employment-to-population ratio increased further in

July and August. Initial claims for unemployment insurance benefits continued to move down, on net, through

early September, but the pace of declines had slowed. In

addition, weekly estimates of private-sector payrolls constructed by the Board’s staff using data provided by the

payroll processor ADP suggested that employment gains

likely were still solid from mid-August to early September.

Total PCE price inflation was 1.0 percent over the

12 months ending in July, reflecting both weak aggregate

demand and a considerable drop in consumer energy

prices early this year. Core PCE price inflation, which

excludes changes in consumer food and energy prices,

was 1.3 percent over the same 12-month period. By

comparison, the trimmed mean measure of 12-month

PCE price inflation constructed by the Federal Reserve

Bank of Dallas was 1.8 percent in July. The consumer

price index (CPI) increased 1.3 percent over the

12 months ending in August, while core CPI inflation

was 1.7 percent over the same period. On a monthly

basis, recent inflation readings were bolstered by increases in durable goods prices, largely reflecting the

strong demand for consumer goods as household purchases shifted away from many consumer services. The

latest readings on survey-based measures of longer-run

inflation expectations moved up a bit but remained

within their ranges in recent years. The University of

Michigan Surveys of Consumers measure for the next

5 to 10 years edged up in July and August, and the threeyear-ahead measure from the Federal Reserve Bank of

New York’s Survey of Consumer Expectations also

crept up over the past two months.

Real PCE expanded strongly in July and continued to be

bolstered by supportive fiscal and monetary policy actions. In August, the components of retail sales used to

estimate PCE, along with sales of light motor vehicles,

increased further. However, recent high-frequency indicators of spending on some consumer services—such as

restaurant dining, hotel accommodations, and air

travel—were still subdued. Real disposable personal income was roughly flat in July, primarily reflecting further

gains in wage and salary income that were largely offset

by the waning of government transfer payments from

their peak in the spring. Nevertheless, the personal saving rate remained quite elevated. The consumer sentiment measure from the Michigan survey edged up in

August, while the Conference Board survey measure

moved down; both measures continued to be below

their levels at the beginning of the year.

Housing-sector activity continued to expand, likely supported by the effects of low interest rates. Starts and

building permit issuance for single-family homes, along

with starts of multifamily units, increased further in July.

Sales of both new and existing homes also rose substantially further. These measures of construction and sales

were generally at or near their pre-pandemic levels.

Indicators of business fixed investment suggested that

this sector was beginning to recover on balance. Nominal new orders and shipments of nondefense capital

goods excluding aircraft increased in July, the third consecutive monthly increase in these indicators of business

equipment spending. Many measures of business sentiment also improved somewhat in July and August. In

addition, the number of crude oil and natural gas rigs in

operation through early September—an indicator of

business spending on structures in the drilling and mining sector—had flattened out recently following its declines since the spring. In contrast, nominal business

spending on nonresidential structures outside of the

drilling and mining sector declined over June and July.

Industrial production expanded further in July and August, although at a less rapid pace than over the preceding two months. The increase in factory output was

broad based, but the gains for most manufacturing industries had slowed gradually since June. Production in

the mining sector—which includes crude oil and natural

gas drilling and extraction—increased in July but fell in

August, as Tropical Storm Marco and Hurricane Laura

caused sharp but temporary decreases in extraction and

drilling.

Total real government purchases appeared to be increasing modestly, on balance, in the third quarter. Federal

defense spending continued to rise through August, and

federal employment was boosted markedly by temporary

census-related hiring. State and local government payrolls expanded in July and August, although nominal

state and local construction expenditures decreased in

June and July.

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After declining sharply earlier this year, exports and imports of goods and services increased strongly in June

and July. On net, over these two months, the nominal

U.S. international trade deficit widened, as imports rose

more than exports. Exports and imports of goods rose

in June and July in most major product categories, while

exports and imports of services rose modestly following

previous historic declines.

Foreign economic activity plunged in the second quarter

as a result of the COVID-19 pandemic and the associated restrictive measures to contain it. With some of

these measures having been rolled back in recent

months, economic indicators pointed to a large, but partial, rebound in most foreign economies in the third

quarter. Recent indicators of household and business

spending were strong in several economies (including

Canada, the euro area, and Brazil), reflecting in part a

boost from substantial government support programs.

In China, economic indicators showed a continued

moderate expansion after a sharp rebound in the second

quarter, though gains in consumption continued to lag

those in production and exports. Similarly, in Mexico, a

strong rebound in manufacturing production contrasted

with weak services activity. Despite the widespread rebound in foreign activity indicators, a resurgence in

COVID-19 cases in parts of Europe and Asia added uncertainty to the outlook for those economies. Recent

readings of headline and core inflation abroad remained

quite low, particularly in the advanced foreign economies (AFEs), amid subdued demand pressures and

lower energy prices from earlier this year.

Staff Review of the Financial Situation

Financial market sentiment improved over the intermeeting period, boosted by declines in the number of

new COVID-19 cases in the United States and strongerthan-anticipated corporate earnings reports and domestic economic data releases. Broad stock price indexes

rose, on net, despite notable declines late in the intermeeting period. Inflation compensation increased further, reaching pre-pandemic levels. Changes in other asset prices were generally more modest but were consistent with improved sentiment: The Treasury yield

curve steepened a little, spreads on speculative-grade

corporate bonds narrowed moderately, and the exchange value of the dollar depreciated modestly. Meanwhile, financing conditions for businesses with access to

capital markets and households with high credit scores

remained broadly accommodative, although conditions

remained tight for other borrowers.

Yields on 2-year nominal Treasury securities were little

changed since the July FOMC meeting, while 10- and

30-year yields rose moderately. Market commentary attributed the increases in longer-term yields to improved

investor sentiment. This improved sentiment partly reflected the decline in new COVID-19 cases in the United

States and stronger-than-expected economic data, although market reactions to economic data releases were

limited. The near-dated implied volatility on 10-year

Treasury securities was little changed over the intermeeting period and remained near the bottom of its historical

range. Measures of inflation compensation based on

TIPS maturing over the next few years continued to increase, likely reflecting the general improvement in investor sentiment accompanying the improvement in the

economic outlook, some further improvements in TIPS

market liquidity, and the higher-than-expected July CPI

data release. The 5-year and 5-to-10-year measures of

inflation compensation were close to their pre-pandemic

levels but were still in the lower end of their historical

ranges.

The expected path for the federal funds rate over the

next few years, as implied by a straight read of overnight

index swap quotes, was little changed, on net, since the

July FOMC meeting and remained close to the effective

lower bound (ELB) through the first half of 2024. Communications about monetary policy over the intermeeting period generally had little effect on Treasury yields

or the expected path of the federal funds rate. However,

market participants suggested that building expectations

that the Committee would move to a form of flexible

average inflation targeting under the revised consensus

statement had been a factor boosting TIPS inflation

compensation over recent months.

Broad stock price indexes rose, on net, during the intermeeting period, consistent with generally better-than-expected news on both the economy and second-quarter

corporate earnings. One-month option-implied volatility on the S&P 500—the VIX—was roughly unchanged,

on net, although measures of longer-term downside risks

in equity markets, such as the option-implied cost of insuring against a 10 percent decline in the S&P 500 index

in three months, increased somewhat. Spreads of investment- and speculative-grade corporate bond yields over

comparable-maturity Treasury yields narrowed somewhat and remained near their historical medians.

Conditions in short-term funding markets were stable

over the intermeeting period. Spreads on commercial

paper (CP) and negotiable certificates of deposit across

different tenors changed little, on net, and remained

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around levels observed before the pandemic. Total

gross CP issuance also remained within pre-pandemic

normal ranges, although outstanding volumes of nonfinancial CP declined moderately since the July FOMC

meeting. Assets under management of prime and government money market funds (MMFs) declined modestly on net. Partly reversing changes observed between

April and July, institutional government MMFs, on net,

decreased their holdings of Treasury securities and increased their holdings of repurchase agreements (repos)

in August. The reversal was driven in part by a tighter

spread between Treasury bill yields and repo rates. Amid

normalizing market conditions, there was little activity in

the Money Market Mutual Fund Liquidity Facility or the

Commercial Paper Funding Facility.

The effective federal funds rate and the Secured Overnight Financing Rate averaged 9 basis points over the

intermeeting period. The amount of Federal Reserve

repo outstanding remained at zero over the intermeeting

period due to more attractive rates in the private market.

Meanwhile, the Federal Reserve increased holdings of

Treasury securities and agency MBS at the same pace as

during the previous intermeeting period.

Foreign asset price movements were generally muted,

with market participants likely weighing concerns over

rising infection rates in some countries against the prospect of a COVID-19 vaccine. In emerging market

economies (EMEs), Asian equity markets significantly

outperformed Latin American counterparts, with Chinese equities showing particular strength. In most

AFEs, equity indexes rose modestly and long-term sovereign yields edged higher.

In line with the modest improvement in risk sentiment,

the staff’s broad dollar index declined moderately, on

net, with the dollar depreciating more against EME currencies. The Chinese renminbi was boosted by betterthan-expected Chinese economic data and was the most

notable contributor to the decline in the staff’s tradeweighted dollar index, along with the Mexican peso.

Among AFE currencies, the euro appreciated further

and reached its highest level against the dollar since

2018. The pound was little changed, as some of its earlier appreciation against the dollar unwound amid a resurgence of Brexit-related uncertainty.

Financing conditions in capital markets remained accommodative over the intermeeting period. Amid historically low corporate bond yields, gross issuance of

both investment- and speculative-grade corporate bonds

was strong in July and August. Much of this recent issu-

ance was intended to refinance existing debt. Gross institutional leveraged loan issuance picked up slightly in

July but remained below the levels observed during the

same period last year. Amid notable equity market gains

in August, gross equity issuance was robust, as seasoned

offerings strengthened to about double their typical

pace. Commercial and industrial loans outstanding declined in July and August, but at a slower pace than in

June, with declines in large part reflecting continued

credit-line repayment.

The credit quality of nonfinancial corporations showed

tentative signs of stabilization over the intermeeting period. The dollar volume of nonfinancial corporate bond

downgrades continued to exceed upgrades, albeit only

modestly, representing a sizable reduction in net downgrades since the spring. The pace of nonfinancial corporate bond defaults in July was also notably lower than

in April and May but was still elevated relative to prepandemic levels. Default volumes fell further in August,

reaching a level below the 2019 monthly average. Market indicators of future default expectations also improved somewhat.

Financing conditions for small businesses remained

tight, although some indicators pointed to a slight improvement. Thirty-day delinquency rates fell modestly

between May and July but remained comparable with

early 2008 levels. The credit needs of small businesses

remained high, with significant shares of respondents to

the Census Bureau’s Small Business Pulse Survey reporting scarce cash availability and anticipating a need for financial assistance in the next six months.

Municipal market financing conditions remained accommodative since the July FOMC meeting. However, the

credit quality of municipal debt deteriorated somewhat,

driven by a relatively large volume of credit rating downgrades of revenue bonds.

Financing conditions for commercial real estate (CRE)

intermediated through capital markets recovered further

over the intermeeting period. Spreads on triple-B nonagency CMBS remained wide, though they continued to

narrow through August, while triple-A spreads remained

close to pre-pandemic levels. Issuance of non-agency

CMBS was steady but subdued relative to pre-pandemic

levels. Spreads on agency CMBS were tight and issuance

was very strong, setting a new single-month record in

July. In contrast, CRE loan growth at banks was weak

in July and August, likely partly driven by the recovery

of CMBS markets. Delinquency rates on mortgages

backing CMBS fell a bit in July but remained high in the

hotel and retail sectors.

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Financing conditions in the residential mortgage market

were little changed over the intermeeting period. While

mortgage rates hovered near historical lows, the spread

between primary mortgage rates and MBS yields remained quite wide. Credit continued to flow to higherscore borrowers who met standard conforming loan criteria, while it remained tight for borrowers with lower

credit scores and for nonstandard mortgage products.

Nonetheless, low mortgage rates were supporting both

home-purchase originations and refinancing. The credit

quality of mortgages improved slightly, with the rate of

transition into delinquency remaining near prepandemic levels and forbearance continuing to slowly

decline.

Financing conditions in consumer credit markets remained accommodative for borrowers with relatively

strong credit scores but continued to be tight for subprime borrowers. Auto loan balances increased solidly

overall but declined for borrowers with low credit

scores. Credit card balances contracted at a slower rate

in June and July than in the spring. However, offered

interest rates rose and credit limits edged down for credit

cards to nonprime borrowers. Conditions in the assetbacked securities (ABS) market were stable during the

intermeeting period. ABS spreads edged down, and auto

and student loan issuance was robust. Consumer credit

performance remained stable, and the share of auto and

credit card balances in forbearance declined.

Staff Economic Outlook

In the U.S. economic projection prepared by the staff

for the September FOMC meeting, the rate of real GDP

growth and the pace of declines in the unemployment

rate were faster over the second half of this year than in

the July forecast, primarily reflecting recent better-thanexpected data. In addition, the inflation forecast for the

rest of the year was revised up slightly, as some recent

consumer goods prices were stronger than expected.

Nevertheless, inflation was still projected to be subdued

this year, reflecting substantial slack in resource utilization and the sizable declines in consumer energy prices

earlier this year. Fiscal policy measures, along with the

support from monetary policy and the Federal Reserve’s

liquidity and lending facilities, were expected to continue

supporting the second-half recovery, although the recovery was forecast to be far from complete by year-end.

The staff’s forecast assumed the enactment of some additional fiscal policy support this year; without that additional policy action, the pace of the economic recovery

would likely be slower.

In the staff’s medium-term projection, the baseline assumptions included that the current restrictions on social interactions and business operations, along with voluntary social distancing by individuals and firms, would

ease gradually through next year. In addition, the staff

projection assumed that monetary policy would be even

more accommodative than in the previous forecast in

order to more fully reflect the revised consensus statement. Altogether, the rate of real GDP growth was projected to exceed potential output growth, the unemployment rate was expected to decline considerably further,

and inflation was forecast to pick back up in 2021

through 2023. With the more-accommodative monetary

policy assumed in the current forecast, which reflected

the recent consensus statement, inflation was projected

to moderately overshoot 2 percent for some time in the

years beyond 2023.

The staff continued to observe that the uncertainty related to the course of the COVID-19 pandemic and its

associated economic effects was extremely elevated and

that the risks to the outlook were still tilted to the downside. Given the apparent resilience of the U.S. economy

to the acceleration in the spread of the pandemic during

the summer, the staff judged that a significantly more

pessimistic economic outcome, which the staff had previously viewed as no less plausible than the baseline forecast and had featured a renewed downturn in economic

activity, was now less likely than the baseline forecast.

Participants’ Views on Current Conditions and the

Economic Outlook

In conjunction with this FOMC meeting, participants

submitted their projections of the most likely outcomes

for real GDP growth, the unemployment rate, and inflation for each year from 2020 through 2023 and over the

longer run, based on their individual assessments of appropriate monetary policy—including the 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 in the SEP, which is an addendum to these

minutes.

Participants noted that the COVID-19 pandemic was

causing tremendous human and economic hardship

across the United States and around the world. Economic activity and employment had picked up in recent

months but remained well below their levels at the beginning of the year. Weaker demand and significantly

Minutes of the Meeting of September 15–16, 2020

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lower oil prices were holding down consumer price inflation. Overall financial conditions had improved in recent months, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. Participants agreed that the path

of the economy would depend on the course of the virus

and that the ongoing public health crisis would continue

to weigh on economic activity, employment, and inflation in the near term and posed considerable risks to the

economy’s medium-term outlook.

Participants observed that the incoming data indicated

that economic activity was recovering faster than expected from its depressed second-quarter level, when

much of the economy was shut down to stem the spread

of the virus. In particular, with the reopening of many

businesses and fewer people withdrawing from social interactions, consumer spending was rebounding sharply

and appeared to have recovered about three-fourths of

its earlier decline. Prior fiscal policy actions were seen

as having supported the ability and willingness of households to spend, although most participants expressed

concern about the expiration of the enhanced unemployment insurance benefits from the CARES Act

(Coronavirus Aid, Relief, and Economic Security Act)

and judged that additional fiscal relief would help sustain

the recovery in household spending. Indeed, many participants noted that their economic outlook assumed additional fiscal support and that if future fiscal support

was significantly smaller or arrived significantly later

than they expected, the pace of the recovery could be

slower than anticipated. Participants also viewed accommodative monetary policy as contributing to gains in residential investment as well as consumer purchases of

motor vehicles and other durable goods. While participants pointed to strength in consumers’ purchases of

goods, especially those sold online, they noted that outlays for services had been slower to recover, particularly

for items such as air travel, hotel accommodations, and

restaurant meals, which had been significantly disrupted

by social-distancing measures. Participants generally expected spending on these services to remain subdued for

some time and thus to be a restraining factor on the pace

of the recovery. A few participants raised the possibility

that the unwinding of the large pool of household savings accumulated during the pandemic could provide

greater-than-anticipated momentum to consumption

going forward. However, a couple of other participants

judged that if this savings reflected reduced spending on

in-person services by high-income consumers, it was unlikely to provide much momentum to future consumption.

Participants noted that business investment, which had

plummeted in the second quarter, appeared to have begun to turn around. They pointed to data showing gains

in capital goods orders and shipments as well as improved business sentiment. A number of participants

judged that low interest rates were supporting business

investment. However, the recovery was viewed as unevenly distributed across industries. While many business

contacts reported progress on adapting to the pandemic,

others noted that industries that relied more on personto-person interactions continued to struggle. Business

contacts with ties to the motor vehicle or housing industries indicated increased activity, while those closer to

the aviation, hospitality, and nonresidential construction

industries were not seeing much of a recovery. Contacts

continued to report ongoing stresses in the energy sector, as well as challenges in the agricultural sector even

though some crop prices had risen recently as sales to

China increased.

Although business contacts indicated that overall business activity had been stronger than they expected, it remained well below pre-pandemic levels. Business contacts pointed to several factors that could restrain further

recovery, including high levels of uncertainty that were

reportedly still holding back hiring and capital spending.

Some contacts reported difficulties in managing disruptions in supply chains as well as elevated levels of employee absenteeism because of the pandemic. Additionally, District contacts indicated that fiscal policy had

helped support small businesses, while federal aid payments had helped support farm incomes.

Participants observed that labor market conditions continued to improve in recent months and that the economy through August had regained roughly half of the

22 million jobs that were lost in March and April. The

gains in employment over July and August were generally seen as larger than anticipated. Participants judged,

however, that the labor market was a long way from being fully recovered. They generally agreed that prospects

for a further substantial improvement in the labor market would depend on a broad and sustained reopening

of businesses, which in turn would depend importantly

on how safe individuals felt to reengage in a wide range

of activities. Some participants noted that the majority

of gains in employment so far reflected workers on temporary layoffs returning to work. These participants

judged it as less likely for future job gains to continue at

their recent pace, because a greater share of the remaining layoffs might become permanent. Workers facing

permanent layoffs were seen as more likely to need to

find new jobs in different industries, and this process

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could take time, especially to the extent that these workers needed to be retrained.

Participants observed that lower-paid workers had been

disproportionally affected by the economic effects of the

pandemic. Many of these workers were employed in the

service sector or other industries most adversely affected

by social-distancing measures. With a disproportionate

share of service-sector jobs held by African Americans,

Hispanics, and women, these groups were seen as being

especially hard hit by the economic hardships caused by

the pandemic. Participants viewed fiscal support from

the CARES Act as having been very important in bolstering the financial situations of millions of families, and

a number of participants judged that the absence of further fiscal support would exacerbate economic hardships in minority and lower-income communities. In addition, several participants observed that the effects of

the pandemic were disrupting the supply of labor because of the need to care for children, many of whom

were attending school virtually from home.

In their comments about inflation, participants noted

that consumer prices had increased more quickly than

expected in recent months and that market-based

measures of inflation compensation had increased moderately over the intermeeting period, although they remained low. The upturn in consumer prices was primarily attributed to price increases in sectors such as consumer durables in which demand had risen after experiencing a large decline earlier this spring. Nevertheless,

inflation remained subdued, and participants still generally judged that the overall effect of the pandemic on

prices was disinflationary. While the outlook for inflation was viewed as highly uncertain, a number of participants projected that inflation would run below the

Committee’s 2 percent longer-run objective for a significant period before moving moderately above 2 percent

for some time—consistent with the Committee’s revised

consensus statement.

Participants noted that financial conditions were generally accommodative and that actions by the Federal Reserve, including the establishment of emergency lending

facilities in conjunction with the Treasury, were supporting the flow of credit to households, businesses, and

communities. While these actions as well as prompt and

forceful monetary policy measures in response to the

pandemic were viewed as contributing to accommodative financial conditions, participants noted important

differences in credit quality and credit availability across

borrowers. While the pace of corporate downgrades was

seen as having decreased significantly in recent months,

the delinquency rates on business loans had risen noticeably. Bank contacts reported ample capacity to lend to

creditworthy borrowers; however, surveys of credit

availability indicated that bank lending was tight. Furthermore, several participants noted the stress that

small- and medium-sized banks could face from defaults

on loans to small businesses and CRE properties if people continued to withdraw from travel and shopping activities. Additionally, a couple of participants indicated

that highly accommodative financial market conditions

could lead to excessive risk-taking and to a buildup of

financial imbalances.

Participants continued to see the uncertainty surrounding the economic outlook as very elevated, with the path

of the economy highly dependent on the course of the

virus; on how individuals, businesses, and public officials

responded to it; and on the effectiveness of public health

measures to address it. Participants cited several downside risks that could threaten the recovery. While the

risk of another broad economic shutdown was seen as

having receded, participants remained concerned about

the possibility of additional virus outbreaks that could

undermine the recovery. Such scenarios could result in

increases in bankruptcies and defaults, put stress on the

financial system, and lead to disruptions in the flow of

credit to households and businesses. Most participants

raised the concern that fiscal support so far for households, businesses, and state and local governments might

not provide sufficient relief to these sectors. A couple

of participants saw an upside risk that further fiscal stimulus could be larger than anticipated, though it might

come later than had been expected. Several participants

raised concerns regarding the longer-run effects of the

pandemic, including how it could lead to a restructuring

in some sectors of the economy that could slow employment growth or could accelerate technological disruption that was likely limiting the pricing power of firms.

In their consideration of monetary policy at this meeting,

participants reaffirmed that they were committed to using the Federal Reserve’s full range of tools in order to

support the U.S. economy during this challenging time,

thereby promoting the Committee’s statutory goals of

maximum employment and price stability. They also

noted that the path of the economy would depend significantly on the course of the virus and that the ongoing

public health crisis would continue to weigh on economic activity, employment, and inflation in the near

term and posed considerable risks to the economic outlook over the medium term.

Minutes of the Meeting of September 15–16, 2020

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All participants agreed that the completion of the framework review and the publication of the revised consensus statement provided a strong foundation for monetary policy decisions and communications going forward. Accordingly, participants agreed that it would be

appropriate to incorporate some key elements of the revised consensus statement into the FOMC statement to

be released following this meeting. In particular, participants reiterated their commitment to achieve maximum

employment and an inflation rate of 2 percent over the

longer run. With inflation running persistently below its

longer-run goal, participants judged that it would be appropriate to aim to achieve inflation moderately above

2 percent for some time so that inflation would average

2 percent over time and longer-term inflation expectations would remain well anchored at 2 percent.

Against this backdrop, participants discussed a range of

issues associated with providing greater clarity about the

likely path of the federal funds rate in the years ahead.

Most participants supported providing more explicit

outcome-based forward guidance for the federal funds

rate that included establishing criteria for lifting the federal funds rate above the ELB in terms of the paths for

employment or inflation or both. Among the participants who favored providing more explicit forward

guidance at this meeting, all but a couple supported a

formulation in which the forward guidance included language indicating that it would likely be appropriate to

maintain the current target range until labor market conditions were judged to be consistent with the Committee’s assessments of maximum employment and inflation had risen to 2 percent and was on track to moderately exceed 2 percent for some time. These participants

noted that communicating that the target range for the

federal funds rate would remain at the ELB until these

criteria were achieved would provide appropriately clear

and strong policy guidance. Doing so at this meeting

was viewed as an especially important way of affirming

the Committee’s commitment to achieving the economic outcomes articulated in the consensus statement.

Participants generally noted that outcome-based forward guidance for the federal funds rate of this type was

not an unconditional commitment to a particular path.

Indeed, outcome-based guidance of this type would allow the public to infer changes in the Committee’s assessment of how long the target range for the federal

funds rate would remain at its current setting. Information pointing to a weaker outlook for the economy

and inflation would tend to lead to public expectations

for a longer period at the current setting of the target

range while information suggesting a stronger outlook

for the economy and inflation would tend to lead to expectations for a shorter period at the current setting. In

addition, circumstances could arise in which the Committee judged that it would be appropriate to change its

guidance, particularly if risks emerged that could impede

the attainment of its economic objectives.

A couple of participants preferred even stronger, and

less qualified, outcome-based forward guidance that they

judged would more clearly convey the Committee’s

commitment to its objectives and to the strategic approach that was articulated in the revised consensus

statement. In particular, these participants preferred forward guidance in which the target range for the federal

funds rate remained at the ELB until inflation had

moved above 2 percent for some time. Especially in

light of the lengthy period in which inflation has run below the Committee’s longer-run 2 percent objective,

these participants judged that it was critical to demonstrate the Committee’s commitment to achieve outcomes in which inflation averages 2 percent over time.

Several participants noted that while they agreed it was

appropriate to incorporate key elements of the consensus statement into the postmeeting statement, they preferred to retain forward guidance similar to that provided in recent FOMC statements. These participants

judged that it would likely be appropriate to maintain an

accommodative stance of policy for some time in order

to foster outcomes consistent with the Committee’s revised consensus statement. However, with longer-term

interest rates already very low, there did not appear to be

a need for enhanced forward guidance at this juncture or

much scope for forward guidance to put additional

downward pressure on yields. Moreover, these participants were concerned that forward guidance that involved the target range for the federal funds rate remaining at the ELB until employment and inflation criteria

were achieved could limit the Committee’s flexibility for

years. Furthermore, by influencing expectations for the

path of short-term interest rates, such guidance could

contribute to a buildup of financial imbalances that

would make it more difficult for the Committee to

achieve its objectives in the future.

Regarding asset purchases, participants judged that it

would be appropriate over coming months for the Federal Reserve to increase its holdings of Treasury securities and agency MBS at least at the current pace. These

actions would continue to help sustain smooth market

functioning and would continue to help foster accommodative financial conditions, thereby supporting the

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flow of credit to households and businesses. Some participants also noted that in future meetings it would be

appropriate to further assess and communicate how the

Committee’s asset purchase program could best support

the achievement of the Committee’s maximumemployment and price-stability goals.

Participants widely echoed the remarks at the opening of

the meeting in memory of Thomas Laubach. Participants universally recognized his great leadership and intellectual contributions to the work of the Committee as

well as his warm and generous spirit.

Committee Policy Action

In their discussion of monetary policy for this meeting,

members agreed that the COVID-19 pandemic was

causing tremendous human and economic hardship

across the United States and around the world. They

noted that economic activity and employment had

picked up in recent months but remained well below

their levels at the beginning of the year, and that weaker

demand and significantly lower oil prices were holding

down consumer price inflation. Overall, financial conditions had improved in recent months, in part reflecting

policy measures to support the economy and the flow of

credit to U.S. households and businesses. Members

agreed that the Federal Reserve was committed to using

its full range of tools to support the U.S. economy in this

challenging time, thereby promoting its maximum-employment and price-stability goals. Members also stated

that the path of the economy would depend significantly

on the course of the virus. In addition, members agreed

that the ongoing public health crisis would continue to

weigh on economic activity, employment, and inflation

in the near term and was posing considerable risks to the

economic outlook over the medium term.

All members agreed to incorporate into the postmeeting

statement key elements of the Committee’s revised

Statement on Longer-Run Goals and Monetary Policy

Strategy. Members judged that this action would underscore the Committee’s strong commitment to the goals

and strategy articulated in the new consensus statement

in pursuit of the Committee’s statutory objectives. Accordingly, members agreed that the FOMC statement

should note that the Committee seeks to achieve maximum employment and inflation at the rate of 2 percent

over the longer run and that, with inflation running persistently below this longer-run goal, the Committee will

aim to achieve inflation moderately above 2 percent for

some time so that inflation averages 2 percent over time

and longer-term inflation expectations remain well anchored at 2 percent. Members generally expected that it

would be appropriate to maintain an accommodative

stance of monetary policy until these outcomes were

achieved.

All members agreed to maintain the target range for the

federal funds rate at 0 to ¼ percent. Almost all members

viewed this meeting as the appropriate time to modify

forward guidance to provide greater clarity regarding the

likely future path of the federal funds rate. To this end,

almost all members agreed on a specification for outcome-based forward guidance that indicated that the

Committee expects that it will be appropriate to maintain the current setting of the target range for the federal

funds rate until labor market conditions had reached levels consistent with the Committee’s assessments of maximum employment and inflation had risen to 2 percent

and was on track to run moderately in excess of 2 percent for some time. Two members dissented from the

policy decision. One of these dissenting members preferred that the Committee retain greater policy rate flexibility by retaining the language in the forward guidance

provided in the July postmeeting statement; that language noted that it would be appropriate to maintain the

current target range until the Committee was confident

that the economy had weathered recent events and was

on track to achieve its maximum employment and price

stability goals. The other dissenting member preferred a

stronger formulation for the forward guidance—one in

which the Committee would indicate that it expected to

maintain the current target range until core inflation had

reached 2 percent on a sustained basis.

In their discussion of monetary policy for the period

ahead, members generally agreed that the Committee’s

policy guidance expressed its assessment about the path

for the federal funds rate most likely to be consistent

with achievement of the Committee’s goals, but that it

was not an unconditional commitment. They stated that

the appropriate rate path would depend on the evolution

of the economic outlook. Accordingly, they agreed that

the Committee would be prepared to adjust the stance

of policy as appropriate in the event that risks emerged

that could impede the attainment of the Committee’s

goals. Members also agreed that, in assessing the appropriate stance of monetary policy, they would take into

account a wide range of information, including readings

on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Members noted that the Committee’s asset purchases

had helped foster significant improvements in market

functioning over recent months. In addition, purchases

Minutes of the Meeting of September 15–16, 2020

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of securities were contributing to accommodative financial conditions in a way that supported economic recovery. Consistent with these observations, members

agreed that it would be appropriate to acknowledge in

the postmeeting statement the role of asset purchases in

supporting accommodative financial conditions. The

Committee’s statement thus indicated that over coming

months it would be appropriate for the Federal Reserve

to increase its holdings of Treasury securities and agency

MBS at least at the current pace to sustain smooth market functioning and to help foster accommodative financial conditions, thereby supporting the flow of credit to

households and businesses.

Members considered the staff proposal to eliminate the

requirement in the directive to increase the holdings of

agency CMBS in the SOMA portfolio. In light of the

substantial improvement in market functioning in the

agency CMBS market, the Committee judged that it

would be appropriate for the Desk to purchase agency

CMBS only as needed to sustain smooth market functioning, rather than seek to steadily increase agency

CMBS holdings, and to cease reinvestments of agency

CMBS principal payments. Members also concluded

that, in light of ongoing low take-up at Desk repo operations, it was not necessary to include a sentence on

these operations in the FOMC statement. However, the

directive adopted by the Committee continued to direct

the Desk to conduct overnight and term repo operations

to support effective policy implementation and smooth

functioning of short-term U.S. dollar funding markets.

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 September 17, 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 0 to ¼ percent.

Increase the System Open Market Account holdings of Treasury securities and

agency mortgage-backed securities (MBS)

at the current pace. Increase holdings of

Treasury securities and agency MBS by additional amounts and purchase agency

commercial mortgage-backed securities

(CMBS) as needed to sustain smooth functioning of markets for these securities.

•

•

•

•

•

Conduct term and overnight repurchase

agreement operations to support effective

policy implementation and the smooth

functioning of short-term U.S. dollar

funding markets.

Conduct overnight reverse repurchase

agreement operations at an offering rate of

0.00 percent and with a per-counterparty

limit of $30 billion per day; the per-counterparty limit can be temporarily increased

at the discretion of the Chair.

Roll over at auction all principal payments

from the Federal Reserve’s holdings of

Treasury securities and reinvest all principal payments from the Federal Reserve’s

holdings of agency debt and agency MBS

in agency MBS.

Allow modest deviations from stated

amounts for purchases and reinvestments,

if needed for operational reasons.

Engage in dollar roll and coupon swap

transactions as necessary to facilitate settlement of the Federal Reserve’s agency

MBS transactions.”

The vote also encompassed approval of the statement

below for release at 2:00 p.m.:

“The Federal Reserve is committed to using its

full range of tools to support the U.S. economy

in this challenging time, thereby promoting its

maximum employment and price stability goals.

The COVID-19 pandemic is causing tremendous human and economic hardship across the

United States and around the world. Economic

activity and employment have picked up in recent months but remain well below their levels

at the beginning of the year. Weaker demand

and significantly lower oil prices are holding

down consumer price inflation. Overall financial conditions have improved in recent months,

in part reflecting policy measures to support the

economy and the flow of credit to U.S. households and businesses.

The path of the economy will depend significantly on the course of the virus. The ongoing

public health crisis will continue to weigh on

economic activity, employment, and inflation in

the near term, and poses considerable risks to

the economic outlook over the medium term.

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The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent

over the longer run. With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately

above 2 percent for some time so that inflation

averages 2 percent over time and longer-term

inflation expectations remain well anchored at

2 percent. The Committee expects to maintain

an accommodative stance of monetary policy

until these outcomes are achieved. The Committee decided to keep the target range for the

federal funds rate at 0 to ¼ percent and expects

it will be appropriate to maintain this target

range until labor market conditions have

reached levels consistent with the Committee’s

assessments of maximum employment and inflation has risen to 2 percent and is on track to

moderately exceed 2 percent for some time. In

addition, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency mortgage-backed securities at

least at the current pace to sustain smooth market functioning and help foster accommodative

financial conditions, thereby supporting the

flow of credit to households and businesses.

In assessing the appropriate stance of monetary

policy, the Committee will continue to monitor

the implications of incoming information for

the economic outlook. The Committee would

be prepared to adjust the stance of monetary

policy as appropriate if risks emerge that could

impede the attainment of the Committee’s

goals. The Committee’s assessments will take

into account a wide range of information, including readings on public health, labor market

conditions, inflation pressures and inflation expectations, and financial and international developments.”

Voting for this action: Jerome H. Powell, John C.

Williams, Michelle W. Bowman, Lael Brainard, Richard

H. Clarida, Patrick Harker, Loretta J. Mester, and Randal

K. Quarles.

Voting against this action: Robert S. Kaplan and Neel

Kashkari.

President Kaplan dissented because he expects that it

will be appropriate to maintain the current target range

until the Committee is confident that the economy has

weathered recent events and is on track to achieve its

maximum employment and price stability goals as articulated in its new policy strategy statement, but prefers

that the Committee retain greater policy rate flexibility

beyond that point. President Kashkari dissented because he prefers that the Committee indicate that it expects to maintain the current target range until core inflation has reached 2 percent on a sustained basis.

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 at

0.10 percent. The Board of Governors also voted unanimously to approve establishment of the primary credit

rate at the existing level of 0.25 percent, effective September 17, 2020.

It was agreed that the next meeting of the Committee

would be held on Wednesday–Thursday, November 4–

5, 2020. The meeting adjourned at 11:00 a.m. on September 16, 2020.

Notation Votes

By notation vote completed on August 18, 2020, the

Committee unanimously approved the minutes of the

Committee meeting held on July 28–29, 2020.

By notation vote completed on August 27, 2020, the

Committee unanimously approved updates to its Statement on Longer-Run Goals and Monetary Policy Strategy. In conjunction with the notation vote, all nonvoting participants also expressed support for the updated statement.

_______________________

James A. Clouse

Secretary

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Summary of Economic Projections

In conjunction with the Federal Open Market Committee (FOMC) meeting held on September 15–16, 2020,

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 2020 to 2023 and over the longer run.

Each participant’s projections were based on information available at the time of the meeting, together with

her or his 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.

The current projections for real activity, the labor market, and inflation were notably stronger than the projections in the June 2020 Summary of Economic Projections (SEP) for the overlapping years from 2020 to 2022.

Participants revised up their economic outlook in light

of the stronger-than-expected rebound in economic activity over recent months, although they noted that they

remained attentive to the effects of the COVID-19 pandemic and the measures taken to contain it. Table 1 and

figure 1 provide summary statistics for the projections.

Almost all participants projected that real GDP will contract in 2020, with the median participant seeing a milder

contraction relative to the median projection in the June

SEP. Additionally, almost all participants projected that

real GDP would grow faster than their estimates of its

longer-run normal growth rate from 2021 to 2023. All

participants projected that the unemployment rate in the

final quarter of 2020 would be notably lower than they

had projected in June and that the unemployment rate

would decline gradually during the forecast period. Most

participants expected that a full economic recovery

would take some time, and many projected that the unemployment rate in the final quarter of 2023 would be

1 One participant did not submit longer-run projections for

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

rate.

slightly below its estimated longer-run level. A vast majority of participants projected that total inflation, as

measured by the four-quarter percent change in the price

index for personal consumption expenditures (PCE),

would be at or below the FOMC’s 2 percent longer-run

inflation objective throughout the forecast period. Projections for core PCE price inflation, which excludes

consumer food and energy prices, generally followed a

similar trajectory.

As shown in figure 2, most participants indicated that

their expectations regarding the evolution of the economy, relative to the Committee’s maximumemployment and price-stability objectives, would likely

warrant keeping the federal funds rate at its current level

through at least the end of 2023. The median of participants’ assessments of the longer-run level for the federal

funds rate was unchanged from its value in the June

SEP.

Amid uncertainty about the course of the pandemic and

its effects on the economy, all participants continued to

regard the uncertainties surrounding the economic outlook as higher than the average over the past 20 years.

In addition, a substantial majority of participants assessed the risks to their outlook for real GDP growth as

weighted to the downside and the risks to their unemployment rate projections as weighted to the upside.

The risks to inflation projections were judged as

weighted to the downside by a substantial majority of

participants.

The Outlook for Real GDP Growth and the Unemployment Rate

As shown in figure 3.A, almost all participants continued

to project that real GDP would decline in 2020, with the

median projection anticipating a decrease of 3.7 percent.

Nevertheless, these projections were substantially

stronger than those from the June SEP, when the median participant expected real GDP to contract 6.5 percent. These revisions, in part, reflect the stronger-thanexpected incoming data since June. Almost all participants expected that the rate of real GDP growth from

2021 to 2023 would be above their estimates of its

longer-run pace, with the median projections being

4.0 percent, 3.0 percent, and 2.5 percent in these years,

respectively. The distribution of estimates of real GDP

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

under their individual assumptions of projected appropriate monetary policy, September 2020

Percent

Central Tendency2

Median1

Variable

2020

2021 2022 2023 Longer

run

Change in real GDP

June projection

-3.7

-6.5

4.0

5.0

3.0

3.5

2.5

Unemployment rate

June projection

7.6

9.3

5.5

6.5

4.6

5.5

PCE inflation

June projection

1.2

0.8

1.7

1.6

Core PCE inflation4

June projection

1.5

1.0

0.1

0.1

Range3

2020

2021

2022

2023

Longer

run

2020

2021

2022

2023

Longer

run

1.9

1.8

-4.0– -3.0

-7.6– -5.5

3.6–4.7

4.5–6.0

2.5–3.3

3.0–4.5

2.4–3.0

1.7–2.0

1.7–2.0

-5.5–1.0

-10.0– -4.2

0.0–5.5

-1.0–7.0

2.0–4.5

2.0–6.0

2.0–4.0

1.6–2.2

1.6–2.2

4.0

4.1

4.1

7.0–8.0

9.0–10.0

5.0–6.2

5.9–7.5

4.0–5.0

4.8–6.1

3.5–4.4

3.9–4.3

4.0–4.3

6.5–8.0

7.0–14.0

4.0–8.0

4.5–12.0

3.5–7.5

4.0–8.0

3.5–6.0

3.5–4.7

3.5–4.7

1.8

1.7

2.0

2.0

2.0

1.1–1.3

0.6–1.0

1.6–1.9

1.4–1.7

1.7–1.9

1.6–1.8

1.9–2.0

2.0

2.0

1.0–1.5

0.5–1.2

1.3–2.4

1.1–2.0

1.5–2.2

1.4–2.2

1.7–2.1

2.0

2.0

1.7

1.5

1.8

1.7

2.0

1.3–1.5

0.9–1.1

1.6–1.8

1.4–1.7

1.7–1.9

1.6–1.8

1.9–2.0

1.2–1.6

0.7–1.3

1.5–2.4

1.2–2.0

1.6–2.2

1.2–2.2

1.7–2.1

0.1

0.1

0.1

0.1

0.1

0.1

0.1

0.1

0.1

0.1

0.1

0.1–0.4

0.1

0.1

0.1

0.1

0.1–0.6

0.1–1.1

0.1–1.4

Memo: Projected

appropriate policy path

Federal funds rate

June projection

2.5

2.5

2.3–2.5

2.3–2.5

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 June projections were made in conjunction with the meeting of the Federal Open Market Committee on June 9–10, 2020. 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 June 9–10, 2020, meeting, and one

participant did not submit such projections in conjunction with the September 15–16, 2020, 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.

2.0–3.0

2.0–3.0

Summary of Economic Projections of the Meeting of September 15–16, 2020

Page 3

_____________________________________________________________________________________________

Figure 1. Medians, central tendencies, and ranges of economic projections, 2020–23 and over the longer run

Percent

Change in real GDP

6

5

4

3

2

1

0

−1

−2

−3

−4

−5

−6

Actual

Median of projections

Central tendency of projections

Range of projections

2015

2016

2017

2018

2019

2020

2021

2022

2023

Longer

run

Percent

Unemployment rate

8

7

6

5

4

3

2

2015

2016

2017

2018

2019

2020

2021

2022

2023

Longer

run

Percent

PCE inflation

3

2

1

2015

2016

2017

2018

2019

2020

2021

2022

2023

Longer

run

Percent

Core PCE inflation

3

2

1

2015

2016

2017

2018

2019

2020

2021

2022

2023

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

_____________________________________________________________________________________________

Figure 2. FOMC participants’ assessments of appropriate monetary policy: Midpoint of target range

or target level for the federal funds rate

Percent

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

2020

2021

2022

2023

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 September 15–16, 2020

Page 5

___________________________________________________________________________________________________________________________________________________________________________

_____________________________________________________________________________________________

Figure 3.A. Distribution of participants’ projections for the change in real GDP, 2020–23 and over the longer run

Number of participants

2020

−10.2−

−10.1

18

16

14

12

10

8

6

4

2

September projections

June projections

−9.6−

−9.5

−9.0−

−8.9

−8.4−

−8.3

−7.8−

−7.7

−7.2−

−7.1

−6.6−

−6.5

−6.0−

−5.9

−5.4−

−5.3

−4.8−

−4.7

−4.2−

−4.1

−3.6−

−3.5

−3.0−

−2.9

−2.4−

−2.3

−1.8−

−1.7

−1.2−

−1.1

−0.6−

−0.5

0.0−

0.1

0.6−

0.7

1.2−

1.3

1.8−

1.9

2.4−

2.5

3.0−

3.1

3.6−

3.7

4.2−

4.3

4.8−

4.9

5.4−

5.5

6.0−

6.1

6.6−

6.7

Percent range

Number of participants

18

16

14

12

10

8

6

4

2

2021

−10.2−

−10.1

−9.6−

−9.5

−9.0−

−8.9

−8.4−

−8.3

−7.8−

−7.7

−7.2−

−7.1

−6.6−

−6.5

−6.0−

−5.9

−5.4−

−5.3

−4.8−

−4.7

−4.2−

−4.1

−3.6−

−3.5

−3.0−

−2.9

−2.4−

−2.3

−1.8−

−1.7

−1.2−

−1.1

−0.6−

−0.5

0.0−

0.1

0.6−

0.7

1.2−

1.3

1.8−

1.9

2.4−

2.5

3.0−

3.1

3.6−

3.7

4.2−

4.3

4.8−

4.9

5.4−

5.5

6.0−

6.1

6.6−

6.7

Percent range

Number of participants

18

16

14

12

10

8

6

4

2

2022

−10.2−

−10.1

−9.6−

−9.5

−9.0−

−8.9

−8.4−

−8.3

−7.8−

−7.7

−7.2−

−7.1

−6.6−

−6.5

−6.0−

−5.9

−5.4−

−5.3

−4.8−

−4.7

−4.2−

−4.1

−3.6−

−3.5

−3.0−

−2.9

−2.4−

−2.3

−1.8−

−1.7

−1.2−

−1.1

−0.6−

−0.5

0.0−

0.1

0.6−

0.7

1.2−

1.3

1.8−

1.9

2.4−

2.5

3.0−

3.1

3.6−

3.7

4.2−

4.3

4.8−

4.9

5.4−

5.5

6.0−

6.1

6.6−

6.7

Percent range

Number of participants

18

16

14

12

10

8

6

4

2

2023

−10.2−

−10.1

−9.6−

−9.5

−9.0−

−8.9

−8.4−

−8.3

−7.8−

−7.7

−7.2−

−7.1

−6.6−

−6.5

−6.0−

−5.9

−5.4−

−5.3

−4.8−

−4.7

−4.2−

−4.1

−3.6−

−3.5

−3.0−

−2.9

−2.4−

−2.3

−1.8−

−1.7

−1.2−

−1.1

−0.6−

−0.5

0.0−

0.1

0.6−

0.7

1.2−

1.3

1.8−

1.9

2.4−

2.5

3.0−

3.1

3.6−

3.7

4.2−

4.3

4.8−

4.9

5.4−

5.5

6.0−

6.1

6.6−

6.7

Percent range

Number of participants

18

16

14

12

10

8

6

4

2

Longer run

−10.2−

−10.1

−9.6−

−9.5

−9.0−

−8.9

−8.4−

−8.3

−7.8−

−7.7

−7.2−

−7.1

−6.6−

−6.5

−6.0−

−5.9

−5.4−

−5.3

−4.8−

−4.7

−4.2−

−4.1

−3.6−

−3.5

−3.0−

−2.9

−2.4−

−2.3

−1.8−

−1.7

−1.2−

−1.1

Percent range

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

−0.6−

−0.5

0.0−

0.1

0.6−

0.7

1.2−

1.3

1.8−

1.9

2.4−

2.5

3.0−

3.1

3.6−

3.7

4.2−

4.3

4.8−

4.9

5.4−

5.5

6.0−

6.1

6.6−

6.7

Page 6

Federal Open Market Committee

_____________________________________________________________________________________________

growth in the longer run was little changed from the

June SEP, although the median projection ticked up to

1.9 percent.

Reflecting better-than-expected incoming data since

June, participants revised down their projections for the

unemployment rate considerably through 2022, the forecast period in the June SEP (figure 3.B). The projections

for the unemployment rate in the final quarter of this

year ranged from 6.5 to 8.0 percent, with a median of

7.6 percent, and the ranges for projections from 2020 to

2022 all narrowed considerably since June. The median

projected levels of the unemployment rate in the final

quarters of 2021 and 2022—at 5.5 percent and 4.6 percent, respectively—were above the median estimate of

the longer-run normal rate of unemployment of 4.1 percent. However, the median projection of the unemployment rate in the final quarter of 2023, at 4.0 percent, was

slightly below the median estimate of its longer-run

value.

The distribution of estimates for the longer-run unemployment rate was unchanged from the June SEP. Many

participants indicated that they were still assessing

whether the sharp contraction in economic activity during the first half of this year was likely to leave a lasting

imprint on the labor market or the productive capacity

of the economy.

The Outlook for Inflation

As shown in figures 3.C and 3.D, almost all participants

revised up their projections for inflation in 2020 relative

to their June projections, with the median projections

for total and core inflation at 1.2 percent and 1.5 percent,

respectively. Most participants expected inflation to rise

over the next three years, although about half of them

expected PCE price inflation to still fall short of the

Committee’s longer-run 2 percent inflation objective by

the end of the forecast horizon. A few participants projected inflation to move above 2 percent before returning to 2 percent by 2023. A few participants expected

inflation to move above its longer-run level in 2023, and

several participants mentioned that they would expect

inflation to rise above 2 percent in the years after.

As a reference, table 2 provides estimates of the forecast uncertainty for the change in real GDP, the unemployment rate,

and total consumer price inflation over the period from 2000

through 2019. At the end of this summary, the box “Forecast

Uncertainty” discusses the sources and interpretation of uncertainty in the economic forecasts and explains the approach

used to assess the uncertainty and risks attending participants’

projections.

2

Appropriate Monetary Policy

As shown in figure 3.E, most participants projected that

it would be appropriate to maintain the target range for

the federal funds rate at 0 to ¼ percent through at least

the end of 2023. Most participants noted that their assessment of appropriate monetary policy took into account the new Statement on Longer-Run Goals and

Monetary Policy Strategy. In particular, because inflation has been running persistently below 2 percent, participants mentioned that they linked their assessment of

the appropriate path of the federal funds rate to their

assessment of shortfalls of employment from the Committee’s maximum-employment objective and to a moderate rise in inflation above 2 percent to help anchor inflation expectations at the Committee’s 2 percent longerrun goal. The median of participants’ estimates of the

longer-run level of the federal funds rate was unchanged

from June at 2.50 percent.

Uncertainty and Risks

In assessing the appropriate path for monetary policy,

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 shown in the panels on the left side of figure 4, almost

all participants continued to view the current uncertainty

surrounding each of the four economic variables—real

GDP growth, the unemployment rate, total PCE inflation, and core PCE inflation—as being greater than the

average over the past 20 years. 2

A substantial majority of participants judged the risks to

their projections for real GDP growth as weighted to the

downside and the risks to their unemployment rate projections as weighted to the upside (figure 4). A substantial majority of participants viewed the risks to their inflation projections as weighted to the downside.

In discussing the uncertainty and risks surrounding their

economic projections, the course of the pandemic continued to be mentioned as a key source of uncertainty.

The possibility of another wave of contagion and delays

in developing a vaccine were seen as potential downside

risks to the economic outlook. As for upside risks, participants mentioned the possibility of faster-thanPrevious SEP addendums to the FOMC minutes contained

figures showing the median projections along with confidence

intervals based on historical forecast errors. As the level of

uncertainty about the economic outlook is currently judged to

be higher than its historical average because of uncertainty

about the course of the coronavirus and its effects on the

economy, these “fan charts” have been omitted from this addendum.

Summary of Economic Projections of the Meeting of September 15–16, 2020

Page 7

___________________________________________________________________________________________________________________________________________________________________________

_____________________________________________________________________________________________

Figure 3.B. Distribution of participants’ projections for the unemployment rate, 2020–23 and over the longer run

Number of participants

2020

3.0−

3.1

18

16

14

12

10

8

6

4

2

September projections

June projections

3.6−

3.7

4.2−

4.3

4.8−

4.9

5.4−

5.5

6.0−

6.1

6.6−

6.7

7.2−

7.3

7.8−

7.9

8.4−

8.5

9.0−

9.1

9.6−

9.7

10.2−

10.3

10.8−

10.9

11.4−

11.5

12.0−

12.1

12.6−

12.7

13.2−

13.3

13.8−

13.9

Percent range

Number of participants

18

16

14

12

10

8

6

4

2

2021

3.0−

3.1

3.6−

3.7

4.2−

4.3

4.8−

4.9

5.4−

5.5

6.0−

6.1

6.6−

6.7

7.2−

7.3

7.8−

7.9

8.4−

8.5

9.0−

9.1

9.6−

9.7

10.2−

10.3

10.8−

10.9

11.4−

11.5

12.0−

12.1

12.6−

12.7

13.2−

13.3

13.8−

13.9

Percent range

Number of participants

18

16

14

12

10

8

6

4

2

2022

3.0−

3.1

3.6−

3.7

4.2−

4.3

4.8−

4.9

5.4−

5.5

6.0−

6.1

6.6−

6.7

7.2−

7.3

7.8−

7.9

8.4−

8.5

9.0−

9.1

9.6−

9.7

10.2−

10.3

10.8−

10.9

11.4−

11.5

12.0−

12.1

12.6−

12.7

13.2−

13.3

13.8−

13.9

Percent range

Number of participants

18

16

14

12

10

8

6

4

2

2023

3.0−

3.1

3.6−

3.7

4.2−

4.3

4.8−

4.9

5.4−

5.5

6.0−

6.1

6.6−

6.7

7.2−

7.3

7.8−

7.9

8.4−

8.5

9.0−

9.1

9.6−

9.7

10.2−

10.3

10.8−

10.9

11.4−

11.5

12.0−

12.1

12.6−

12.7

13.2−

13.3

13.8−

13.9

Percent range

Number of participants

18

16

14

12

10

8

6

4

2

Longer run

3.0−

3.1

3.6−

3.7

4.2−

4.3

4.8−

4.9

5.4−

5.5

6.0−

6.1

6.6−

6.7

7.2−

7.3

7.8−

7.9

8.4−

8.5

9.0−

9.1

Percent range

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

9.6−

9.7

10.2−

10.3

10.8−

10.9

11.4−

11.5

12.0−

12.1

12.6−

12.7

13.2−

13.3

13.8−

13.9

Page 8

Federal Open Market Committee

_____________________________________________________________________________________________

Figure 3.C. Distribution of participants’ projections for PCE inflation, 2020–23 and over the longer run

Number of participants

2020

September projections

June projections

0.3−

0.4

0.5−

0.6

0.7−

0.8

0.9−

1.0

1.1−

1.2

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

2021

18

16

14

12

10

8

6

4

2

0.3−

0.4

0.5−

0.6

0.7−

0.8

0.9−

1.0

1.1−

1.2

1.3−

1.4

1.5−

1.6

1.7−

1.8

1.9−

2.0

2.1−

2.2

2.3−

2.4

Percent range

Number of participants

2022

18

16

14

12

10

8

6

4

2

0.3−

0.4

0.5−

0.6

0.7−

0.8

0.9−

1.0

1.1−

1.2

1.3−

1.4

1.5−

1.6

1.7−

1.8

1.9−

2.0

2.1−

2.2

2.3−

2.4

Percent range

Number of participants

2023

18

16

14

12

10

8

6

4

2

0.3−

0.4

0.5−

0.6

0.7−

0.8

0.9−

1.0

1.1−

1.2

1.3−

1.4

1.5−

1.6

1.7−

1.8

1.9−

2.0

2.1−

2.2

2.3−

2.4

Percent range

Number of participants

Longer run

18

16

14

12

10

8

6

4

2

0.3−

0.4

0.5−

0.6

0.7−

0.8

0.9−

1.0

1.1−

1.2

1.3−

1.4

1.5−

1.6

1.7−

1.8

1.9−

2.0

Percent range

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

2.1−

2.2

2.3−

2.4

Summary of Economic Projections of the Meeting of September 15–16, 2020

Page 9

_____________________________________________________________________________________________

Figure 3.D. Distribution of participants’ projections for core PCE inflation, 2020–23

Number of participants

2020

18

16

14

12

10

8

6

4

2

September projections

June projections

0.5−

0.6

0.7−

0.8

0.9−

1.0

1.1−

1.2

1.3−

1.4

1.5−

1.6

1.7−

1.8

1.9−

2.0

2.1−

2.2

2.3−

2.4

Percent range

Number of participants

2021

18

16

14

12

10

8

6

4

2

0.5−

0.6

0.7−

0.8

0.9−

1.0

1.1−

1.2

1.3−

1.4

1.5−

1.6

1.7−

1.8

1.9−

2.0

2.1−

2.2

2.3−

2.4

Percent range

Number of participants

2022

18

16

14

12

10

8

6

4

2

0.5−

0.6

0.7−

0.8

0.9−

1.0

1.1−

1.2

1.3−

1.4

1.5−

1.6

1.7−

1.8

1.9−

2.0

2.1−

2.2

2.3−

2.4

Percent range

Number of participants

2023

18

16

14

12

10

8

6

4

2

0.5−

0.6

0.7−

0.8

0.9−

1.0

1.1−

1.2

1.3−

1.4

1.5−

1.6

1.7−

1.8

1.9−

2.0

Percent range

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

2.1−

2.2

2.3−

2.4

Page 10

Federal Open Market Committee

_____________________________________________________________________________________________

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, 2020–23 and over the longer run

Number of participants

2020

September projections

June projections

0.13−

0.37

0.38−

0.62

0.63−

0.87

0.88−

1.12

1.13−

1.37

1.38−

1.62

1.63−

1.87

1.88−

2.12

2.13−

2.37

2.38−

2.62

2.63−

2.87

18

16

14

12

10

8

6

4

2

2.88−

3.12

Percent range

Number of participants

2021

18

16

14

12

10

8

6

4

2

0.13−

0.37

0.38−

0.62

0.63−

0.87

0.88−

1.12

1.13−

1.37

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

Number of participants

2022

18

16

14

12

10

8

6

4

2

0.13−

0.37

0.38−

0.62

0.63−

0.87

0.88−

1.12

1.13−

1.37

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

Number of participants

2023

18

16

14

12

10

8

6

4

2

0.13−

0.37

0.38−

0.62

0.63−

0.87

0.88−

1.12

1.13−

1.37

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

Number of participants

Longer run

18

16

14

12

10

8

6

4

2

0.13−

0.37

0.38−

0.62

0.63−

0.87

0.88−

1.12

1.13−

1.37

1.38−

1.62

1.63−

1.87

1.88−

2.12

2.13−

2.37

Percent range

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

2.38−

2.62

2.63−

2.87

2.88−

3.12

Summary of Economic Projections of the Meeting of September 15–16, 2020

Page 11

_____________________________________________________________________________________________

Figure 4. Uncertainty and risks in economic projections

Number of participants

Number of participants

Uncertainty about GDP growth

Risks to GDP growth

September projections

June projections

Lower

18

16

14

12

10

8

6

4

2

Broadly

similar

Higher

September projections

June projections

Weighted to

downside

Broadly

balanced

Number of participants

18

16

14

12

10

8

6

4

2

Weighted to

upside

Number of participants

Uncertainty about the unemployment rate

Risks to the unemployment rate

18

16

14

12

10

8

6

4

2

Lower

Broadly

similar

Higher

18

16

14

12

10

8

6

4

2

Weighted to

downside

Broadly

balanced

Number of participants

Weighted to

upside

Number of participants

Uncertainty about PCE inflation

Risks to PCE inflation

18

16

14

12

10

8

6

4

2

Lower

Broadly

similar

Higher

18

16

14

12

10

8

6

4

2

Weighted to

downside

Broadly

balanced

Number of participants

Weighted to

upside

Number of participants

Uncertainty about core PCE inflation

Risks to core PCE inflation

18

16

14

12

10

8

6

4

2

Lower

Broadly

similar

Higher

18

16

14

12

10

8

6

4

2

Weighted to

downside

Broadly

balanced

Weighted to

upside

Page 12

Federal Open Market Committee

_____________________________________________________________________________________________

Table 2. Average historical projection error ranges

Percentage points

2020

2021

2022

2023

Change in real GDP1 . . . . . . ±1.1

Variable

±1.7

±1.8

±1.9

±0.3

±1.1

±1.6

±1.9

±0.8

±1.0

±1.1

±1.0

. . . ±0.5

±1.7

±2.3

±2.7

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 2000 through 2019 that

were released in the fall 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.

anticipated progress in dealing with the disease and better-targeted measures in responding to the virus. Participants also pointed to a number of other risks, including

the extent and timing of additional fiscal support, the

magnitude of supply-side disruptions associated with

postponements of in-class school openings and small

business closings, the likelihood of elevated levels of

business bankruptcies, and credit quality problems that

could potentially curtail lending. Several participants

also expressed concerns about global geopolitical developments and related tensions as well as prolonged recessionary dynamics such as labor market scarring or inflation persistently undershooting the Committee’s longerrun goal.

Participants’ assessments of the appropriate future path

of the federal funds rate are also subject to considerable

uncertainty. Because the Committee adjusts monetary

policy 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. As with the macroeconomic variables, the

forecast uncertainty surrounding the appropriate path of

the federal funds rate is substantial.

Summary of Economic Projections of the Meeting of September 15–16, 2020

Page 13

_____________________________________________________________________________________________

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. The projection error ranges shown in

the table illustrate the considerable uncertainty associated with economic forecasts. For example,

suppose a participant projects that real gross domestic product (GDP) and total consumer prices

will rise steadily at annual rates of, respectively,

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

in the past and the risks around the projections are

broadly balanced, the numbers reported in table 2

would imply a probability of about 70 percent that

actual GDP would expand within a range of 1.9 to

4.1 percent in the current year, 1.3 to 4.7 percent in

the second year, 1.2 to 4.8 percent in the third year,

and 1.1 to 4.9 percent in the fourth year. The corresponding 70 percent confidence intervals for

overall inflation would be 1.2 to 2.8 percent in the

current year, 1.0 to 3.0 percent in the second year,

0.9 to 3.1 percent in the third year, and 1.0 to

3.0 percent in the fourth year.

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.

That is, participants judge whether each economic variable is more likely to be above or below

their projections of the most likely outcome. These

judgments about the uncertainty and the risks attending each participant’s projections are distinct from the

diversity of participants’ views about the most likely

outcomes. Forecast uncertainty is concerned with the

risks associated with a particular projection rather

than with divergences across a number of different

projections. 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 shortterm 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 end-ofyear 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.