FOMC Minutes
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Minutes of the Federal Open Market Committee
December 15–16, 2020
A joint meeting of the Federal Open Market Committee
and the Board of Governors was held by
videoconference on Tuesday, December 15, 2020, at
1:00 p.m. and continued on Wednesday, December 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 Helen E. Mucciolo, 2
Alternate Members of the Federal Open Market
Committee
James Bullard, Esther L. George, and Eric Rosengren,
Presidents of the Federal Reserve Banks of St.
Louis, Kansas City, and Boston, respectively
James A. Clouse, Secretary
Matthew M. Luecke, Deputy Secretary
Michelle A. Smith, Assistant Secretary
Mark E. Van Der Weide, General Counsel
Michael Held, Deputy General Counsel
Trevor A. Reeve, Economist
Stacey Tevlin, Economist
Beth Anne Wilson, Economist
Shaghil Ahmed, Michael Dotsey, Rochelle M. Edge,
Marc Giannoni, William Wascher, and Mark L.J.
Wright, Associate Economists
Lorie K. Logan, Manager, System Open Market
Account
1 The Federal Open Market Committee is referenced as the
“FOMC” and the “Committee” in these minutes.
2 Elected as an Alternate by the Federal Reserve Bank of New
York, effective November 11, 2020.
Ann E. Misback, 3 Secretary, Office of the Secretary,
Board of Governors
Matthew J. Eichner, 4 Director, Division of Reserve
Bank Operations and Payment Systems, Board of
Governors; Michael S. Gibson, Director, Division
of Supervision and Regulation, Board of
Governors; Andreas Lehnert, Director, Division of
Financial Stability, Board of Governors
Margie Shanks, Deputy Secretary, Office of the
Secretary, Board of Governors
Sally Davies and Brian M. Doyle, Deputy Directors,
Division of International Finance, 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, Burcu Duygan-Bump, Kurt F. Lewis, Ellen
E. Meade, and Chiara Scotti, 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
Eric M. Engen and John J. Stevens, Senior Associate
Directors, Division of Research and Statistics,
Board of Governors
Jane E. Ihrig, Don H. Kim, and Edward Nelson, Senior
Advisers, Division of Monetary Affairs, Board of
Governors; Brett Berger,4 Senior Adviser, Division
of International Finance, Board of Governors
Attended Tuesday’s session only.
Attended through the discussion of developments in financial markets and open market operations.
3
4
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Elizabeth K. Kiser, Associate Director, Division of
Research and Statistics, Board of Governors
Eric C. Engstrom, Deputy Associate Director, Division
of Monetary Affairs, Board of Governors; Norman
J. Morin, Karen M. Pence, and John M. Roberts,
Deputy Associate Directors, Division of Research
and Statistics, Board of Governors; Jeffrey D.
Walker,4 Deputy Associate Director, Division of
Reserve Bank Operations and Payment Systems,
Board of Governors
Brian J. Bonis and Dan Li, Assistant Directors,
Division of Monetary Affairs, Board of Governors
Penelope A. Beattie,3 Section Chief, Office of the
Secretary, Board of Governors; Lubomir Petrasek,
Section Chief, Division of Monetary Affairs, Board
of Governors
David H. Small, Project Manager, Division of
Monetary Affairs, Board of Governors
Heather A. Wiggins,4 Group Manager, Division of
Monetary Affairs, Board of Governors
Michele Cavallo and Erin E. Ferris, Principal
Economists, Division of Monetary Affairs, Board
of Governors
Kyungmin Kim4 and Arsenios Skaperdas,4 Senior
Economists, Division of Monetary Affairs, Board
of Governors
Courtney Demartini,4 Lead Financial Institution and
Policy Analyst, Division of Monetary Affairs,
Board of Governors
Randall A. Williams, Lead Information Manager,
Division of Monetary Affairs, Board of Governors
Becky C. Bareford, First Vice President, Federal
Reserve Bank of Richmond
Kartik B. Athreya, Joseph W. Gruber, Sylvain Leduc,
Anna Paulson, Daleep Singh, and Christopher J.
Waller, Executive Vice Presidents, Federal Reserve
Banks of Richmond, Kansas City, San Francisco,
Chicago, New York, and St. Louis, respectively
Todd E. Clark, Senior Vice President, Federal Reserve
Bank of Cleveland
Jonathan P. McCarthy, Matthew Nemeth,4 Giovanni
Olivei, Rania Perry,4 Matthew D. Raskin,4 Jonathan
L. Willis, and Patricia Zobel, Vice Presidents,
Federal Reserve Banks of New York, New York,
Boston, New York, New York, Atlanta, and New
York, respectively
Robert Lerman,4 Assistant Vice President, Federal
Reserve Bank of New York
Lisa Stowe,4 Markets Officer, Federal Reserve Bank of
New York
Developments in Financial Markets and Open
Market Operations
The manager of the System Open Market Account
(SOMA) turned first to a discussion of financial market
developments. Market sentiment improved over the period, as reduced uncertainty related to the U.S. election
and positive vaccine news outweighed the anticipated effect of the ongoing surge in the pandemic. U.S. equity
price indexes reached all-time highs, with the largest
gains registered in sectors that have underperformed
during the pandemic. Corporate credit spreads tightened, most notably among lower-rated firms and in sectors most affected by social distancing measures resulting from the pandemic. Longer-term Treasury yields
rose modestly, driven by increases in inflation compensation. The positive vaccine news also supported risk
sentiment abroad, leading many global equity price indexes to advance and the U.S. dollar to depreciate further.
Market participants had highlighted that uncertainty
nevertheless remained high and had pointed to several
prominent risks to the economic outlook. These risks
included the possibility that the vaccine rollout might
not proceed as smoothly as anticipated, the potential for
adverse developments in negotiations concerning the
United Kingdom’s withdrawal from the European Union, and the potential for deterioration in already
strained sectors, such as those involving small businesses
and certain segments of commercial real estate (CRE).
With regard to market expectations concerning the policy outlook, responses to the Open Market Desk surveys
of dealers and market participants suggested that views
on the most likely timing of the next increase in the target range for the federal funds rate coalesced further
around the first half of 2024. Survey responses continued to indicate median expectations of headline personal
consumption expenditures (PCE) inflation above 2 percent and an unemployment rate of around 4 percent at
Minutes of the Meeting of December 15–16, 2020
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the time of the first increase in the target range for the
federal funds rate. A majority of Desk survey respondents indicated that they expected the Committee to revise its guidance on asset purchases at the current meeting, with many noting that they anticipated the announcement of some form of qualitative, outcomebased guidance tied to inflation, the unemployment rate,
or both. Median Desk survey responses continued to
suggest expectations that purchases would begin to slow
in the first half of 2022 and cease altogether in 2023.
paid for dollar funding crossing year-end generally were
below those observed in recent years. Money market futures also indicated expectations of short-term rates
moving down modestly in coming months, in light of
anticipated further increases in aggregate reserve balances and a moderation in Treasury bill supply. The
manager anticipated that administered rates and the
overnight reverse repo program would be effective tools
for maintaining control of overnight money market
rates.
The size of the Federal Reserve’s balance sheet increased
to around $7.3 trillion over the intermeeting period,
driven by growth in securities holdings. The Desk conducted purchases to increase holdings of Treasury securities and agency mortgage-backed securities (MBS) at
the minimum pace directed by the FOMC, as markets
for these securities continued to function smoothly.
News that CARES Act (Coronavirus Aid, Relief, and
Economic Security Act) funding would not be available
to support new activity in section 13(3) facilities after the
end of the year had only a modest effect on financial
markets. New activity remained limited across most
Federal Reserve funding operations and section 13(3) facilities, although the Municipal Liquidity Facility and the
Main Street Lending Program saw growing usage over
the period, with more take-up expected before their
scheduled year-end termination.
By unanimous vote, the Committee voted to approve a
resolution that extended through September 30, 2021,
the expiration of a temporary repo facility for foreign
and international monetary authorities (FIMA Repo Facility). 5
The manager discussed a proposal to extend the temporary U.S. dollar liquidity swap arrangements as well as
the temporary FIMA (Foreign and International Monetary Authorities) Repo Facility through September 2021.
The path to a complete economic recovery remained uncertain across the globe, particularly for many emerging
market countries, underscoring the need for backstops
that could address potential market stresses and prevent
spillovers from reemerging. Keeping these arrangements in place would contribute to sustaining improvements in global dollar funding markets and to the continued smooth functioning of the U.S. Treasury securities market. Under the proposal, provided that the Committee had no objections, the Chair would approve the
extension of the temporary liquidity swap lines following
the meeting. The extensions of the swap and FIMA repurchase agreement (repo) arrangements would be announced following this meeting.
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 December 15–16 meeting
suggested that U.S. real gross domestic product (GDP)
was continuing to recover in the fourth quarter, but at a
more moderate pace than its rapid third-quarter rate, and
that the level of real GDP remained well below its level
at the start of 2020. Labor market conditions improved
further over October and November, although employment continued to be well below its level at the beginning of the year. Consumer price inflation through October—as measured by the 12-month percentage change
in the PCE price index—remained notably below the
rates seen in early 2020.
Market participants generally anticipated calm money
market conditions through year-end, and the premiums
The approved FIMA Desk Resolution, which updates the
July 2020 resolution with a new expiration date, is available
along with other Committee organizational documents at
5
Secretary’s note: The Chair subsequently provided approval to the Desk, following the procedures in the Authorization for Foreign Currency Operations, to extend the expiration of
the temporary U.S. dollar liquidity swap lines
through September 30, 2021.
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.
Total nonfarm payroll employment continued to increase solidly over October and November, though the
rate of monthly job gains was more moderate than the
substantial third-quarter pace. Through November,
https://www.federalreserve.gov/monetarypolicy/rules_authorizations.htm.
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payroll employment had regained somewhat more than
half of the losses seen at the onset of the pandemic. The
unemployment rate moved down further and stood at
6.7 percent in November. The unemployment rates for
African Americans and Hispanics each declined but remained well above the national average. Both the labor
force participation rate and the employment-topopulation ratio in November were above their levels of
two months earlier. The four-week moving average of
initial claims for unemployment insurance was only
slightly lower in early December than it had been in late
October. Weekly estimates of private-sector payrolls
constructed by Federal Reserve Board staff using data
provided by the payroll processor ADP suggested that
the four-week average of private employment gains in
early December was lower than it was in mid-November.
Both the 12-month change in average hourly earnings
for all employees through November and the fourquarter change in total labor compensation per hour in
the business sector through the third quarter continued
to be dominated by changes in the composition of the
workforce. The substantial employment losses over the
past year were most significant among lower-wage workers—a situation that had led to outsized increases in
these average measures of earnings and compensation
that were not indicative of tight labor market conditions.
Total PCE price inflation was 1.2 percent over the
12 months ending in October, and it continued to be
held down by relatively weak aggregate demand and the
declines in consumer energy prices seen earlier in 2020.
Core PCE price inflation, which excludes changes in
consumer energy prices and many consumer food
prices, was 1.4 percent over the same period, while the
trimmed mean measure of 12-month PCE price inflation constructed by the Federal Reserve Bank of Dallas
was 1.7 percent in October. In November, the
12-month change in the consumer price index (CPI) was
1.2 percent, while core CPI inflation was 1.6 percent
over the same period. The latest readings on surveybased measures of longer-run inflation expectations
edged up, though each remained within the range in
which it has fluctuated in recent years; in November and
early December, the University of Michigan Surveys of
Consumers measure for the next 5 to 10 years was
slightly above its level in October, while the 3-year-ahead
measure produced by the Federal Reserve Bank of New
York rose a bit in November.
Real PCE rose strongly in October, though at a more
moderate pace than in the third quarter. Real disposable
personal income declined in October, reflecting a large
reduction in government transfer payments, even
though wage and salary income continued to climb. As
a result, the personal saving rate moved lower, though it
continued to be notably above its 2019 average. In November, the components of the nominal retail sales data
used to estimate PCE, along with the rate of light motor
vehicle sales, stepped down, possibly reflecting the effects on consumer spending of renewed socialdistancing measures and concerns about the resurgent
pandemic. Consumer sentiment, as measured by both
the Michigan survey and the Conference Board, moved
somewhat lower, on net, since October, although both
indexes were still above their April troughs.
Housing-sector activity advanced further, on balance, in
October, supported in part by low interest rates. Starts
and construction permits for single-family homes continued to rise, while starts of multi-family units moved
sideways. Sales of existing homes increased solidly,
though new home sales were roughly flat.
Business fixed investment appeared to be expanding further, on net, in the fourth quarter following an outsized
third-quarter increase. Nominal shipments of nondefense capital goods excluding aircraft rose strongly in
October, and new orders for these capital goods continued to advance. By contrast, nominal spending on nonresidential structures outside of the drilling and mining
sector declined further in October. The number of
crude oil and natural gas rigs in operation—an indicator
of business spending on structures in the drilling and
mining sector—continued to move up somewhat
through early December, although the number of rigs in
operation was still subdued, reflecting the effect of low
oil prices on drilling investment.
Industrial production rose strongly over October and
November, led by gains in manufacturing output, but
production was still below its February pre-pandemic
level. The pickup in the production of motor vehicles
and related parts was particularly strong in November.
Output in the mining sector—which includes crude oil
and natural gas drilling and extraction—increased, on
net, over October and November.
Total real government purchases appeared to be declining moderately, on balance, in the fourth quarter. Federal defense spending continued to rise in October and
November, although federal employment declined with
the layoff of temporary census workers. State and local
government payrolls decreased in October and November, and nominal state and local construction expenditures in October were somewhat below their third-quarter level.
Minutes of the Meeting of December 15–16, 2020
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The nominal U.S. international trade deficit widened in
October. Both imports and exports continued to rebound from their collapse in the first half of the year.
Goods imports in October rose above their January level
after several months of strong growth. Goods exports,
however, had only recovered three-fourths of their decline since January despite brisk growth in agricultural
exports. Services trade remained depressed, driven by
the continued suspension of most international travel.
After a strong rebound in the third quarter, foreign economic growth appeared to slow sharply in recent
months. The resurgence of coronavirus infections in
Europe and Canada prompted governments to reintroduce social-distancing restrictions, leading to a fall in
measures of mobility and services activity. Even so, with
restrictions less severe and more targeted than in the
spring, the hit to economic activity looked to be more
limited. Economic growth appeared to hold up better
in several emerging Asian economies. In these economies, effective virus control was supporting domestic
demand, while strong external demand boosted exports.
Inflationary pressures remained subdued in most foreign
economies amid substantial economic slack.
Staff Review of the Financial Situation
Financial market sentiment improved over the intermeeting period, boosted by news of forthcoming
COVID-19 vaccines and reduced uncertainty following
the U.S. election that outweighed concerns regarding the
continued rise in COVID-19 cases and the potential effects of ensuing restrictions. Corporate bond spreads
narrowed, and major global equity price indexes rose on
net. The prospect of additional fiscal stimulus likely
contributed to a steeper U.S. Treasury yield curve, increased inflation compensation, and broad dollar depreciation. Financing conditions for businesses able to access capital markets and households possessing high
credit scores remained accommodative and eased a bit
further in some sectors, but conditions for borrowers
dependent on bank financing remained tight.
Yields on 2-year nominal Treasury securities were little
changed since the November FOMC meeting, while
10- and 30-year yields rose moderately. Market participants attributed the increases in longer-term yields primarily to greater optimism about the economic outlook,
due to the forthcoming availability of effective vaccines
and renewed fiscal stimulus negotiations. Near-dated
option-implied volatility on the 10-year Treasury futures
contract declined to historic lows. The rise in longerterm Treasury yields was concentrated in inflation com-
pensation. The 5-year and 5-to-10-year measures of inflation compensation based on Treasury Inflation Protected Securities rose above their pre-pandemic levels.
The expected path of the federal funds rate, based on a
straight read of overnight index swap rates, remained
close to the effective lower bound through mid-2023.
Survey-based measures indicated that market expectations regarding the federal funds rate target range did not
show a tightening until 2024.
Broad stock price indexes increased over the intermeeting period, led by steep stock price gains in cyclical sectors and buoyed by the prospect of successful vaccines
and lower post-election uncertainty. One-month S&P
500 option-implied volatility—the VIX—declined, reversing a pre-election increase. Consistent with the optimism driving stock prices, spreads of corporate bond
yields over comparable-maturity Treasury yields narrowed markedly across the credit spectrum, most notably for debt securities of the lowest credit quality firms.
Conditions in short-term funding markets remained stable over the intermeeting period. Spreads on commercial paper (CP) and negotiable certificates of deposit
across different tenors were little changed, on net, and
remained around pre-pandemic levels despite continued
outflows from prime money market funds (MMFs) and
the coming year-end. CP issuance was robust over the
intermeeting period across the different tenors. With the
yields of prime MMFs approaching those of government
MMFs, assets under management (AUM) of prime
MMFs declined moderately, while AUM of government
MMFs were little changed. Net yields of prime and government MMFs both remained near historically low levels.
The intermeeting averages of the effective federal funds
rate and the Secured Overnight Financing Rate remained
unchanged from the previous intermeeting period averages, at 9 basis points and 8 basis points, respectively.
Term and forward repo market quotes indicated muted
year-end funding pressure amid ample liquidity conditions. The Federal Reserve maintained its pace of purchases of Treasury securities and agency MBS, and Federal Reserve repos outstanding remained at zero over the
intermeeting period.
Investor sentiment abroad improved over the intermeeting period, as favorable news on COVID-19 vaccines
and the resolution of uncertainty regarding the U.S. election apparently outweighed concerns about another
surge in COVID-19 cases and the resulting adoption of
tighter social-distancing restrictions in many countries.
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On balance, prices of global risky assets increased notably, implied volatility dropped sharply, and the dollar depreciated against most currencies. Most advanced foreign economy sovereign yields were little changed, on
net, as policymakers in several countries announced additional actions aimed at maintaining accommodative financial conditions.
Financing conditions in capital markets continued to be
broadly accommodative, supported by low interest rates
and high equity valuations. With historically low corporate bond yields, gross issuance of both investment- and
speculative-grade bonds remained solid in October.
Much of the recent issuance was intended to refinance
existing debt. Gross institutional leveraged loan issuance increased substantially in October for both new
loans and refinancing. Seasoned equity offerings in October and November were similar to the typical volumes
observed in previous years, though equity raised through
initial public offerings moderated somewhat from the
robust rate of issuance in September. Commercial and
industrial (C&I) loans outstanding on banks’ balance
sheets contracted in October and November, reflecting
the continued paydown of loan balances and the start of
Paycheck Protection Program loan forgiveness activity.
The credit quality of nonfinancial corporations continued to show signs of stabilization. Although the volume
of nonfinancial corporate bond downgrades outpaced
upgrades somewhat in October and November, nonfinancial corporate bond defaults continued to decline.
The rate of leveraged loan defaults was largely unchanged in October, albeit at somewhat elevated levels.
Market indicators of future default expectations for corporate bonds fell slightly but remained above their prepandemic levels. In the municipal bond market, financing conditions remained accommodative. Issuance of
state and local government debt moderated in November after all-time high issuance in October, and marketbased measures of state credit quality were little changed
on net.
Financing conditions for small businesses remained
tight, although some indicators suggested that they
might have improved a bit. Data provided by the Federal Reserve Small Business Lending Survey showed that
standards for small businesses tightened, on net, over
the third quarter, consistent with the most recent Senior
Loan Officer Opinion Survey on Bank Lending Practices. Small business loan originations ticked up in October to a level near that seen in the same period last
year. Short-term delinquencies and defaults remained
relatively elevated but significantly lower than the levels
observed following the financial crisis. In light of the
uncertain outlook, small business owners’ assessments
of the risk of permanent closures remained elevated in
most sectors, according to the Census Small Business
Pulse Survey.
In the CRE market, financing conditions remained accommodative, on net, over the intermeeting period.
Agency commercial mortgage-backed security (CMBS)
spreads remained narrow amid strong issuance in October, while non-agency CMBS spreads ticked down.
Triple-B-rated non-agency CMBS spreads came down
substantially from their highs in the spring, although
they remained elevated relative to pre-pandemic levels.
Non-agency issuance picked up in October, nearing prepandemic levels. CRE bank loan growth in October and
November remained weak, consistent with tightened
bank lending standards.
In the residential mortgage market, financing conditions
remained highly accommodative for borrowers accessing government-backed loans. Mortgage rates remained
near historic lows, supporting robust loan originations.
Credit continued to flow to higher-score borrowers who
met standard conforming loan criteria while remaining
tight for lower-score borrowers and for nonstandard
mortgage products. The credit quality of mortgages was
little changed, as the fraction of mortgages in forbearance held fairly steady, and the rate of transition into
mortgage delinquency remained at pre-pandemic levels.
Financing conditions in consumer credit markets remained generally accommodative for borrowers with
relatively strong credit. Credit card balances and average
credit limits on existing accounts contracted, on net, for
all types of borrowers. However, auto loan balances
continued to increase for higher-quality borrowers, and
loan rates remained well below pre-pandemic levels.
Conditions in the asset-backed securities market remained stable over the intermeeting period.
Staff Economic Outlook
In the U.S. economic projection prepared by the staff
for the December FOMC meeting, real GDP growth
was revised up and the unemployment rate revised down
for the fourth quarter relative to the November meeting
forecast. These revisions reflected incoming data that
were, on balance, better than expected, although the recent resurgence of the pandemic and increased socialdistancing restrictions in many states and localities were
expected to weigh on economic activity in the coming
months. As a result, the staff expected that real GDP
growth would temporarily weaken in the first quarter of
2021, and the slowing seen in some of the most recent
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high-frequency indicators of spending and employment
appeared consistent with that forecast. The inflation
forecast for the rest of 2020 was revised down slightly in
response to incoming data, and inflation was projected
to finish the year at a relatively subdued level, reflecting
substantial margins of labor- and product-market slack
in the economy and the large declines in consumer energy prices seen earlier in 2020.
Primarily in response to the recent favorable news on
the development of COVID-19 vaccines, the staff revised up its projection of real GDP growth for 2021 as
a whole, as social-distancing measures were expected to
ease more quickly than previously assumed. With monetary policy assumed to remain highly accommodative,
the staff continued to project that real GDP growth over
the medium term would be well above the rate of potential output growth, leading to a considerable further decline in the unemployment rate. The resulting take-up
of labor- and product-market slack was expected to lead
to gradually increasing inflation, and, for some time in
the years beyond 2023, inflation was projected to overshoot 2 percent by a moderate amount, as monetary policy remained accommodative.
The staff observed that the uncertainty related to the future course of the pandemic, the measures to control it,
and the associated economic effects remained elevated.
In addition, the staff continued to judge the risks to the
economic outlook as being tilted to the downside. The
recent sharp resurgence in the pandemic suggested that
the near-term risks had risen, while the recent favorable
developments regarding vaccines pointed to some reduction in the downside risks over the medium term.
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 of 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. A Summary of Economic Projections (SEP) was released to the public following the conclusion of the meeting.
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 continued to recover but remained well below their levels at the beginning of the year. Weaker demand and earlier declines in
oil prices had been holding down consumer price inflation. Overall financial conditions remained accommodative, 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 economic outlook over the medium term.
Participants observed that the economy continued to
show resilience in the face of the pandemic, though it
was still far from having attained conditions consistent
with the Committee’s dual mandate. They noted that
the economic recovery thus far had been stronger than
anticipated—suggesting greater momentum in economic activity than had been previously thought—but
viewed the more recent indicators as signaling that the
pace of recovery had slowed. With the pandemic worsening across the country, the expansion was expected to
slow even further in coming months. Nevertheless, the
positive vaccine news received over the intermeeting period was viewed as favorable for the medium-term economic outlook.
Participants noted that household spending on goods,
especially durables, had been strong. Participants commented that the rebound in consumer spending was due,
in part, to fiscal programs such as federal stimulus payments and expanded unemployment benefits. These
measures had provided essential support to many households. The support to incomes provided by fiscal programs, combined with reduced spending by households
on some services, had contributed to a historically large
increase in aggregate household savings. Participants
also observed that residential investment and home sales
remained robust. Accommodative monetary policy was
viewed as having provided support to interest rate sensitive expenditure categories, including residential investment and consumer durables spending. Participants
regarded the positive news on vaccine development as
further strengthening the medium-term outlook for
household spending. However, participants saw increased challenges for the economy in the coming
months, as the ongoing surge of COVID-19 cases and
the related mandatory and voluntary measures prompted
greater social distancing and damped spending, especially on services requiring in-person contact. Several
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participants pointed out that readings on high-frequency
economic indicators, such as individual mobility indexes
and online restaurant reservation data, might already be
registering the effects of the recent rise in virus cases.
Various participants noted that low-income households
were particularly hard hit by the effects of the resurgent
virus, and that—with the looming expiration of the expanded unemployment benefits, eviction moratoria, and
loan forbearance programs—their situations could deteriorate significantly if additional relief and support did
not materialize.
With respect to the business sector, participants observed that business equipment investment had picked
up further, with strong readings registered on new orders and shipments. A couple of participants remarked
that the very low levels of inventories would likely be a
factor supporting increases in production as demand
continued to recover. Participants noted that the economic recovery had been uneven across firms and industries. Though many business contacts, particularly
those in the durable goods or housing sectors, reported
progress in adapting to the pandemic and improved
business practices, others—especially those closely
linked to the leisure, travel, and hospitality industries—
were still struggling, and their problems were intensifying because of the resurgence of the virus. Furthermore,
while larger firms were generally seen as recovering reasonably well, conditions remained worrisome for small
businesses. A number of participants noted that many
small businesses were in especially vulnerable positions
and that further fiscal policy support would help such
businesses weather the ongoing surge in the pandemic,
especially over the coming months. Looking further
ahead, participants observed that continuing positive developments on the vaccine front could further support
business investment by helping reduce stresses in
pandemic-sensitive industries and by boosting confidence.
Participants remarked that labor market conditions generally had continued to improve, but they were still a
long way from those consistent with the Committee’s
maximum employment goal. Although the pace of employment gains had moderated in recent months, the
overall recovery in employment thus far had been faster
than anticipated, with a little more than half of the
22 million jobs lost over March and April having been
regained. The unemployment rate had declined further,
although several participants underlined the fact that the
labor force participation rate remained below its prepandemic level—likely reflecting, in part, health concerns and additional childcare responsibilities associated
with online schooling. Participants assessed that the ongoing surge in COVID-19 infections would be particularly challenging for the labor market in coming months,
but they indicated that they expected employment to
continue to recover over the medium term. Participants
stressed that the burdens of the economic downturn had
fallen unequally on different groups; in particular, high
rates of job losses had been especially prevalent among
lower-wage workers and among African Americans and
Hispanics. Some participants expressed the concern
that the longer the pandemic continued, the more lasting
damage to the labor market there could be. They noted
that the number of unemployed workers who had been
permanently laid off had increased notably in recent
months and that those workers historically often required a longer time to find a new job than those temporarily laid off. In light of these considerations, several
participants assessed that improvements in the labor
market were lagging that of economic activity, and they
indicated that they had not revised their projections of
labor market variables to the same extent as their revision of the outlook for economic activity.
In their comments about inflation, participants noted
that increases in consumer prices had been soft of late,
as prices of products in those categories most affected
by social distancing—such as hotel accommodations
and air travel—continued to be depressed and increases
in rents remained low. These patterns were expected to
continue in the near term as pandemic concerns intensified over the winter. However, participants generally
saw these downward pressures on inflation starting to
abate next year, with widespread distribution of vaccines
reducing social-distancing concerns and spurring economic activity. A couple of participants suggested that,
as a result of ongoing technology-enabled disruption to
business models and practices or lasting pandemicinduced restraint on firms’ pricing power, downward
pressure on inflation could persist. Several participants
noted a pickup in market-based measures of inflation
compensation. Participants expected that, with continued monetary policy support, inflation would rise over
time. In their SEP submissions, seven participants—
five more than in the September SEP—expected overall
inflation to be above the Committee’s 2 percent longerrun objective in 2023.
Participants noted that overall financial conditions were
accommodative, in part reflecting policy measures to
support the economy and the flow of credit to households and businesses. However, participants underlined
important differences in credit availability across borrowers. Financing conditions eased further for large
Minutes of the Meeting of December 15–16, 2020
Page 9
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corporations that were able to access capital markets, as
equity prices rose and corporate credit spreads continued to narrow, but smaller firms and some households
reliant on bank lending continued to face tight lending
standards. Participants noted that the financing conditions for small businesses were especially strained, with
a few participants pointing out that a sizable fraction of
small businesses had permanently closed or were in the
process of transitioning to closure. A couple of participants observed that aggregate banking data had not indicated a significant increase in loan delinquencies for
C&I loans thus far, though this development could be
partly due to the CARES Act provisions that provided
relief to many troubled borrowers or to the fact that
many small businesses had gone out of business without
declaring bankruptcy or defaulting on loans. Some participants noted the important role played by the various
section 13(3) facilities implemented in 2020 in serving as
temporary backstops to key credit markets and in helping to restore and maintain the flow of credit to households, businesses, and communities. These participants
also mentioned the announcement that CARES Act
funding to support new activity in many of these facilities would not be available after December 31, and a
number noted that they saw downside risks associated
with this development.
Participants continued to see the uncertainty surrounding the economic outlook as elevated, with the path of
the economy highly dependent on the course of the virus. The positive vaccine news was seen as reducing
downside risks over the medium term, and a number of
participants saw risks to economic activity as more balanced than earlier. Still, participants saw significant uncertainties regarding how quickly the deployment of vaccines would proceed as well as how different members
of the public would respond to the availability of vaccines. Participants cited several downside risks that
could threaten the economic recovery. These risks included the possibility of significant additional fiscal policy support not materializing in a timely manner, the potential for further adverse pandemic developments—
which could lead to more-stringent restrictions, moresevere business failures, and more permanent job
losses—and the chance that trade negotiations between
the United Kingdom and the European Union would
not be concluded successfully before the December 31
deadline. As upside risks, participants mentioned the
prospect that the release of pent-up demand, spurred by
wider-scale vaccinations and easing of social distancing,
could boost spending and bring individuals back to the
labor force more quickly than currently expected as well
as the possibility that fiscal policy developments could
see measures that were larger than expected in amount
or economic impact. Regarding inflation, participants
generally viewed the risks as having become more balanced than they were earlier in the year, though most still
viewed the risks as being weighted to the downside. As
an upside risk to inflation, a few participants noted the
potential for a stronger-than-expected recovery, coupled
with the possible emergence of pandemic-related supply
constraints, to boost inflation.
In their consideration of monetary policy at this meeting,
participants reaffirmed the Federal Reserve’s commitment to using its full range of tools to support the U.S.
economy during this challenging time, thereby promoting the Committee’s statutory goals of maximum employment and price stability. Participants agreed 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. Participants
noted that, with the pandemic worsening across the
country, the expansion would likely slow in coming
months. In contrast, for the medium term, participants
commented that positive vaccine news had improved
the economic outlook. That said, participants agreed
that the path ahead remained highly uncertain and that
the economy remained far from the Committee’s longerrun goals. In light of this assessment, all participants
judged that maintaining an accommodative stance of
monetary policy was essential to foster economic recovery and to achieve an average inflation rate of 2 percent
over time.
All participants supported enhancing the Committee’s
guidance on asset purchases at this meeting and, in particular, adopting qualitative, outcome-based guidance indicating that increases in asset holdings would continue,
with purchases of Treasury securities of at least $80 billion per month and of agency MBS of at least $40 billion
per month, until substantial further progress has been
made toward reaching the Committee’s maximum employment and price stability goals. In their discussions
of this change, participants noted that the new guidance
regarding balance sheet policy brought the statement’s
references to purchases into better alignment with the
Committee’s outcome-based guidance on the federal
funds rate, offered more clarity about the role played by
the asset purchase program in providing accommodation to meet the Committee’s economic goals, and underscored the responsiveness of balance sheet policy to
unanticipated economic developments. A few participants stressed that all of the Committee’s policy tools
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Federal Open Market Committee
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were now well positioned to respond to the evolution of
the economy. For example, if progress toward the Committee’s goals proved slower than anticipated, the new
guidance relayed the Committee’s intention to respond
by increasing monetary policy accommodation through
maintaining the current level of the target range of the
federal funds rate for longer and raising the expected
path of the Federal Reserve’s balance sheet. A couple of
participants remarked that, against this background, it
was important to convey to the public that the federal
funds rate remained the Committee’s primary policy
tool.
A number of participants discussed considerations related to determining the eventual attainment of “substantial further progress” toward reaching the Committee’s maximum employment and price stability goals.
Participants commented that this judgment would be
broad, qualitative, and not based on specific numerical
criteria or thresholds. Various participants noted the importance of the Committee clearly communicating its assessment of actual and expected progress toward its
longer-run goals well in advance of the time when it
could be judged substantial enough to warrant a change
in the pace of purchases.
Regarding the decisions on the pace and composition of
the Committee’s asset purchases, all participants judged
that it would be appropriate to continue those purchases
at least at the current pace, and nearly all favored maintaining the current composition of purchases, although
a couple of participants indicated that they were open to
weighting purchases of Treasury securities toward
longer maturities. Participants generally judged that the
asset purchase program as structured was providing very
significant policy accommodation. Some participants
noted that the Committee could consider future adjustments to its asset purchases—such as increasing the pace
of securities purchases or weighting purchases of Treasury securities toward those that had longer remaining
maturities—if such adjustments were deemed appropriate to support the attainment of the Committee’s objectives. A few participants underlined the importance of
continuing to evaluate the balance of costs and risks associated with asset purchases against the benefits arising
from purchases.
Participants shared their views on the appropriate evolution of asset purchases once substantial further progress had been made toward the Committee’s maximum
employment and price stability goals. A number of participants noted that, once such progress had been attained, a gradual tapering of purchases could begin and
the process thereafter could generally follow a sequence
similar to the one implemented during the large-scale
purchase program in 2013 and 2014.
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 continued to recover but remained well below their levels at
the beginning of the year and that weaker demand and
earlier declines in oil prices had been holding down consumer price inflation. Overall financial conditions remained accommodative, 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 reaffirmed that, in accordance with the
Committee’s goals to achieve maximum employment
and inflation at the rate of 2 percent over the longer run
and with inflation running persistently below this longerrun goal, they would 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 expected to maintain an accommodative stance of monetary policy until those outcomes were achieved.
All members agreed to maintain the target range for the
federal funds rate at 0 to ¼ percent, and they expected
that it would be appropriate to maintain this target range
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 moderately exceed 2 percent for some time.
In addition, members agreed that it would be appropriate for the Federal Reserve to continue to increase its
holdings of Treasury securities by at least $80 billion per
month and agency MBS by at least $40 billion per month
until substantial further progress had been made toward
the Committee’s maximum employment and price stability goals. They judged that these asset purchases
Minutes of the Meeting of December 15–16, 2020
Page 11
_____________________________________________________________________________________________
would help foster smooth market functioning and accommodative financial conditions, thereby supporting
the flow of credit to households and businesses.
Members agreed that, in assessing the appropriate stance
of monetary policy, they would continue to monitor the
implications of incoming information for the economic
outlook and that they would be prepared to adjust the
stance of monetary 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.
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 December 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 by
$80 billion per month and of agency
mortgage-backed securities (MBS) by
$40 billion per month.
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-
The statement approved at the meeting included a drafting
error. By notation vote shortly after the meeting concluded,
6
•
•
•
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 a statement for
release. 6 The following statement was released 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 continued to recover but remain well below their levels at the
beginning of the year. Weaker demand and earlier declines in oil prices have been holding
down consumer price inflation. Overall financial conditions remain accommodative, 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.
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
the Committee unanimously approved a corrected version of
the statement for release at 2:00 p.m.
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Federal Open Market Committee
_____________________________________________________________________________________________
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, the Federal Reserve will continue to
increase its holdings of Treasury securities by at
least $80 billion per month and of agency
mortgage-backed securities by at least $40 billion per month until substantial further progress
has been made toward the Committee’s maximum employment and price stability goals.
These asset purchases help foster smooth market functioning and 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, Robert S. Kaplan, Neel
Kashkari, Loretta J. Mester, and Randal K. Quarles.
Voting against this action: None.
Consistent with the Committee’s decision to leave the
target range for the federal funds rate unchanged, the
Board of Governors voted unanimously to 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 December 17, 2020.
It was agreed that the next meeting of the Committee
would be held on Tuesday–Wednesday, January 26–
27, 2021. The meeting adjourned at 10:05 a.m. on December 16, 2020.
Notation Vote
By notation vote completed on November 24, 2020, the
Committee unanimously approved the minutes of the
Committee meeting held on November 4–5, 2020.
_______________________
James A. Clouse
Secretary
Cite this document
Federal Reserve (2020, December 15). FOMC Minutes. Fomc Minutes, Federal Reserve. https://whenthefedspeaks.com/doc/fomc_minutes_20201216
@misc{wtfs_fomc_minutes_20201216,
author = {Federal Reserve},
title = {FOMC Minutes},
year = {2020},
month = {Dec},
howpublished = {Fomc Minutes, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/fomc_minutes_20201216},
note = {Retrieved via When the Fed Speaks corpus}
}