fomc minutes jan 2013

7/29/2019 FOMC Minutes Jan 2013

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Minutes of the Federal Open Market Committee

January 2930, 2013

A meeting of the Federal Open Market Committee washeld in the offices of the Board of Governors of the

Federal Reserve System in Washington, D.C., onTuesday, January 29, 2013, at 2:00 p.m., and continuedon Wednesday, January 30, 2013, at 9:00 a.m.

PRESENT:Ben Bernanke, ChairmanWilliam C. Dudley, Vice ChairmanJames BullardElizabeth DukeCharles L. EvansEsther L. GeorgeJerome H. PowellSarah Bloom RaskinEric RosengrenJeremy C. SteinDaniel K. TarulloJanet L. Yellen

Christine Cumming, Richard W. Fisher, NarayanaKocherlakota, Sandra Pianalto, and Charles I.Plosser, Alternate Members of the FederalOpen Market Committee

Jeffrey M. Lacker, Dennis P. Lockhart, and John C.Williams, Presidents of the Federal Reserve

Banks of Richmond, Atlanta, and San Francis-co, respectively

William B. English, Secretary and EconomistDeborah J. Danker, Deputy SecretaryMatthew M. Luecke, Assistant SecretaryDavid W. Skidmore, Assistant SecretaryMichelle A. Smith, Assistant SecretaryScott G. Alvarez, General CounselThomas C. Baxter, Deputy General CounselSteven B. Kamin, EconomistDavid W. Wilcox, Economist

Thomas A. Connors, Troy Davig, Michael P.Leahy, James J. McAndrews, Stephen A. Mey-er, David Reifschneider, Daniel G. Sullivan,Christopher J. Waller, and William Wascher,Associate Economists

Simon Potter, Manager, System Open Market Ac-count

Nellie Liang, Director, Office of Financial StabilityPolicy and Research, Board of Governors

Jon W. Faust, Special Advisor to the Board, Officeof Board Members, Board of Governors

James A. Clouse and William Nelson, Deputy Di-rectors, Division of Monetary Affairs, Board ofGovernors; Mark E. Van Der Weide, DeputyDirector, Division of Banking Supervision andRegulation, Board of Governors

Linda Robertson, Assistant to the Board, Office ofBoard Members, Board of Governors

Joyce K. Zickler, Senior Adviser, Division of Mon-etary Affairs, Board of Governors

Eric M. Engen, Thomas Laubach, and David E.Lebow, Associate Directors, Division of Re-search and Statistics, Board of Governors

Beth Anne Wilson, Deputy Associate Director, Di-vision of International Finance, Board of Gov-ernors

Karen M. Pence and Stacey Tevlin, Assistant Di-

rectors, Division of Research and Statistics,Board of Governors

Jeremy B. Rudd, Adviser, Division of Research andStatistics, Board of Governors

David H. Small, Project Manager, Division ofMonetary Affairs, Board of Governors

Andrew Figura, Group Manager, Division of Re-search and Statistics, Board of Governors

John C. Driscoll and Jennifer E. Roush, SeniorEconomists, Division of Monetary Affairs,Board of Governors; Ruth Judson, SeniorEconomist, Division of International Finance,Board of Governors

_______________________ Attended Tuesdays session only.

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Jonathan D. Rose, Economist, Division of Mone-

tary Affairs, Board of Governors

Sarah G. Green, First Vice President, Federal Re-serve Bank of Richmond

David Altig, Jeff Fuhrer, Loretta J. Mester, GlennD. Rudebusch, and Mark S. Sniderman, Execu-tive Vice Presidents, Federal Reserve Banks ofAtlanta, Boston, Philadelphia, San Francisco,and Cleveland, respectively

Ron Feldman and Lorie K. Logan, Senior VicePresidents, Federal Reserve Banks of Minne-apolis and New York, respectively

Evan F. Koenig and Steven M. Friedman, VicePresidents, Federal Reserve Banks of Dallas

and New York, respectively

Matthew D. Raskin, Markets Officer, Federal Re-serve Bank of New York

Robert L. Hetzel, Senior Economist, Federal Re-serve Bank of Richmond

Annual Organizational Matters2In the agenda for this meeting, it was reported that ad-vices of the election of the following members and al-ternate members of the Federal Open Market Commit-tee for a term beginning January 29, 2013, had been

received and that these individuals had executed theiroaths of office.

The elected members and alternate members were asfollows:

William C. Dudley, President of the Federal ReserveBank of New York, with Christine Cumming, FirstVice President of the Federal Reserve Bank of NewYork, as alternate.

Eric Rosengren, President of the Federal Reserve Bank

of Boston, with Charles I. Plosser, President of theFederal Reserve Bank of Philadelphia, as alternate.

2 Versions of the current Committee documents are availableat http://www.federalreserve.gov/monetarypolicy/rules_authorizations.htm .

Charles L. Evans, President of the Federal ReserveBank of Chicago, with Sandra Pianalto, President of theFederal Reserve Bank of Cleveland, as alternate.

James Bullard, President of the Federal Reserve Bankof St. Louis, with Richard W. Fisher, President of the

Federal Reserve Bank of Dallas, as alternate.

Esther L. George, President of the Federal ReserveBank of Kansas City, with Narayana Kocherlakota,President of the Federal Reserve Bank of Minneapolis,as alternate.

By unanimous vote, the following officers of the Fed-eral Open Market Committee were selected to serveuntil the selection of their successors at the first regu-larly scheduled meeting of the Committee in 2014:

Ben Bernanke ChairmanWilliam C. Dudley Vice ChairmanWilliam B. English Secretary and EconomistDeborah J. Danker Deputy SecretaryMatthew M. Luecke Assistant SecretaryDavid W. Skidmore Assistant SecretaryMichelle A. Smith Assistant SecretaryScott G. Alvarez General CounselThomas C. Baxter Deputy General CounselRichard M. Ashton Assistant General CounselSteven B. Kamin EconomistDavid W. Wilcox Economist

Thomas A. ConnorsTroy DavigMichael P. LeahyJames J. McAndrewsStephen A. MeyerDavid ReifschneiderDaniel G. SullivanGeoffrey TootellChristopher J. WallerWilliam Wascher Associate Economists

By unanimous vote, the Federal Reserve Bank of New

York was selected to execute transactions for the Sys-tem Open Market Account.

By unanimous vote, Simon Potter was selected to serveat the pleasure of the Committee as Manager, SystemOpen Market Account, on the understanding that hisselection was subject to being satisfactory to the Feder-al Reserve Bank of New York.

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Secretarys note: Advice subsequently wasreceived that the selection of Mr. Potter asManager was satisfactory to the Federal Re-serve Bank of New York.

By unanimous vote, the Authorization for Domestic

Open Market Operations was approved with twoamendments. The first broadened the actions that theOpen Market Desk may take, at the Chairmans in-struction during an intermeeting period, to includetransactions to address temporary disruptions of anoperational or highly unusual nature in U.S. dollarfunding markets. For example, if secured funding rateswere to increase to high levels in the wake of a naturaldisaster, the risk of a broader, more systemic disruptionto the functioning of asset markets could result. In thiscase, the prospect that repurchase operations couldpotentially alleviate some of the market strains might

warrant immediate action. Consistent with Committeepractice, the Chairman, if feasible, would consult withthe Committee before making any such instruction.The second amendment harmonized the language re-ferring to the Committees longer-run objectives withthat in the Committees Statement on Longer-RunGoals and Monetary Policy Strategy. The Guidelinesfor the Conduct of System Open Market Operations inFederal-Agency Issues remained suspended.

AUTHORIZATION FOR DOMESTIC OPENMARKET OPERATIONS(Amended effective on January 29, 2013)

1. The Federal Open Market Committee authorizesand directs the Federal Reserve Bank of New York, tothe extent necessary to carry out the most recent do-mestic policy directive adopted at a meeting of theCommittee:

A. To buy or sell U.S. government securities, in-cluding securities of the Federal Financing Bank, andsecurities that are direct obligations of, or fully guar-anteed as to principal and interest by, any agency ofthe United States in the open market, from or to se-curities dealers and foreign and international ac-

counts maintained at the Federal Reserve Bank ofNew York, on a cash, regular, or deferred deliverybasis, for the System Open Market Account at mar-ket prices, and, for such Account, to exchange matur-ing U.S. government and federal agency securitieswith the Treasury or the individual agencies or to al-low them to mature without replacement; andB. To buy or sell in the open market U.S. govern-ment securities, and securities that are direct obliga-

tions of, or fully guaranteed as to principal and inter-est by, any agency of the United States, for the Sys-tem Open Market Account under agreements to re-sell or repurchase such securities or obligations (in-cluding such transactions as are commonly referredto as repo and reverse repo transactions) in 65 busi-

ness days or less, at rates that, unless otherwise ex-pressly authorized by the Committee, shall be deter-mined by competitive bidding, after applying reason-able limitations on the volume of agreements withindividual counterparties.

2. The Federal Open Market Committee authorizesthe Federal Reserve Bank of New York to undertaketransactions of the type described in paragraphs 1.Aand 1.B from time to time for the purpose of testingoperational readiness. The aggregate par value of suchtransactions of the type described in paragraph 1.Ashall not exceed $5 billion per calendar year. The out-

standing amount of such transactions of the type de-scribed in paragraph 1.B shall not exceed $5 billion atany given time. These transactions shall be conductedwith prior notice to the Committee.3. In order to ensure the effective conduct of openmarket operations, the Federal Open Market Commit-tee authorizes the Federal Reserve Bank of New Yorkto use agents in agency MBS-related transactions.4. In order to ensure the effective conduct of openmarket operations, the Federal Open Market Commit-tee authorizes the Federal Reserve Bank of New Yorkto lend on an overnight basis U.S. government securi-ties and securities that are direct obligations of anyagency of the United States, held in the System OpenMarket Account, to dealers at rates that shall be deter-mined by competitive bidding. The Federal ReserveBank of New York shall set a minimum lending feeconsistent with the objectives of the program and applyreasonable limitations on the total amount of a specificissue that may be auctioned and on the amount of se-curities that each dealer may borrow. The Federal Re-serve Bank of New York may reject bids that couldfacilitate a dealers ability to control a single issue asdetermined solely by the Federal Reserve Bank of NewYork. The Federal Reserve Bank of New York may

lend securities on longer than an overnight basis to ac-commodate weekend, holiday, and similar trading con-ventions.5. In order to ensure the effective conduct of openmarket operations, while assisting in the provision ofshort-term investments or other authorized services forforeign and international accounts maintained at theFederal Reserve Bank of New York and accountsmaintained at the Federal Reserve Bank of New York

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as fiscal agent of the United States pursuant to section15 of the Federal Reserve Act, the Federal Open Mar-ket Committee authorizes and directs the Federal Re-serve Bank of New York:

A. For the System Open Market Account, to sellU.S. government securities and securities that are di-

rect obligations of, or fully guaranteed as to principaland interest by, any agency of the United States tosuch accounts on the bases set forth in paragraph 1.Aunder agreements providing for the resale by suchaccounts of those securities in 65 business days orless on terms comparable to those available on suchtransactions in the market;B. For the New York Bank account, when appro-priate, to undertake with dealers, subject to the con-ditions imposed on purchases and sales of securitiesin paragraph l.B, repurchase agreements in U.S. gov-ernment securities and securities that are direct obli-

gations of, or fully guaranteed as to principal and in-terest by, any agency of the United States, and to ar-range corresponding sale and repurchase agreementsbetween its own account and such foreign, interna-tional, and fiscal agency accounts maintained at theBank; andC. For the New York Bank account, when appro-priate, to buy U.S. government securities and obliga-tions that are direct obligations of, or fully guaran-teed as to principal and interest by, any agency of theUnited States from such foreign and international ac-counts maintained at the Bank under agreementsproviding for the repurchase by such accounts of

those securities on the same business day.Transactions undertaken with such accounts under theprovisions of this paragraph may provide for a servicefee when appropriate.6. In the execution of the Committees decision re-garding policy during any intermeeting period, theCommittee authorizes and directs the Federal ReserveBank of New York, upon the instruction of the Chair-man of the Committee, to (i) adjust somewhat in ex-ceptional circumstances the degree of pressure on re-serve positions and hence the intended federal fundsrate and to take actions that result in material changes

in the composition and size of the assets in the SystemOpen Market Account other than those anticipated bythe Committee at its most recent meeting or (ii) under-take transactions of the type described in paragraphs1.A and 1.B in order to appropriately address tempo-rary disruptions of an operational or highly unusualnature in U.S. dollar funding markets. Any such ad-justment as described in clause (i) shall be made in thecontext of the Committees discussion and decision at

its most recent meeting and the Committees long-runobjectives to foster maximum employment and pricestability, and shall be based on economic, financial, andmonetary developments during the intermeeting peri-od. Consistent with Committee practice, the Chair-man, if feasible, will consult with the Committee before

making any instruction under this paragraph.

The Committee voted unanimously to amend the Au-thorization for Foreign Currency Operations and theProcedural Instructions with Respect to Foreign Cur-rency Operations, and to reaffirm the Foreign CurrencyDirective in the form shown below. The approval ofthese documents included approval of the Systemswarehousing agreement with the U.S. Treasury. TheAuthorization for Foreign Currency Operations andthe Procedural Instructions with Respect to ForeignCurrency Operations were amended to include the au-

thority to conduct small-value operations against thefull range of foreign transactions that the Desk is au-thorized to conduct. This change was made to allowfor prudent testing of operational readiness, and issimilar in purpose to the amendment that the Commit-tee approved in June 2012 to the Authorization forDomestic Open Market Operations.

AUTHORIZATION FOR FOREIGN CURRENCYOPERATIONS(Amended effective on January 29, 2013)

1. The Federal Open Market Committee authorizesand directs the Federal Reserve Bank of New York, forthe System Open Market Account, to the extent neces-sary to carry out the Committees foreign currency di-rective and express authorizations by the Committeepursuant thereto, and in conformity with such proce-dural instructions as the Committee may issue fromtime to time:

A. To purchase and sell the following foreign cur-rencies in the form of cable transfers through spot orforward transactions on the open market at homeand abroad, including transactions with the U.S.Treasury, with the U.S. Exchange Stabilization Fund

established by section 10 of the Gold Reserve Act of1934, with foreign monetary authorities, with theBank for International Settlements, and with otherinternational financial institutions:

Australian dollarsBrazilian reaisCanadian dollarsDanish kroner



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euroJapanese yenKorean wonMexican pesosNew Zealand dollarsNorwegian kroner

Pounds sterlingSingapore dollarsSwedish kronorSwiss francs

B. To hold balances of, and to have outstandingforward contracts to receive or to deliver, the foreigncurrencies listed in paragraph A above.C. To draw foreign currencies and to permit for-eign banks to draw dollars under the reciprocal cur-rency arrangements listed in paragraph 2 below, pro-vided that drawings by either party to any such ar-

rangement shall be fully liquidated within 12 monthsafter any amount outstanding at that time was firstdrawn, unless the Committee, because of exceptionalcircumstances, specifically authorizes a delay.D. To maintain an overall open position in all for-eign currencies not exceeding $25.0 billion. For thispurpose, the overall open position in all foreign cur-rencies is defined as the sum (disregarding signs) ofnet positions in individual currencies, excludingchanges in dollar value due to foreign exchange ratemovements and interest accruals. The net position ina single foreign currency is defined as holdings ofbalances in that currency, plus outstanding contracts

for future receipt, minus outstanding contracts forfuture delivery of that currency, i.e., as the sum ofthese elements with due regard to sign.

2. The Federal Open Market Committee directs theFederal Reserve Bank of New York to maintain recip-rocal currency arrangements (swap arrangements) forthe System Open Market Account for periods up to amaximum of 12 months with the following foreignbanks, which are among those designated by the Boardof Governors of the Federal Reserve System undersection 214.5 of Regulation N, Relations with ForeignBanks and Bankers, and with the approval of the

Committee to renew such arrangements on maturity:

Foreign bank Amount of arrangement(millions of dollars equivalent)

Bank of Canada 2,000Bank of Mexico 3,000

Any changes in the terms of existing swap arrange-ments, and the proposed terms of any new arrange-ments that may be authorized, shall be referred for re-view and approval to the Committee.3. All transactions in foreign currencies undertakenunder paragraph 1.A above shall, unless otherwise ex-

pressly authorized by the Committee, be at prevailingmarket rates. For the purpose of providing an invest-ment return on System holdings of foreign currenciesor for the purpose of adjusting interest rates paid orreceived in connection with swap drawings, transac-tions with foreign central banks may be undertaken atnon-market exchange rates.4. It shall be the normal practice to arrange with for-eign central banks for the coordination of foreign cur-rency transactions. In making operating arrangementswith foreign central banks on System holdings of for-eign currencies, the Federal Reserve Bank of New York

shall not commit itself to maintain any specific balance,unless authorized by the Federal Open Market Com-mittee. Any agreements or understandings concerningthe administration of the accounts maintained by theFederal Reserve Bank of New York with the foreignbanks designated by the Board of Governors undersection 214.5 of Regulation N shall be referred for re-view and approval to the Committee.5. Foreign currency holdings shall be invested toensure that adequate liquidity is maintained to meetanticipated needs and so that each currency portfolioshall generally have an average duration of no morethan 18 months (calculated as Macaulay duration).Such investments may include buying or selling out-right obligations of, or fully guaranteed as to principaland interest by, a foreign government or agency there-of; buying such securities under agreements for repur-chase of such securities; selling such securities underagreements for the resale of such securities; and hold-ing various time and other deposit accounts at foreigninstitutions. In addition, when appropriate in connec-tion with arrangements to provide investment facilitiesfor foreign currency holdings, U.S. government securi-ties may be purchased from foreign central banks underagreements for repurchase of such securities within 30

calendar days.6. All operations undertaken pursuant to the preced-ing paragraphs shall be reported promptly to the For-eign Currency Subcommittee and the Committee. TheForeign Currency Subcommittee consists of theChairman and Vice Chairman of the Committee, theVice Chairman of the Board of Governors, and suchother member of the Board as the Chairman may des-ignate (or in the absence of members of the Board



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serving on the Subcommittee, other Board membersdesignated by the Chairman as alternates, and in theabsence of the Vice Chairman of the Committee, theVice Chairmans alternate). Meetings of the Subcom-mittee shall be called at the request of any member, orat the request of the Manager, System Open Market

Account (Manager), for the purposes of reviewingrecent or contemplated operations and of consultingwith the Manager on other matters relating to the Man-agers responsibilities. At the request of any memberof the Subcommittee, questions arising from such re-views and consultations shall be referred for determina-tion to the Federal Open Market Committee.7. The Chairman is authorized:

A. With the approval of the Committee, to enterinto any needed agreement or understanding with theSecretary of the Treasury about the division of re-sponsibility for foreign currency operations between

the System and the Treasury;B. To keep the Secretary of the Treasury fully ad-vised concerning System foreign currency operations,and to consult with the Secretary on policy mattersrelating to foreign currency operations;C. From time to time, to transmit appropriate re-ports and information to the National AdvisoryCouncil on International Monetary and FinancialPolicies.

8. Staff officers of the Committee are authorized totransmit pertinent information on System foreign cur-rency operations to appropriate officials of the Treas-ury Department.

9. All Federal Reserve Banks shall participate in theforeign currency operations for System Account in ac-cordance with paragraph 3G(1) of the Board of Gov-ernors Statement of Procedure with Respect to For-eign Relationships of Federal Reserve Banks dated Jan-uary 1, 1944.10. The Federal Open Market Committee authorizesthe Federal Reserve Bank of New York to undertaketransactions of the type described in paragraphs 1, 2,and 5, and foreign exchange and investmenttransactions that it may be otherwise authorized toundertake from time to time for the purpose of testing

operational readiness. The aggregate amount of suchtransactions shall not exceed $2.5 billion per calendaryear. These transactions shall be conducted with priornotice to the Committee.

PROCEDURAL INSTRUCTIONS WITH RESPECTTO FOREIGN CURRENCY OPERATIONS(Amended effective on January 29, 2013)

In conducting operations pursuant to the authorizationand direction of the Federal Open Market Committee

as set forth in the Authorization for Foreign CurrencyOperations and the Foreign Currency Directive, theFederal Reserve Bank of New York, through the Man-ager, System Open Market Account (Manager), shallbe guided by the following procedural understandingswith respect to consultations and clearances with theCommittee, the Foreign Currency Subcommittee, andthe Chairman of the Committee, unless otherwise di-rected by the Committee. All operations undertakenpursuant to such clearances shall be reported promptlyto the Committee.1. The Manager shall clear with the Subcommittee

(or with the Chairman, if the Chairman believes thatconsultation with the Subcommittee is not feasible inthe time available):

A. Any operation that would result in a change inthe Systems overall open position in foreign curren-cies exceeding $300 million on any day or $600 mil-lion since the most recent regular meeting of theCommittee.B. Any operation that would result in a change onany day in the Systems net position in a single for-eign currency exceeding $150 million, or $300 millionwhen the operation is associated with re-payment ofswap drawings.C. Any operation that might generate a substantialvolume of trading in a particular currency by the Sys-tem, even though the change in the Systems net po-sition in that currency might be less than the limitsspecified in 1.B.D. Any swap drawing proposed by a foreign banknot exceeding the larger of (i) $200 million or (ii) 15percent of the size of the swap arrangement.

2. The Manager shall clear with the Committee (orwith the Subcommittee, if the Subcommittee believesthat consultation with the full Committee is not feasiblein the time available, or with the Chairman, if the

Chairman believes that consultation with the Subcom-mittee is not feasible in the time available):

A. Any operation that would result in a change inthe Systems overall open position in foreign curren-cies exceeding $1.5 billion since the most recent regu-lar meeting of the Committee.B. Any swap drawing proposed by a foreign bankexceeding the larger of (i) $200 million or (ii) 15 per-cent of the size of the swap arrangement.



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3. The Manager shall also consult with the Sub-committee or the Chairman about proposed swapdrawings by the System and about any operations thatare not of a routine character.4. The Federal Open Market Committee authorizesthe Federal Reserve Bank of New York to undertake

transactions of the type described in paragraphs 1, 2,and 5 of the Foreign Authorization and foreign ex-change and investment transactions that it may be oth-erwise authorized to undertake from time to time forthe purpose of testing operational readiness. The ag-gregate amount of such transactions shall not exceed$2.5 billion per calendar year. These transactions shallbe conducted with prior notice to the Committee.

FOREIGN CURRENCY DIRECTIVE(Reaffirmed January 29, 2013)

1. System operations in foreign currencies shall gen-erally be directed at countering disorderly market con-ditions, provided that market exchange rates for theU.S. dollar reflect actions and behavior consistent withIMF Article IV, Section 1.2. To achieve this end the System shall:

A. Undertake spot and forward purchases and salesof foreign exchange.B. Maintain reciprocal currency (swap) arrange-ments with selected foreign central banks.C. Cooperate in other respects with central banksof other countries and with international monetaryinstitutions.

3. Transactions may also be undertaken:A. To adjust System balances in light of probablefuture needs for currencies.B. To provide means for meeting System andTreasury commitments in particular currencies, andto facilitate operations of the Exchange StabilizationFund.C. For such other purposes as may be expresslyauthorized by the Committee.

4. System foreign currency operations shall be con-ducted:

A. In close and continuous consultation and coop-

eration with the United States Treasury;B. In cooperation, as appropriate, with foreignmonetary authorities; and

C. In a manner consistent with the obligations ofthe United States in the International Monetary Fundregarding exchange arrangements under IMF ArticleIV.

All participants but one supported making only minorwording changes to the Statement on Longer-RunGoals and Monetary Policy Strategy. Mr. Tarullo ab-stained because he did not think the statement had ad-vanced the cause of achieving or communicating great-er consensus in the policy views of the Committee.

STATEMENT ON LONGER-RUN GOALS ANDMONETARY POLICY STRATEGY(Amended effective on January 29, 2013)

The Federal Open Market Committee (FOMC) isfirmly committed to fulfilling its statutory mandatefrom the Congress of promoting maximum employ-ment, stable prices, and moderate long-term interestrates. The Committee seeks to explain its monetarypolicy decisions to the public as clearly as possible.Such clarity facilitates well-informed decisionmaking by

households and businesses, reduces economic and fi-nancial uncertainty, increases the effectiveness of mon-etary policy, and enhances transparency and accounta-bility, which are essential in a democratic society.

Inflation, employment, and long-term interest ratesfluctuate over time in response to economic and finan-cial disturbances. Moreover, monetary policy actionstend to influence economic activity and prices with alag. Therefore, the Committees policy decisions reflectits longer-run goals, its medium-term outlook, and itsassessments of the balance of risks, including risks tothe financial system that could impede the attainmentof the Committees goals.

The inflation rate over the longer run is primarily de-termined by monetary policy, and hence the Committeehas the ability to specify a longer-run goal for inflation.The Committee judges that inflation at the rate of 2percent, as measured by the annual change in the priceindex for personal consumption expenditures, is mostconsistent over the longer run with the Federal Re-serves statutory mandate. Communicating this infla-tion goal clearly to the public helps keep longer-terminflation expectations firmly anchored, thereby foster-ing price stability and moderate long-term interest ratesand enhancing the Committees ability to promote

maximum employment in the face of significant eco-nomic disturbances.

The maximum level of employment is largely deter-mined by nonmonetary factors that affect the structureand dynamics of the labor market. These factors maychange over time and may not be directly measurable.Consequently, it would not be appropriate to specify afixed goal for employment; rather, the Committeespolicy decisions must be informed by assessments of



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the maximum level of employment, recognizing thatsuch assessments are necessarily uncertain and subjectto revision. The Committee considers a wide range ofindicators in making these assessments. Informationabout Committee participants estimates of the longer-run normal rates of output growth and unemployment

is published four times per year in the FOMCs Sum-mary of Economic Projections. For example, in themost recent projections, FOMC participants estimatesof the longer-run normal rate of unemployment had acentral tendency of 5.2 percent to 6.0 percent, un-changed from one year ago but substantially higherthan the corresponding interval several years earlier.

In setting monetary policy, the Committee seeks tomitigate deviations of inflation from its longer-run goaland deviations of employment from the Committeesassessments of its maximum level. These objectives aregenerally complementary. However, under circum-

stances in which the Committee judges that the objec-tives are not complementary, it follows a balanced ap-proach in promoting them, taking into account themagnitude of the deviations and the potentially differ-ent time horizons over which employment and infla-tion are projected to return to levels judged consistentwith its mandate.

The Committee intends to reaffirm these principlesand to make adjustments as appropriate at its annualorganizational meeting each January.

By unanimous vote, the Policy on External Communi-cations of Committee Participants and the Policy on

External Communications of Federal Reserve SystemStaff were amended to clarify the precise beginning andend of the communication blackout period surroundingregular meetings of the Federal Open Market Commit-tee (FOMC).

By unanimous vote, the Rules of Procedure wereamended to change the quorum requirements to statethat a meeting of the FOMC could not be convenedwithout a representative of a Reserve Bank.

By unanimous vote, the Committee reaffirmed its Pro-

gram for Security of FOMC Information.

Developments in Financial Markets and the Fed-eral Reserves Balance SheetThe Manager of the System Open Market Account(SOMA) reported on developments in domestic andforeign financial markets as well as the System openmarket operations during the period since the FOMC

met on December 1112, 2012. By unanimous vote,the Committee ratified the Open Market Desks do-mestic transactions over the intermeeting period.There were no intervention operations in foreign cur-rencies for the Systems account over the intermeetingperiod.

Staff Review of the Economic SituationThe information reviewed at the January 2930 meet-ing indicated that the expansion in overall economicactivity slowed in the fourth quarter of last year, reflect-ing weather-related disruptions and other transitoryfactors, but private domestic final demand grew at asolid rate. Employment continued to increase at amoderate pace, and the unemployment rate, thoughstill high, was lower at the end of the fourth quarterthan in the preceding quarter. Consumer price infla-tion was subdued, and measures of longer-run inflationexpectations remained stable.

Private nonfarm employment expanded in Decemberat about the same rate as in the fourth quarter as awhole, while government employment decreased. Theunemployment rate was 7.8 percent in December, be-low its average in the third quarter, while the laborforce participation rate was the same as its third-quarteraverage. The rate of long-duration unemployment andthe share of workers employed part time for economicreasons edged down in December, but both measureswere still elevated. The rate of private-sector hiring,along with indicators of job openings and firms hiringplans, was generally muted but remained consistent

with continued moderate increases in employment inthe coming months.

Manufacturing production increased briskly in Novem-ber and December after declining in October whenactivity was disrupted by Hurricane Sandy. As a result,factory output expanded only slightly in the fourthquarter as a whole, and the rate of manufacturing ca-pacity utilization was only a little higher in Decemberthan in the third quarter. The production of motorvehicles and parts increased considerably in the fourthquarter, but factory output outside of the motor vehiclesector declined somewhat. Automakers schedules in-dicated that the pace of motor vehicle assemblies in thefirst quarter would be roughly the same as in the fourthquarter. Broader indicators of manufacturing produc-tion, such as the diffusion indexes of new orders fromthe national and regional manufacturing surveys, wereat levels consistent with only modest increases in facto-ry output in the near term.



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Increases in real personal consumption expenditurespicked up somewhat in the fourth quarter, boostedimportantly by higher spending on motor vehicles.After being roughly flat in the third quarter, house-holds real disposable income rose considerably, in partreflecting an acceleration of income payments in antici-

pation of increases in individual income tax rates afterthe turn of the year. In December and January, con-sumer sentiment was more downbeat than in the pre-vious several months.

Conditions in the housing sector continued to improve,but construction activity remained at a relatively lowlevel, restrained by tight underwriting standards formortgage loans and the substantial inventory of fore-closed and distressed properties. Starts of both newsingle-family homes and multifamily units advanced inthe fourth quarter, and permits also rose, which point-ed to additional gains in construction in the coming

months. Home prices increased further in November.In the fourth quarter, sales of both new and existinghomes were higher than in the previous quarter.

Real business expenditures on equipment and softwarerose briskly in the fourth quarter after declining moder-ately in the preceding quarter. Although nominal neworders for nondefense capital goods excluding aircraftalso increased markedly last quarter, the level of ordersremained below shipments. Moreover, other recentforward-looking indicators, such as surveys of businessconditions and capital spending plans, suggested thatoutlays for business equipment would rise only modest-

ly in the coming months. Real business spending fornonresidential construction declined somewhat in thefourth quarter and remained at a relatively low level. Areduction in the accumulation of nonfarm businessinventories subtracted a considerable amount from thechange in real gross domestic product (GDP) in thefourth quarter.

Real federal government purchases decreased substan-tially in the fourth quarter, primarily because of a sharpdecline in defense spending that followed a markedincrease in the previous quarter. Real state and localgovernment purchases decreased slightly in the fourthquarter.

The U.S. international trade deficit widened substantial-ly in November, as imports rose more quickly than ex-ports. The rise in imports was fairly broad-based, ledby strong increases in consumer goods, while the in-crease in exports mainly reflected higher sales of capitalgoods and automotive products. Exports to Europeposted another significant decline in November. Based

on data for October and November and an estimate ofthe trade data for December, the advance release of thenational income and product accounts showed that realnet exports of goods and services made a small nega-tive arithmetic contribution to the change in U.S. realGDP in the fourth quarter, with exports declining

more than imports.

Overall U.S. consumer prices increased more slowly inthe fourth quarter than in the previous quarter. Con-sumer energy prices declined in November and De-cember, and survey data indicated that retail gasolineprices fell further in the first few weeks of January.Consumer food prices continued to rise at a faster pacein November and December than in the third quarter,likely reflecting the ongoing effects of last summersdrought. In the fourth quarter, the rise in consumerprices excluding food and energy slowed. Near-terminflation expectations from the Thomson Reu-

ters/University of Michigan Surveys of Consumersrose a little in December and early January; longer-terminflation expectations were unchanged.

Available measures of labor compensation indicatedthat recent gains in nominal wages remained relativelyslow. Increases in average hourly earnings for all em-ployees picked up a little in the fourth quarter but con-tinued to be fairly subdued.

Economic growth in the advanced foreign economiesappeared to remain weak in the fourth quarter. In theeuro area, industrial production and retail sales were

below their third-quarter levels through November,and real GDP contracted in the United Kingdom. InJapan, indicators of production and exports remainedweak; however, household consumption showed someimprovement, and the new government introduced alarge fiscal stimulus program and called for aggressivemonetary easing to end deflation. In emerging marketeconomies, real GDP growth is estimated to havepicked up in China in the fourth quarter, consistentwith other Chinese indicators that pointed to an im-provement in activity. Production and exports re-bounded at year-end in a number of other emergingAsian economies as well. Inflation generally remainedwell contained in both advanced foreign economies andemerging market economies.

Staff Review of the Financial SituationU.S. financial market conditions improved on net be-tween the December and January FOMC meetings,largely in response to the partial resolution of the issuesassociated with the so-called fiscal cliff, a positive start



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to the corporate earnings reporting season, and somefavorable policy developments in Europe.

The expected path of the federal funds rate based onmarket quotes moved up on balance over the inter-meeting period, likely reflecting a somewhat more posi-tive assessment of the economic outlook. Results fromthe Desks survey of primary dealers conducted prior tothe January meeting showed that dealers continued toview the third quarter of 2015 as the most likely time ofthe first increase in the target federal funds rate. Inaddition, the median dealer continued to see the firstquarter of 2014 as the most likely time for the Commit-tees asset purchases to conclude, although fewer deal-ers than in December expected those purchases to con-tinue beyond 2014.

Treasury coupon yields increased over the intermeetingperiod, including a notable rise just after year-end when

passage of the American Taxpayer Relief Act of 2012apparently lessened concerns about the risk of substan-tially higher fiscal drag on growth in the near term.More-positive investor sentiment regarding the outlookfor global economic growth, along with some optimismabout a federal debt ceiling deal, may also have con-tributed to the increase in yields. Measures of inflationcompensation derived from nominal and inflation-protected Treasury securities rose slightly over the in-termeeting period.

Conditions in short-term dollar funding markets weregenerally little changed on balance; year-end funding

pressures were modest overall and roughly in line withmarket expectations. The outstanding amount of unse-cured commercial paper issued by European financialinstitutions increased noticeably.

Indicators of the condition of domestic financial insti-tutions generally improved over the intermeeting peri-od. A broad index of bank stock prices rose, and themedian spread on credit default swaps of the largestbanking organizations moved lower.

Broad U.S. equity price indexes increased on net overthe intermeeting period, buoyed by many of the samefactors that contributed to the rise in Treasury yields.In addition, the fourth-quarter earnings reporting sea-son started off well, as earnings and revenue resultswere above analysts expectations for a higher-than-average number of firms. Option-implied volatility forthe S&P 500 index over the near term dipped to itslowest level since early 2007. The option-implied priceof insurance against downside risk on the index atlonger horizons remained elevated.

Yields on speculative-grade corporate bonds decreasedover the intermeeting period, and yields on investment-grade corporate bonds were up a bit. Risk spreads onspeculative-grade bonds narrowed substantially, andspreads on investment-grade bonds decreased as well.

Net debt financing by nonfinancial firms increased inthe fourth quarter. Outstanding volumes of corporatebonds, commercial and industrial loans, and nonfinan-cial commercial paper all expanded. The pace of grosspublic issuance of equity by nonfinancial firms re-mained solid in the fourth quarter, but it was subduedin January, likely because of seasonal factors.

Conditions in the commercial real estate sector contin-ued to be strained amid elevated vacancy and delin-quency rates. However, issuance of commercial mort-gage-backed securities strengthened during the fourthquarter, and spreads on those securities narrowed over

the intermeeting period.Conforming home mortgage rates edged up, on net,after touching new lows during the intermeeting period.Yields on residential mortgage-backed securities (MBS)rose by more, leaving the spread between the primarymortgage rate and MBS yields narrower. Mortgagerefinancing originations in December and Januarystayed near their highest levels since the housing mar-ket began to recover. The share of existing mortgagesthat were seriously delinquent edged down in Octoberand November but remained high.

Consumer credit expanded briskly again in October

and November. Nonrevolving credit continued to in-crease at a robust pace because of growth in studentand auto loans, while revolving credit moved roughlysideways. Issuance of consumer asset-backed securitiesremained strong in the fourth quarter.

Growth of bank credit in the fourth quarter slowed toabout half its pace compared with earlier in the year, asloan growth declined. According to the January SeniorLoan Officer Opinion Survey on Bank Lending Prac-tices, domestic banks continued to ease somewhat theirlending standards and some loan terms, on balance;they also experienced an increase in demand, on net, inmost major loan categories in the fourth quarter.

M2 and its largest component, liquid deposits, expand-ed robustly in December. Initial data suggested thatthe expiration of unlimited deposit insurance on nonin-terest-bearing transaction accounts at year-end had onlya limited effect on bank deposits through early January.The monetary base expanded at a strong rate in De-



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cember, reflecting growth in both currency and reservebalances.

Foreign financial conditions improved over the inter-meeting period as markets responded favorably to thepassage of fiscal policy legislation in the United Statesand to further progress in addressing euro-area strains.On net, global equity prices rose and euro-area periph-eral spreads narrowed. As global risk sentiment im-proved, the dollar depreciated against the euro andmost emerging market currencies. Against the yen,however, the dollar appreciated substantially. The yensdepreciation appeared to occur in part in response tostatements from Japans new prime minister, whourged the Bank of Japan to ease policy more aggres-sively. At its January meeting, the Bank of Japan re-stated its monetary policy framework, replacing its in-flation goal of 1 percent with an inflation target of2 percent, and announced it would commence a pro-

gram of asset purchases in January 2014 with no prede-termined limit on the maximum amount ultimatelypurchased. Yields on long-term Japanese sovereignbonds rose a few basis points on net over the inter-meeting period, but yields on other foreign benchmarksovereign bonds increased more, reflecting both theimprovement in global sentiment and reduced expecta-tions for additional monetary accommodation, as theEuropean Central Bank and the Bank of England kepttheir policy rates on hold and appeared to signal lesslikelihood of further easing.

Staff Economic Outlook

In the economic forecast prepared by the staff for theJanuary meeting of the FOMC, the near-term projec-tion for real GDP growth was revised up, in large partbecause the fiscal policy legislation enacted in earlyJanuary was slightly less restrictive than the staff hadassumed. The staffs medium-term forecast for realGDP growth was essentially unchanged. With fiscalpolicy still anticipated to be tighter this year than lastyear, the staff expected that increases in real GDPwould only moderately exceed the growth rate of po-tential output. In 2014 and 2015, real GDP was pro-jected to accelerate gradually, supported by an eventual

lessening of fiscal policy restraint, increases in consum-er and business sentiment, further improvements incredit availability and financial conditions, and accom-modative monetary policy. The expansion in economicactivity was expected to slowly reduce the slack in laborand product markets over the projection period, andprogress in reducing the unemployment rate was antic-ipated to be gradual.

The staffs forecast for inflation was little changed fromthat prepared for the December FOMC meeting. Thestaff continued to project that inflation would be sub-dued through 2015. That forecast is based on the ex-pectation that crude oil prices will trend down slowlyfrom their current levels, the boost to retail food prices

from last summers drought will be temporary and rela-tively small, longer-run inflation expectations will re-main stable, and significant resource slack will persistover the forecast period.

Participants Views on Current Conditions and theEconomic OutlookIn their discussion of the economic situation, meetingparticipants indicated that they viewed the informationreceived during the intermeeting period as suggestingthat, apart from some temporary factors that had led toa pause in overall output growth in recent months, theeconomy remained on a moderate growth path. In

particular, participants saw the economic outlook aslittle changed or modestly improved relative to the De-cember meeting. Most participants judged that therehad been some reduction in downside risks facing theeconomy: Strains in global financial markets had easedsomewhat, and U.S. fiscal policymakers had come to apartial resolution of the so-called fiscal cliff. Supportedby a highly accommodative stance of monetary policy,the housing sector was strengthening, and the unem-ployment rate appeared likely to continue its gradualdecline. Nearly all participants anticipated that inflationover the medium-term would run at or below the

Committees 2 percent objective.In their discussion of the household sector, participantsnoted various factors influencing consumer spending.Some participants stated that low interest rates ap-peared to be contributing to strong sales of autos or,more generally, of consumer durables. It was also not-ed that continued deleveraging by households was im-proving their financial positions, which would likelysupport increased spending. Holiday shopping report-edly was relatively solid, and, reflecting the improve-ment in the housing market, demand for home furnish-ings and construction materials was up. However,

some participants were concerned that the recent in-crease in the payroll tax could have a significant nega-tive effect on spending, particularly on the part of low-er-income consumers.

Participants remarked on the ongoing recovery in thehousing market, pointing variously to rising house pric-es, growth in residential construction and sales, and thelower inventory of homes for sale. A number of partic-



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ipants thought it likely that higher home values and lowmortgage rates were helping support other sectors ofthe economy as well, and a couple saw the housingmarket as having the potential to cause overall growthto be stronger than expected this year. Nonetheless, itwas noted that mortgage credit remained tight and the

fraction of homeowners with mortgage balances ex-ceeding the value of their homes remained high.

In general, participants indicated that, relative to therecent past, more business contacts reported an im-provement in confidence and some cautious optimismabout the economic outlook. Anecdotal reports sug-gested that uncertainty about the evolution of theeconomy and government policy continued to restrainfirms hiring and capital spending decisions, but thepassage of fiscal legislation in early January helped re-solve some of the uncertainty about federal tax policy.Moreover, it was noted that businesses were in a good

position to expand once they came to view the eco-nomic environment as more favorable. Survey datafrom one District indicated that more than half of therespondents expected to increase employment this year,with many citing expected sales growth as the reason.Reports from a number of industries across the countryalso suggested a more positive assessment of futureprospects, particularly in the automotive, energy, andtechnology sectors. However, reports from the non-automotive manufacturing sector were less positive. Inagriculture, record payouts from crop insurance follow-ing last years drought supported farm incomes, and

land prices continued to rise. Reports on businessconditions in the commercial real estate sector weremore mixed but, on the whole, somewhat improved.The strength of exports reportedly varied, with indica-tions of higher demand from Mexico but some relative-ly pessimistic readings from firms about business con-ditions in Europe. Participants generally welcomed anapparent pickup in economic growth in parts of Asiaand saw reduced risk that the Chinese economy wouldslow abruptly, but it was noted that no economy wascurrently in a position to lead global growth higher.

The passage of legislation in early January resolved

some of the uncertainties surrounding the federal fiscaloutlook, but near-term uncertainties remained, includ-ing the prospect of automatic budget cuts. Participantsgenerally agreed that fiscal negotiations could developin a way that would result in significantly greater dragon economic growth than in their baseline outlook.One participant noted positive news about the fiscalposition of the states; in some cases, revenues had risen

sufficiently to enable increases in state governmentspending and employment.

In their comments on labor market developments, par-ticipants viewed the decline in the unemployment ratefrom the third quarter to the fourth and the continuedmoderate gains in payroll employment as consistentwith a gradually improving job market. However, theunemployment rate remained well above estimates ofits longer-run normal level, and other indicators, suchas the share of long-term unemployed and the numberof people working part time for economic reasons,suggested that the recovery in the labor market was farfrom complete. One participant reported that firms inhis District continued to have difficulty finding workerswith suitable skills, suggesting that labor market mis-match was a factor deterring job growth. A few others,however, pointed to evidence that weak aggregate de-mand was the primary factor restraining job growth,

citing data and analyses in support of the view thatthere was still a substantial margin of slack in the labormarket. For example, a couple of participants notedevidence suggesting that a shift in the relationship be-tween the unemployment rate and the level of job va-cancies in recent years was unlikely to persist as theeconomy recovered and unemployment benefits re-turned to customary levels. Similarly, one participantcited empirical analysis showing that employmentgrowth was lower in the states where a greater share ofsmall businesses identified lack of demand as theirmost important business problem. Several participants

expressed concern that continuation of only slow jobgrowth and persistently high long-duration unemploy-ment could lead to permanent damage to the labormarket.

Participants generally saw recent price developments asconsistent with their projections that inflation wouldremain at or below the Committees 2 percent objectiveover the medium run. There was little evidence ofwage or cost pressures outside of isolated sectors, andmeasures of inflation expectations remained stable.However, a few participants expressed concerns thatthe current highly accommodative stance of monetary

policy posed upside risks to inflation in the medium orlonger term.

Participants also touched on the implications for mone-tary policy of changes in estimates of the economyspotential output. A number of participants thoughtthat the growth of potential output had been reducedin recent years, possibly in part because restrictive fi-nancial conditions and weak economic activity in the



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aftermath of the financial crisis had reduced invest-ment, business formation, and the pace of adoption ofnew technologies. Many of these participants worriedthat, should the economy continue to operate belowpotential for too long, reduced investment and un-derutilization of labor could further undermine the

growth of potential output over time. A couple of par-ticipants noted that uncertainties concerning both thelevel of, and the source of shifts in, potential outputmade it difficult to base decisions about monetary poli-cy on real-time measures of the output gap.

Participants noted that financial conditions appeared tohave been supported by the recent fiscal agreement, aperceived reduction in the risk that the debt ceilingwould not be raised in a timely manner, accommoda-tive monetary policy, and actions taken by Europeanauthorities. With regard to Europe, participants con-tinued to see downside risks to growth emanating from

that region, given its unresolved imbalances and weakeconomic outlook. Several participants mentioned thatdomestic credit conditions appeared to have improved:Automobile loans were expanding rapidly and it wasreported that competition to make commercial andindustrial loans was robust. Although mortgage availa-bility was still limited, a couple of participants indicatedthat they expected increased competition to bringabout some lessening of the restraints on mortgagecredit. In general, after having been depressed forsome time, investor appetite for risk had increased. Afew participants commented that the Committees ac-

commodative policies were intended in part to promotea more balanced approach to risk-taking, but severalothers expressed concern about the potential for exces-sive risk-taking and adverse consequences for financialstability. Some participants mentioned the potential fora sharp increase in longer-term interest rates to ad-versely affect financial stability and indicated their in-terest in further work on this topic.

The Committee again discussed the possible benefitsand costs of additional asset purchases. Most partici-pants commented that the Committees asset purchaseshad been effective in easing financial conditions and

helping stimulate economic activity, and many pointed,in particular, to the support that low longer-term inter-est rates had provided to housing or consumer durablepurchases. In addition, the Committees highly ac-commodative policy was seen as helping keep inflationover the medium term closer to its longer-run goal of 2percent than would otherwise have been the case. Pol-icy was also aimed at improving the labor market out-look. In this regard, several participants stressed the

economic and social costs of high unemployment, aswell as the potential for negative effects on the econo-mys longer-term path of a prolonged period of un-derutilization of resources. However, many participantsalso expressed some concerns about potential costs andrisks arising from further asset purchases. Several par-

ticipants discussed the possible complications that addi-tional purchases could cause for the eventual with-drawal of policy accommodation, a few mentioned theprospect of inflationary risks, and some noted that fur-ther asset purchases could foster market behavior thatcould undermine financial stability. Several participantsnoted that a very large portfolio of long-duration assetswould, under certain circumstances, expose the FederalReserve to significant capital losses when these hold-ings were unwound, but others pointed to offsettingfactors and one noted that losses would not impede theeffective operation of monetary policy. A few also

raised concerns about the potential effects of furtherasset purchases on the functioning of particular finan-cial markets, although a couple of other participantsnoted that there had been little evidence to date of sucheffects. In light of this discussion, the staff was askedfor additional analysis ahead of future meetings to sup-port the Committees ongoing assessment of the assetpurchase program.

Several participants emphasized that the Committeeshould be prepared to vary the pace of asset purchases,either in response to changes in the economic outlookor as its evaluation of the efficacy and costs of such

purchases evolved. For example, one participant ar-gued that purchases should vary incrementally frommeeting to meeting in response to incoming infor-mation about the economy. A number of participantsstated that an ongoing evaluation of the efficacy, costs,and risks of asset purchases might well lead the Com-mittee to taper or end its purchases before it judgedthat a substantial improvement in the outlook for thelabor market had occurred. Several others argued thatthe potential costs of reducing or ending asset purchas-es too soon were also significant, or that asset purchas-es should continue until a substantial improvement inthe labor market outlook had occurred. A few partici-pants noted examples of past instances in which poli-cymakers had prematurely removed accommodation,with adverse effects on economic growth, employment,and price stability; they also stressed the importance ofcommunicating the Committees commitment to main-taining a highly accommodative stance of policy as longas warranted by economic conditions. In this regard, anumber of participants discussed the possibility of



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providing monetary accommodation by holding securi-ties for a longer period than envisioned in the Commit-tees exit principles, either as a supplement to, or a re-placement for, asset purchases.

Participants also discussed the economic thresholds inthe Committees forward guidance on the path of thefederal funds rate. On the whole, participants judgedthat financial markets had adapted to the shift fromdate-based communication to guidance based on eco-nomic thresholds without difficulty, although a fewparticipants stated that communications challenges re-mained. For example, one participant commented thatsome market participants appeared to have incorrectlyinterpreted the thresholds as triggers that, whenreached, would necessarily lead to an immediate rise inthe federal funds rate. A couple of participants notedthat this policy tool would be more effective if theCommittee were able to communicate a consensus ex-

pectation for the path of the federal funds rate after athreshold was crossed. One participant also indicated apreference for lowering the threshold for the unem-ployment rate as a means of providing additional ac-commodation.

Committee Policy ActionCommittee members saw the information receivedover the intermeeting period as suggesting that growthin economic activity had paused in recent months, inlarge part because of weather-related disruptions andother transitory factors. Employment had continued toexpand at a moderate pace, but the unemployment rate

remained elevated. However, members generally ex-pected that, with appropriately accommodative mone-tary policy, economic growth would proceed at a mod-erate pace and the unemployment rate would graduallydecline toward levels they judged to be consistent withthe Committees dual mandate. Although memberssaw strains in global financial markets as having easedsomewhat, they continued to see an increase in suchstrains as well as slower global growth and a greater-than-expected fiscal tightening in the United States asdownside risks to the economy. Members generallycontinued to anticipate that, with longer-term inflation

expectations stable and slack in resource utilization re-maining, inflation over the medium term would run ator below the Committees longer-run objective of 2percent.

In their discussion of monetary policy for the periodahead, members saw the economic outlook as relativelylittle changed since the previous meeting. Accordingly,all but one member judged that maintaining the highly

accommodative stance of monetary policy was war-ranted in order to foster a stronger economic recoveryin a context of price stability. The Committee agreedthat it would be appropriate to continue purchases ofMBS at a pace of $40 billion per month and purchasesof longer-term Treasury securities at a pace of $45 bil-

lion per month, as well as to maintain the Committeesreinvestment policies. The Committee also retained itsforward guidance about the federal funds rate, includ-ing the thresholds on the unemployment and inflationrates. Some members remarked favorably on the moveaway from providing calendar dates in the forwardguidance and toward highlighting the economic condi-tionality of future monetary policy. One member dis-sented from the Committees policy decision, express-ing concern that the continued high level of monetaryaccommodation increased the risks of future economicand financial imbalances and, over time, could cause an

increase in long-term inflation expectations.In the statement to be released following the meeting,the Committee made relatively small modifications tothe language of its December statement, including toacknowledge both the pause in economic growth dur-ing the fourth quarter and some easing of the strains inglobal financial markets. In light of the importance ofongoing U.S. fiscal concerns, members discussedwhether to include a reference to unresolved fiscal is-sues, but decided to refrain. Similarly, one memberraised a question about whether the statement languageadequately captured the importance of the Committees

assessment of the likely efficacy and costs in its assetpurchase decisions, but the Committee decided tomaintain the current language pending a review,planned for the March meeting, of its asset purchases.

At the conclusion of the discussion, the Committeevoted to authorize and direct the Federal Reserve Bankof New York, until it was instructed otherwise, to exe-cute transactions in the System Account in accordancewith the following domestic policy directive:

Consistent with its statutory mandate, theFederal Open Market Committee seeksmonetary and financial conditions that willfoster maximum employment and price sta-bility. In particular, the Committee seeksconditions in reserve markets consistent withfederal funds trading in a range from 0 to percent. The Committee directs the Deskto undertake open market operations as nec-essary to maintain such conditions. TheDesk is directed to continue purchasing



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longer-term Treasury securities at a pace ofabout $45 billion per month and to continuepurchasing agency mortgage-backed securi-ties at a pace of about $40 billion per month.The Committee alsodirects the Desk to en-gage in dollar roll and coupon swap transac-

tions as necessary to facilitate settlement ofthe Federal Reserves agency MBS transac-tions. The Committee directs the Desk tomaintain its policy of rolling over maturingTreasury securities into new issues and itspolicy of reinvesting principal payments onall agency debt and agency mortgage-backedsecurities in agency mortgage-backed securi-ties. The System Open Market AccountManager and the Secretary will keep theCommittee informed of ongoing develop-ments regarding the Systems balance sheet

that could affect the attainment over time ofthe Committees objectives of maximumemployment and price stability.

The vote encompassed approval of the statement be-low to be released at 2:15 p.m.:

Information received since the FederalOpen Market Committee met in Decembersuggests that growth in economic activitypaused in recent months, in large part be-cause of weather-related disruptions andother transitory factors. Employment hascontinued to expand at a moderate pace but

the unemployment rate remains elevated.Household spending and business fixed in-vestment advanced, and the housing sectorhas shown further improvement. Inflationhas been running somewhat below theCommittees longer-run objective, apartfrom temporary variations that largely reflectfluctuations in energy prices. Longer-terminflation expectations have remained stable.

Consistent with its statutory mandate, theCommittee seeks to foster maximum em-ployment and price stability. The Committeeexpects that, with appropriate policy ac-commodation, economic growth will pro-ceed at a moderate pace and the unemploy-ment rate will gradually decline toward levelsthe Committee judges consistent with its du-al mandate. Although strains in global finan-cial markets have eased somewhat, theCommittee continues to see downside risks

to the economic outlook. The Committeealso anticipates that inflation over the medi-um term likely will run at or below its 2 per-cent objective.

To support a stronger economic recoveryand to help ensure that inflation, over time,is at the rate most consistent with its dualmandate, the Committee will continue pur-chasing additional agency mortgage-backedsecurities at a pace of $40 billion per monthand longer-term Treasury securities at a paceof $45 billion per month. The Committee ismaintaining its existing policy of reinvestingprincipal payments from its holdings ofagency debt and agency mortgage-backed se-curities in agency mortgage-backed securitiesand of rolling over maturing Treasury securi-ties at auction. Taken together, these actions

should maintain downward pressure onlonger-term interest rates, support mortgagemarkets, and help to make broader financialconditions more accommodative.

The Committee will closely monitor incom-ing information on economic and financialdevelopments in coming months. If the out-look for the labor market does not improvesubstantially, the Committee will continue itspurchases of Treasury and agency mortgage-backed securities, and employ its other policytools as appropriate, until such improvement

is achieved in a context of price stability. Indetermining the size, pace, and compositionof its asset purchases, the Committee will, asalways, take appropriate account of the likelyefficacy and costs of such purchases.

To support continued progress toward max-imum employment and price stability, theCommittee expects that a highly accommo-dative stance of monetary policy will remainappropriate for a considerable time after theasset purchase program ends and the eco-nomic recovery strengthens. In particular,the Committee decided to keep the targetrange for the federal funds rate at 0 to percent and currently anticipates that thisexceptionally low range for the federal fundsrate will be appropriate at least as long as theunemployment rate remains above 6 per-cent, inflation between one and two yearsahead is projected to be no more than a half



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percentage point above the Committees2 percent longer-run goal, and longer-terminflation expectations continue to be well an-chored. In determining how long to main-tain a highly accommodative stance of mone-tary policy, the Committee will also consider

other information, including additionalmeasures of labor market conditions, indica-tors of inflation pressures and inflation ex-pectations, and readings on financial devel-opments. When the Committee decides tobegin to remove policy accommodation, itwill take a balanced approach consistent withits longer-run goals of maximum employ-ment and inflation of 2 percent.

Voting for this action: Ben Bernanke, William C.Dudley, James Bullard, Elizabeth Duke, Charles L. Ev-ans, Jerome H. Powell, Sarah Bloom Raskin, Eric

Rosengren, Jeremy C. Stein, Daniel K. Tarullo, andJanet L. Yellen.

Voting against this action: Esther L. George.

Ms. George dissented out of concern that the contin-ued high level of monetary accommodation increasedthe risks of future economic and financial imbalancesand, over time, could cause an increase in inflation ex-pectations. In her view, the potential costs and risksposed by the Committees asset purchases outweighedtheir uncertain benefits. Although she noted that mon-etary policy needed to remain supportive of the econ-

omy, Ms. George believed that policy had become tooaccommodative and that possible unintended side ef-fects of ongoing asset purchases, posing risks to finan-cial stability and complicating future monetary policy,argued against continuing on the Committees currentpath.

Discussion of Communications Regarding Eco-nomic ProjectionsAs a follow-up to the FOMCs discussion in Octoberabout providing more information on the Committeescollective judgment regarding the economic outlookand appropriate monetary policy, the staff presented

several options for enhancing the Summary of Eco

nomic Projections (SEP). Most of the options in-volved displaying the information currently collectedfrom participants in new ways by using different sum-mary statistics or aggregations. In the ensuing discus-sion, participants expressed a range of views on theadvantages and disadvantages of implementing changes

to the SEP. For example, they generally judged thatthe addition of the median of participants projectionscould be useful to better illustrate the central outlookof the Committee. Many participants also expressedinterest in exploring the potential for using the SEP toconvey information about issues related to the Com-mittees future asset purchases and the Federal Re-serves balance sheet. However, the discussion high-lighted the complexity involved in providing this in-formation, in part because participants quantitativeassessments of the likely evolution of the Federal Re-serves asset holdings under appropriate policy may not

adequately convey the nature of the conditionality andthe broader costbenefit considerations guiding theCommittees actions in this area. At the end of thediscussion, the Chairman asked the subcommittee oncommunications to explore potential approaches toproviding more information about participants indi-vidual views of appropriate balance sheet policy and itsconditionality.

It was agreed that the next meeting of the Committeewould be held on TuesdayWednesday, March 19-20,2013. The meeting adjourned at 1:45 p.m. on January30, 2013.

Notation VoteBy notation vote completed on January 2, 2013, theCommittee unanimously approved the minutes of theFOMC meeting held on December 1112, 2012.

_____________________________William B. English

Secretary


fomc minutes jan 2013

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