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Federal Reserve Building 1937
FOMC Meeting Minutes and Summary of Economic Projections
"Disappointingly slow": progress toward meeting Committee's dual mandate of maximum employment and price stability
FOMC Statement The related FOMC Statement was released and reviewed in a previous post on November 3, 2010: Federal Reserve: Pace of USA Economic Recovery Continues to Be Slow (Review, Chart) *Will purchase $600B US Treasury securities*. This post reviews the actual Minutes and Summary of Economic Projections, which are an addendum to the minutes, and were released on November 23, 2010.
From "Modest" to "Slow" The Federal Reserve previously, for months, utilized the wording and theme of "modest" and "moderate" regarding economic activity, recovery, and growth. The current statement, and minutes, has changed to "slow": slow pace of recovery in output, slow pace of recovery in employment, disappointingly slow progress in FOMC objectives. As always, the FOMC statement is carefully worded.
Summary of Economic Projections
GDP Projections Lowered for 2010 & 2011
Unemployment Rate Projections Raised for 2010 & 2011
The short story on the release of the FOMC meeting minutes was the economic recovery is going to take a few years (up to 5 or 6 years).
* 2010 GDP projection was lowered to 2.4%-2.5% from 3.0%-3.5% and prior to that 3.2%-3.7%
* 2011 GDP projection was lowered to 3.0%-3.6% from 3.5%-4.2% and prior to that 3.4%-4.5%
* 2011 GDP projection was lowered to 3.0%-3.6% from 3.5%-4.2% and prior to that 3.4%-4.5%
* 2010 Unemployment Rate projection was raised to 9.5%-9.7% from 9.2%-9.5% and prior to that 9.1%-9.5%
* 2011 Unemployment Rate projection was raised to 8.9%-9.1% from 8.3%-8.7% and prior to that 8.1%-8.5%
* 2011 Unemployment Rate projection was raised to 8.9%-9.1% from 8.3%-8.7% and prior to that 8.1%-8.5%
"In their discussion of the economic situation and outlook, meeting participants generally agreed that the incoming data indicated that output and employment were continuing to increase, but only slowly. Progress toward the Committee's dual objectives of maximum employment and price stability was described as disappointingly slow. Participants variously noted a number of factors that were restraining growth, including low levels of household and business confidence, concerns about the durability of the economic recovery, continuing uncertainty about the future tax and regulatory environment, still-weak financial conditions of some households and small businesses, the depressed housing market, and waning fiscal stimulus. Although participants considered it quite unlikely that the economy would slide back into recession, some noted that continued slow growth and high levels of resource slack could leave the economic expansion vulnerable to negative shocks. In the absence of such shocks, and assuming appropriate monetary policy, participants' economic projections generally showed growth picking up to a moderate pace and the unemployment rate declining somewhat next year. Participants generally expected growth to strengthen further and unemployment to decline somewhat more rapidly in 2012 and 2013."
GDP Projection (Summary of Economic Projections)
GDP Projection (Summary of Economic Projections)
Table 1. Economic projections of Federal Reserve Governors and Reserve Bank presidents, November 2010
The central tendency excludes the three highest and three lowest projections for each variable in each year.
Change in Real GDP (%)
Central Tendency (November) Central Tendency (June) Central Tendency (April)
2010 2.4 to 2.5 3.0 to 3.5 3.2 to 3.7
2011 3.0 to 3.6 3.5 to 4.2 3.4 to 4.5
2012 3.6 to 4.5 3.5 to 4.5 3.5 to 4.5
2013 3.5 to 4.6 na na
2013 3.5 to 4.6 na na
Longer Run 2.5 to 2.8 2.5 to 2.8 2.5 to 2.8
Unemployment Rate Projection (Summary of Economic Projections)
Table 1. Economic projections of Federal Reserve Governors and Reserve Bank presidents, November 2010
The central tendency excludes the three highest and three lowest projections for each variable in each year.
Unemployment Rate (%)
Central Tendency (November) Central Tendency (June) Central Tendency (April)
2010 9.5 to 9.7 9.2 to 9.5 9.1 to 9.5
2011 8.9 to 9.1 8.3 to 8.7 8.1 to 8.5
2012 7.7 to 8.2 7.1 to 7.5 6.6 to 7.5
2013 6.9 to 7.4 na na
2013 6.9 to 7.4 na na
Longer Run 5.0 to 6.0 5.0 to 5.3 5.0 to 5.3
Federal Open Market Committee Meeting Minutes; June 22 & 23, 2010
<Emphasis added by italics>
Staff Review of the Economic Situation "The information reviewed at the November 2-3 meeting indicated that the economic recovery proceeded at a modest rate in recent months, with only a gradual improvement in labor market conditions, and was accompanied by a continued low rate of inflation. Consumer spending, business investment in equipment and software, and exports posted further gains in the third quarter, and nonfarm inventory investment stepped up. But construction activity in both the residential and nonresidential sectors remained depressed, and a significant portion of the rise in domestic demand was again met by imports. U.S. industrial production slowed noticeably in August and September, hiring at private businesses remained modest, and the unemployment rate stayed elevated. Headline consumer price inflation was subdued in recent months, despite a rise in energy prices, as core consumer price inflation trended lower."
Staff Review of the Financial Situation "The decision by the Federal Open Market Committee (FOMC) at its September meeting to maintain the 0 to 1/4 percent target range for the federal funds rate was widely anticipated. However, yields declined as market participants reportedly interpreted the language of the accompanying statement to imply higher odds of additional asset purchases and a longer period of exceptionally low short-term interest rates. Investors took particular note of the statement's indication that inflation was below the levels consistent with the FOMC's dual mandate for maximum employment and price stability. In the weeks following the FOMC meeting, Federal Reserve communications, along with economic data releases that continued to point to a tepid economic outlook, appeared to reinforce market expectations that additional policy accommodation would be forthcoming in the near term."
Staff Economic Outlook "Because the recent data on production and spending were broadly in line with the staff's expectations, the forecast for economic activity that was prepared for the November FOMC meeting showed little change to the staff's near-term outlook relative to the forecast prepared for the September FOMC meeting. However, the staff revised up its forecast for economic activity in 2011 and 2012. In light of asset market developments over the intermeeting period, which in large part appeared to reflect heightened expectations among investors that the Federal Reserve would undertake additional purchases of longer-term securities, the November forecast was conditioned on lower long-term interest rates, higher stock prices, and a lower foreign exchange value of the dollar than was the staff's previous forecast. These factors were expected to provide additional support to the recovery in economic activity. Accordingly, the unemployment rate was anticipated to recede somewhat more than in the previous forecast, although the margin of slack at the end of 2011 was still expected to be substantial."
Committee Policy Action "Though the economic recovery was continuing, members considered progress toward meeting the Committee's dual mandate of maximum employment and price stability as having been disappointingly slow. Moreover, members generally thought that progress was likely to remain slow. Accordingly, most members judged it appropriate to take action to promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with the Committee's mandate. In their discussion of monetary policy for the period immediately ahead, nearly all Committee members agreed to keep the federal funds rate at its effective lower bound by maintaining the target range for that rate at 0 to 1/4 percent and to expand the Federal Reserve's holdings of longer-term securities. To increase its securities holdings, the Committee decided to continue its existing policy of reinvesting principal payments from its securities holdings into longer-term Treasury securities and intended to purchase a further $600 billion of longer-term Treasury securities at a pace of about $75 billion per month through the second quarter of 2011. One member dissented from this action, judging that the risks of additional securities purchases outweighed the benefits. Members agreed that the Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster its goals of maximum employment and price stability."
FOMC Statement: November 3, 2010
This FOMC Statement is reviewed in a previous post on November 3, 2010: Federal Reserve: Pace of USA Economic Recovery Continues to Be Slow (Review, Chart) *Will purchase $600B US Treasury securities*
Federal Open Market Committee
Release Date: November 3, 2010
For immediate release
Information received since the Federal Open Market Committee met in September confirms that the pace of recovery in output and employment continues to be slow. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. Housing starts continue to be depressed. Longer-term inflation expectations have remained stable, but measures of underlying inflation have trended lower in recent quarters.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow.
To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.
The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.
The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Sandra Pianalto; Sarah Bloom Raskin; Eric S. Rosengren; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.
Voting against the policy was Thomas M. Hoenig. Mr. Hoenig believed the risks of additional securities purchases outweighed the benefits. Mr. Hoenig also was concerned that this continued high level of monetary accommodation increased the risks of future financial imbalances and, over time, would cause an increase in long-term inflation expectations that could destabilize the economy,
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