june fomc minutes

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Minutes of the Federal Open Market CommitteeJune 1819, 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., on Tues-day, June 18, 2013, at 1:30 p.m. and continued onWednesday, June 19, 2013, at 9:00 a.m.

PRESENT:Ben Bernanke, ChairmanWilliam C. Dudley, Vice ChairmanJames BullardElizabeth DukeCharles L. EvansEsther L. GeorgeJerome H. PowellSarah Bloom Raskin

Eric RosengrenJeremy C. SteinDaniel K. TarulloJanet L. Yellen

Christine Cumming, Richard W. Fisher, NarayanaKocherlakota, and Charles I. Plosser, AlternateMembers of the Federal Open Market Committee

Jeffrey M. Lacker, Dennis P. Lockhart, and John C.Williams, Presidents of the Federal Reserve Banksof Richmond, Atlanta, and San Francisco, respec-

tively

Gregory L. Stefani, First Vice President, Federal Re-serve Bank of Cleveland

William B. English, Secretary and EconomistMatthew 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. Meyer, DavidReifschneider, Geoffrey Tootell, Christopher J.Waller, and William Wascher, Associate Econo-mists

Simon Potter, Manager, System Open Market Account

Nellie Liang, Director, Office of Financial Stability Pol-icy and Research, Board of Governors

James A. Clouse and William Nelson, Deputy Direc-tors, Division of Monetary Affairs, Board of Gov-ernors; Matthew J. Eichner, Deputy Director, Divi-sion of Research and Statistics, Board of Gover-nors; Maryann F. Hunter, Deputy Director, Divi-sion of Banking Supervision and Regulation, Boardof Governors

Jon W. Faust, Special Adviser to the Board, Office ofBoard Members, Board of Governors

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

Ellen E. Meade and Joyce K. Zickler, Senior Advisers,Division of Monetary Affairs, Board of Governors

Daniel M. Covitz, Eric M. Engen, and Thomas Lau-bach, Associate Directors, Division of Researchand Statistics, Board of Governors

Sean D. Campbell and Joshua Gallin, Deputy AssociateDirectors, Division of Research and Statistics,Board of Governors; Jane E. Ihrig and David

Lpez-Salido, Deputy Associate Directors, Divi-sion of Monetary Affairs, Board of Governors

Joseph W. Gruber, Assistant Director, Division of In-ternational Finance, Board of Governors

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

David H. Small, Project Manager, Division of Mone-tary Affairs, Board of Governors

Deborah J. Lindner, Group Manager, Division of Re-search and Statistics, Board of Governors

Patrice Robitaille, Senior Economist, Division of Inter-national Finance, Board of Governors

Seung J. Lee, Economist, Division of Monetary Affairs,Board of Governors

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Peter M. Garavuso, Records Management Analyst, Di-vision of Monetary Affairs, Board of Governors

James M. Lyon, First Vice President, Federal ReserveBank of Minneapolis

David Altig and Loretta J. Mester, Executive Vice Pres-idents, Federal Reserve Banks of Atlanta and Phil-adelphia, respectively

Lorie K. Logan, David Marshall, Mark E. Schweitzer,and Kei-Mu Yi, Senior Vice Presidents, FederalReserve Banks of New York, Chicago, Cleveland,and Minneapolis, respectively

Evan F. Koenig, Vice President, Federal Reserve Bankof Dallas

Andreas L. Hornstein, Senior Advisor, Federal ReserveBank of Richmond

John Fernald, Senior Research Adviser, Federal Re-serve Bank of San Francisco

Discussion of Guidelines for Policy NormalizationIn light of the changes in the System Open Market Ac-count (SOMA) portfolio over the past two years, theCommittee again discussed its strategy for the eventualnormalization of the stance of monetary policy and thesize and composition of the Federal Reserves balance

sheet that was released in the minutes of the Commit-tees June 2011 meeting. Although most participantssaw this review as prudent longer-range planning, somefelt that the discussion was premature. Meeting partic-ipants, in general, continued to view the broad princi-ples set out in 2011 as still applicable. Nonetheless,they agreed that many of the details of the eventualnormalization process would likely differ from thosespecified two years ago, that the appropriate detailswould depend in part on economic and financial devel-opments between now and the time when it becomesappropriate to begin normalizing monetary policy, and

that the Committee would need to provide additionalinformation about its intentions as that time approach-es. Participants continued to think that the FederalReserve should, in the long run, hold predominantlyTreasury securities. Most, however, now anticipatedthat the Committee would not sell agency mortgage-backed securities (MBS) as part of the normalizationprocess, although some indicated that limited salesmight be warranted in the longer run to reduce or elim-

inate residual holdings. A couple of participants statedthat they preferred that the Committee make no deci-sion about sales of MBS until closer to the start of thenormalization process. Participants agreed that theCommittees focus continued to be on providing ap-propriate monetary accommodation to promote a

stronger recovery in the context of price stability andso judged that additional discussion regarding policynormalization should be deferred.

Developments in Financial Markets and the Fed-eral Reserves Balance SheetThe Manager of the SOMA reported on developmentsin domestic and foreign financial markets as well as theSystem open market operations during the period sincethe Federal Open Market Committee (FOMC) met onApril 30May 1, 2013. The review included a reportthat the Systems purchases of longer-term assets didnot appear to have had an adverse effect on the func-

tioning of the markets for Treasury securities or agencyMBS, and that the Open Market Desks operations inboth sectors had proceeded smoothly. By unanimousvote, the Committee ratified the Desks domestic trans-actions over the intermeeting period. There were nointervention operations in foreign currencies for theSystems account over the intermeeting period.

Staff Review of the Economic SituationThe information reviewed for the June 1819 meetingsuggested that economic activity continued to increaseat a moderate rate in the second quarter. Private-sectoremployment expanded further in recent months, and

the unemployment rate in April and May was below itsfirst-quarter average, although it continued to be ele-vated. Consumer price inflation was subdued, partlyreflecting transitory influences. However, measures oflonger-run inflation expectations remained stable.

Private nonfarm employment rose moderately in Apriland May, while total government employment contin-ued to decline somewhat. The unemployment rate was7.6 percent in May, little changed from its level in April.The labor force participation rate edged up in May, butwas still slightly below its first-quarter average, and theemployment-to-population ratio increased a bit in re-cent months. The rate of long-duration unemploymentdeclined slightly, while the share of workers employedpart time for economic reasons was little changed; bothof these measures remained well above their pre-recession levels. Forward-looking indicators of near-term labor market activity were mixed but generallypointed to some further improvement in labor marketconditions in the coming months: Household expecta-

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tions of the labor market situation improved; initialclaims for unemployment insurance were little changed,on net, over the intermeeting period; and firms hiringplans edged up. However, measures of job openingsand the rate of gross private-sector hiring were aboutflat, on balance, in recent months and remained near

their levels of a year ago.

Manufacturing production increased slightly in Mayafter declining in the previous two months, and the rateof manufacturing capacity utilization in May was lowerthan in the first quarter. Automakers schedules indi-cated that the pace of motor vehicle assemblies wouldhold roughly steady in the coming months, and broaderindicators of manufacturing production, such as thereadings on new orders from national and regionalmanufacturing surveys, were generally at subdued levelsthat pointed to only modest increases in factory outputin the near term.

Real personal consumption expenditures (PCE) rose inApril. In May, nominal retail sales, excluding those atmotor vehicle and parts outlets, increased briskly, whilelight motor vehicle sales moved up solidly. Some keyfactors that tend to support growth in householdspending were positive in recent months. After de-creasing in the first quarter when payroll and incometaxes increased, households real disposable incomerose in April, in part reflecting a small decline in con-sumer prices. Households net worth likely increased inrecent months, as equity values and home prices rosefurther. Moreover, consumer sentiment in the Thom-

son Reuters/University of Michigan Surveys of Con-sumers improved notably, on balance, in May and earlyJune and was at its most upbeat level since the onset ofthe recession.

Conditions in the housing sector generally improvedfurther, but construction activity was still at a relativelylow level, and demand continued to be restrained bytight credit standards for mortgage loans. Starts of newsingle-family homes declined, on net, in April and May,but permits rose, suggesting gains in construction in thecoming months. Starts of new multifamily units de-creased in April but increased in May. Home pricescontinued to rise rapidly through April, while sales ofboth new and existing homes advanced.

Real business expenditures on equipment and softwareappeared to slow somewhat going into the secondquarter after expanding modestly earlier in the year.Nominal shipments of nondefense capital goods ex-cluding aircraft decreased in April, but nominal neworders for these capital goods increased and were

slightly above the level of shipments, pointing to mod-est gains in shipments in the near term. Otherforward-looking indicators, such as surveys of businessconditions and capital spending plans, also suggestedthat outlays for business equipment would continue torise at only a modest pace in the coming months.

Nominal business spending for nonresidential con-struction increased in April after it had declined in thefirst quarter. Business inventories in most industriesappeared to be broadly aligned with sales in recentmonths.

Real federal government purchases appeared to be de-clining less rapidly going into the second quarter thanthey had during the first quarter, as decreases in de-fense spending slowed, on balance, in April and May.The ongoing declines in real state and local governmentpurchases appeared to moderate over recent months;the payrolls of these governments expanded in April

and May, but state and local construction expenditurescontinued to decline noticeably.

The U.S. international trade deficit narrowed in Marchbut widened in April, leaving the level of the trade defi-cit in April similar to its average in the first quarter.Both imports and exports fell in March but largely re-covered in April, although oil imports remained belowtheir first-quarter average. Exports of consumer goodsand automotive products reached new highs in April,but exports of agricultural products declined.

Overall U.S. consumer prices, as measured by the PCE

price index, edged down in April, while the consumerprice index (CPI) rose somewhat in May. Both the CPIand the PCE price index increased at a subdued rateover the most recent 12-month period for each series.After declining in the previous two months, consumerenergy prices rose a little in May, and retail gasolineprices, measured on a seasonally adjusted basis, were upfurther in the first couple of weeks in June. Consumerfood prices edged down in May after rising modestly inApril. Partly reflecting some transitory factors, such asa one-time reduction in Medicare prices associated withthe federal government spending sequestration, con-sumer prices excluding food and energy only edged upin April but rose slightly more in May. Near-term infla-tion expectations from the Michigan survey were littlechanged in May and early June; longer-term inflationexpectations in the survey also were essentially flat andremained within the narrow range that they have occu-pied for a number of years.

Measures of labor compensation indicated that gains innominal wages remained modest. Compensation per

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hour in the nonfarm business sector increased moder-ately over the year ending in the first quarter, and, witha small rise in productivity, unit labor costs advancedonly a little. Gains in average hourly earnings for allemployees were muted, on balance, in April and May.

Foreign economic growth remained sluggish so far thisyear. A slower pace of expansion in many emergingmarket economies (EMEs), including China, since thebeginning of the year offset an increase in the averagerate of economic growth in the advanced foreign econ-omies. In Japan, where recent policy measures ap-peared to have boosted household confidence, eco-nomic growth picked up noticeably early in the year.Recent indicators of Canadian economic activity alsostrengthened. However, indicators for the euro-areaeconomies remained weak. A decline in commodityprices and continued lackluster economic growth con-tributed to a decline in foreign inflation.

Staff Review of the Financial SituationFinancial markets were volatile during the intermeetingperiod as investors reacted to incoming economic dataand Federal Reserve communications. Informationabout the U.S. economy was somewhat better, on bal-ance, than investors had anticipated, apparently givingthem greater confidence in the economic outlook.Federal Reserve communications over the period re-portedly were interpreted by market participants aspointing to a less accommodative stance of futuremonetary policy than they previously had expected.

Market-based indicators suggested that investors re-vised up their expectations about the path of the feder-al funds rate in coming years. Forward rates two tothree years ahead derived from overnight index swapsshifted up 25 to 40 basis points over the intermeetingperiod, likely reflecting both an increase in the expectedpath for the federal funds rate and an increase in termpremiums. In contrast to the readings from financialmarket quotes, which suggested that investors hadcome to expect the FOMC to increase its target for thefederal funds rate sooner than they previously had an-ticipated, the results from the Desks survey of primarydealers conducted prior to the June meeting showedlittle material change, on balance, in the dealers expec-tations of the most likely timing of the first increase inthe federal funds rate target.

Nominal yields on Treasury securities rose sharply overthe intermeeting period amid some better-than-expected U.S. economic data and Federal Reservecommunications that were interpreted by market par-ticipants as signaling a possible earlier-than-expected

reduction in the pace of purchases under the FOMCsflow-based asset purchase program. Nominal yields on5- to 30-year Treasury securities increased about 35 to55 basis points. Yields on agency MBS rose more thanthose on comparable-maturity Treasury securities, leav-ing option-adjusted spreads to Treasury securities no-

tably wider. The rise in longer-term Treasury yieldsappeared to reflect both an increase in term premiumsand a rise in expected future short-term rates. The risein term premiums, in turn, likely reflected in part a re-assessment of the pace and ultimate size of the FederalReserves asset purchase program, as well as increaseduncertainty about the future path of monetary policy.

Measures of inflation compensation derived fromyields on nominal and inflation-protected Treasury se-curities fell notably but ended the intermeeting periodwithin their ranges over the past few years. Investorperceptions of a somewhat less accommodative tone of

Federal Reserve communications, as well as the softer-than-expected reading for the April CPI, likely contrib-uted to the decline in inflation compensation.

Conditions in domestic and offshore dollar fundingmarkets were generally little changed, on balance, overthe intermeeting period. In secured funding markets,rates on Treasury general collateral repurchase agree-ments decreased, on net, in large part because of theseasonal decline in the supply of Treasury securities.

Market sentiment toward large domestic banking or-ganizations appeared to improve somewhat over the

intermeeting period, likely related in part to further re-ductions in nonperforming loans and growing confi-dence in the economic outlook. Equity prices for largedomestic banks outperformed broad equity indexesover the intermeeting period, as did the equity pricesfor most other types of financial institutions. In con-trast, equity prices for agency mortgage real estate in-vestment trusts declined, reflecting the rise in longer-term interest rates, the underperformance of agencyMBS, and weaker-than-expected earnings reports.

Responses to the June Senior Credit Officer OpinionSurvey on Dealer Financing Terms generally suggested

little change over the past three months in the creditterms applicable to important classes of counterpartiesand in the use of financial leverage by most classes ofcounterparties covered by the survey. However, aboutone-fourth of dealers reported an increase in the use ofleverage by hedge funds.

Corporate bond yields rose significantly over theintermeeting period, and their spreads relative to



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comparable-maturity Treasury yields edged higher onnet. Credit flows to nonfinancial businesses remainedstrong in May, especially through bond issuance. Grossissuance of speculative-grade corporate bonds was par-ticularly elevated early in the intermeeting period, butsuch issuance slowed after mid-May in response to the

rise in interest rates and in market volatility. Mean-while, the issuance of syndicated leveraged loans re-mained robust in April and May, supported by stronginvestor demand for floating-rate corporate debt in-struments.

House prices continued to rise in recent months, withnational home price indexes up between 5 and 12 per-cent over the 12-month period ending in April. As aresult, the number of mortgages with negative equitywas estimated to have decreased substantially. Primarymortgage rates increased with yields on MBS over theintermeeting period, and the spread between primary

mortgage rates and MBS yields remained near the lowend of its range over recent years. Consumer creditcontinued to expand at a solid pace because of the on-going expansion in auto and student loans; credit carddebt remained about flat. Issuance of consumer asset-backed securities increased strongly again in May.

Growth in total bank credit moderated in April andMay compared with the first quarter, as core loansslowed and securities declined slightly. Growth incommercial and industrial loans at large banks de-creased noticeably in recent months, reportedly reflect-ing both increased paydowns and reduced originations.

In contrast, increases in commercial real estate loanspicked up, especially at large banks.

The M2 monetary aggregate expanded at an annual rateof about 5 percent from April through mid-June. Themonetary base grew at an annual rate exceeding 40 per-cent over the same period, driven mainly by the in-crease in reserve balances that resulted from the Feder-al Reserves asset purchases.

Over the intermeeting period, yields on 10-year sover-eign debt of the advanced foreign economies followedthe yields on comparable-maturity U.S. Treasury securi-

ties higher, and volatility in sovereign bond marketsrose, particularly in Japan. Japanese equity markets alsodisplayed substantial volatility; equity prices fell sharplylate in the period and erased the gains that had beenregistered since early April, when the Bank of Japanannounced that it would expand its asset purchases inorder to nearly double the size of its balance sheet.European equity indexes were little changed, on net,over the period, and euro-area financial conditions re-

mained relatively stable. Spreads of yields on Italianand Spanish government debt over yields on Germanbunds increased only a few basis points, while compa-rable spreads for Greek sovereign debt declined nota-bly. The foreign exchange value of the dollar was littlechanged, on average, relative to the currencies of the

advanced foreign economies, but appreciated againstEME currencies amid weak incoming data on econom-ic activity and monetary policy easing in some EMEs,along with rising U.S. Treasury yields. Emerging mar-ket mutual funds experienced sharp outflows in recentweeks, while EME stock prices declined and EMEcredit spreads widened on net.

The staff reported on potential risks to financial stabil-ity, including the stability of banking firms, nonbankfinancial intermediaries, and asset markets. Mostmarket-based measures of the health of the bankingsectorsuch as banks stock prices, credit default swap

spreads, and equity correlationspointed to an im-provement in the stability of the banking sector, in partbecause of rising levels of liquidity and capital as well asdiminished concerns about downside risks. However, anumber of indicators pointed to a modest increase inrisk-taking and leverage that was largely being interme-diated through the shadow banking system. Signs ofupward pressures on the valuations of some risky assetswere also noted. Overall, the risks to financial stabilitywere viewed as roughly unchanged since March.

Staff Economic OutlookIn the economic forecast prepared by the staff for the

June FOMC meeting, the projection for near-termgrowth of real gross domestic product (GDP) was littlechanged from the one prepared for the previous meet-ing. However, the staffs medium-term projection forreal GDP was revised up somewhat. The staff raisedits projected paths for equity and home prices, whichpushed up expected consumer spending over the me-dium term, and boosted its outlook for domestic oilproduction, which reduced oil imports in the forecast.These positive factors were partly offset in the staffsmedium-term GDP projection by higher projectedpaths for both longer-term interest rates and the for-

eign exchange value of the dollar. Nevertheless, withfiscal policy expected to restrain economic growth thisyear, the staff still anticipated that the pace of expan-sion in real GDP would only moderately exceed thegrowth rate of potential output. The staff also contin-ued to forecast that real GDP would accelerate gradual-ly in 2014 and 2015, supported by accommodativemonetary policy, an eventual easing in the effects offiscal policy restraint on economic growth, increases in



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consumer and business sentiment, and further im-provements in credit availability and financial condi-tions. The expansion in economic activity was antici-pated to slowly reduce the slack in labor and productmarkets over the projection period, and the unem-ployment rate was expected to decline gradually. In

addition, although the staff did not change its view ofthe longer-run level of the natural rate of unemploy-ment, it judged that the natural rate was on a morepronounced downward trajectory back toward itslonger-run level than previously assumed; as a result,the staffs projection for the unemployment rate overthe next two years was revised down a little, relative toits previous forecast.

The staffs forecast for inflation in the near term wasalso revised down a little from the projection preparedfor the previous FOMC meeting, reflecting in partsome of the recent softer-than-expected readings on

consumer prices. Nonetheless, the staff expected thatmuch of the recent softness in inflation would be tran-sitory, and thus did not materially change its medium-term projection. The staff projected that inflationwould pick up in the second half of this year, but giventhe assumption of stable longer-run inflation expecta-tions and only modest changes in commodity and im-port prices as well as forecasts of gradually diminishingresource slack over the projection period, inflation wasprojected to still be relatively subdued through 2015.

The staff viewed the uncertainty around the forecastfor economic activity as normal relative to the experi-

ence of the past 20 years. However, the risks were stillviewed as skewed to the downside, in part because ofconcerns about the situation in Europe and the abilityof the U.S. economy to weather potential adverseshocks. Although the staff saw the outlook for infla-tion as uncertain, the risks were viewed as balanced andnot unusually high.

Participants Views on Current Conditions and theEconomic OutlookIn conjunction with this FOMC meeting, meeting par-ticipantsthe 7 members of the Board of Governorsand the presidents of the 12 Federal Reserve Banks, allof whom participate in the deliberations of theFOMCsubmitted their assessments of real outputgrowth, the unemployment rate, inflation, and the tar-get federal funds rate for each year from 2013 through2015 and over the longer run, under each participants

judgment of appropriate monetary policy.1 The longer-run projections represent each participants assessmentof the rate to which each variable would be expected toconverge, over time, under appropriate monetary policyand in the absence of further shocks to the economy.These economic projections and policy assessments are

described in the Summary of Economic Projections,which is attached as an addendum to these minutes.

In their discussion of the economic situation, meetingparticipants generally indicated that the informationreceived during the intermeeting period continued tosuggest that the economy was expanding at a moderatepace. A number of participants mentioned that theywere encouraged by the apparent resilience of privatespending so far this year despite considerable down-ward pressure from lower government spending andhigher taxes. In particular, consumer spending rose ata moderate rate, and the housing sector continued to

strengthen. Business investment advanced, althoughonly modestly, and slower economic activity abroadrestrained domestic production. Overall conditions inthe labor market improved further in recent months,although the unemployment rate remained elevated.Inflation continued to run below the Committeeslonger-run objective, but longer-term inflation expecta-tions remained stable.

Most participants anticipated that growth of real GDPwould pick up somewhat in the second half of 2013.Growth of economic activity was projected tostrengthen further during 2014 and 2015, supported by

accommodative monetary policy; waning fiscal re-straint; and ongoing improvements in household andbusiness balance sheets, credit availability, and labormarket conditions. Accordingly, the unemploymentrate was projected to gradually decline toward levelsconsistent with the Committees dual mandate. Manyparticipants saw the downside risks to the medium-runoutlook for the economy and the labor market as hav-ing diminished somewhat in recent months, or ex-pressed greater confidence that stronger economic ac-tivity was in train. However, some participants notedthat they remained uncertain about the projected

pickup in growth of economic activity in coming quar-ters, and thus about the prospects for further im-provement in labor market conditions, given that, in

1 Although President Pianalto was unable to attend the June1819, 2013, FOMC meeting, she submitted economic pro-jections. First Vice President Gregory L. Stefani representedthe Federal Reserve Bank of Cleveland at the meeting.



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ness and the weakness in labor force participation.Most participants still saw slack remaining in the labormarket, although they differed on the extent to whichthe progress to date had reduced that slack and howconfident they were about future labor market im-provement.

Inflation was low in the months prior to the meeting,with the trends in all broad measures remaining belowthe Committees 2 percent longer-run objective. Sever-al transitory factors, including a one-time reduction inMedicare costs, contributed to the recent very low in-flation readings. In addition, energy prices declined,and nonfuel commodity prices were soft. Over thepast year, both core and overall consumer price infla-tion trended lower; participants cited various alternativemeasures of consumer price inflation, including thetrimmed mean PCE and CPI as well as the sticky priceCPI, that suggested that the slowing was broad based.

Market-based measures of inflation expectations de-creased over the intermeeting period but remainedwithin their ranges over the past few years. Most par-ticipants expected inflation to begin to move up overthe coming year as economic activity strengthened, butmany anticipated that it would remain below theCommittees 2 percent objective for some time. Oneparticipant expressed concern about the risk of a morerapid rise in inflation over the medium term, given thehighly accommodative stance of monetary policy. Incontrast, many others worried about the low level ofinflation, and a number indicated that they would be

watching closely for signs that the shift down in infla-tion might persist or that inflation expectations werepersistently moving lower.

In their discussion of financial market developmentsover the intermeeting period, participants weighed theextent to which the rise in market interest rates andincrease in volatility reflected a reassessment of marketparticipants expectations for monetary policy and theextent to which it reflected growing confidence aboutthe economic outlook. It was noted that corporatecredit spreads had not widened substantially and thatthe stock market had posted further gains, suggesting

that the higher rates reflected, at least in part, increasingconfidence that moderate economic growth would besustained. Several participants worried that highermortgage rates and bond yields could slow the recoveryin the housing market and restrain business expansion.However, some others commented that any adverseeffects of the increase in rates on financial conditionsmore broadly appeared to be limited.

A number of participants offered views on risks to fi-nancial stability. A couple of participants expressedconcerns that some financial institutions might not bewell positioned to weather a rapid run-up in interestrates. Two others emphasized the importance of bol-stering the resilience of money market funds against

disorderly outflows. And a few stated their view that aprolonged period of low interest rates would encourageinvestors to take on excessive credit or interest rate riskand would distort some asset prices. However, otherssuggested that the recent rise in rates might have re-duced such incentives. While market volatility had in-creased of late, it was noted that the rise in measuredvolatility, while noticeable, occurred from a low level,and that a broad index of financial stress remained be-low average. One participant felt that the Committeeshould explore ways to calibrate the magnitude of therisks to financial stability so that those considerations

could be more fully incorporated into deliberations onmonetary policy.

Participants discussed how best to communicate theCommittees approach to decisions about its asset pur-chase program and how to reduce uncertainty abouthow the Committee might adjust its purchases in re-sponse to economic developments. Importantly, par-ticipants wanted to emphasize that the pace, composi-tion, and extent of asset purchases would continue tobe dependent on the Committees assessment of theimplications of incoming information for the economicoutlook, as well as the cumulative progress toward the

Committees economic objectives since the institutionof the program last September. The discussion cen-tered on the possibility of providing a rough descrip-tion of the path for asset purchases that the Committeewould anticipate implementing if economic conditionsevolved in a manner broadly consistent with the out-comes the Committee saw as most likely. Several par-ticipants pointed to the challenge of making it clear thatpolicymakers necessarily weigh a broad range of eco-nomic variables and longer-run economic trends inassessing the outlook. As an alternative, some suggest-ed providing forward guidance about asset purchasesbased on numerical values for one or more economicvariables, broadly akin to the Committees guidanceregarding its target for the federal funds rate, arguingthat such guidance would be more effective in reducinguncertainty and communicating the conditionality ofpolicy. However, participants also noted possible dis-advantages of such an approach, including that suchforward guidance might inappropriately constrain theCommittees decisionmaking, or that it might prove



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difficult to communicate to investors and the generalpublic.

Since the September meeting, some participants hadbecome more confident of sustained improvement inthe outlook for the labor market and so thought that adownward adjustment in asset purchases had or wouldlikely soon become appropriate; they saw a need toclearly communicate an intention to lower the pace ofpurchases before long. However, to some other partic-ipants, this approach appeared likely to limit the Com-mittees flexibility in adjusting asset purchases in re-sponse to changes in economic conditions, which theyviewed as a key element in the design of the purchaseprogram. Others were concerned that stating an inten-tion to slow the pace of asset purchases, even if theintention were conditional on the economy developingabout in line with the Committees expectations, mightbe misinterpreted as signaling an end to the addition of

policy accommodation or even be seen as the initialstep toward exit from the Committees highly accom-modative policy stance. It was suggested that anystatement about asset purchases make clear that deci-sions concerning the pace of purchases are distinctfrom decisions concerning the federal funds rate.

Participants generally agreed that the Committeeshould provide additional clarity about its asset pur-chase program relatively soon. A number thought thatthe postmeeting statement might be the appropriatevehicle for providing additional information on theCommittees thinking. However, some saw potential

difficulties in being able to convey succinctly the de-sired information in the postmeeting statement. Oth-ers noted the need to ensure that any new statementlanguage intended to provide more information aboutthe asset purchase program be clearly integrated withcommunication about the Committees other policytools. At the conclusion of the discussion, most partic-ipants thought that the Chairman, during his postmeet-ing press conference, should describe a likely path forasset purchases in coming quarters that was conditionalon economic outcomes broadly in line with the Com-mittees expectations. In addition, he would make clear

that decisions about asset purchases and other policytools would continue to be dependent on the Commit-tees ongoing assessment of the economic outlook. Hewould also draw the distinction between the asset pur-chase program and the forward guidance regarding thetarget for the federal funds rate, noting that the Com-mittee anticipates that there will be a considerable timebetween the end of asset purchases and the time when

it becomes appropriate to increase the target for thefederal funds rate.

Committee Policy ActionCommittee members viewed the information receivedover the intermeeting period as suggesting that eco-nomic activity had expanded at a moderate pace. La-bor market conditions showed further improvement inrecent months, on balance, but the unemployment rateremained elevated. Household spending and businessfixed investment advanced, and the housing sectorstrengthened further, but fiscal policy was restrainingeconomic growth. The Committee expected that, withappropriate policy accommodation, economic growthwould proceed at a moderate pace and result in a grad-ual decline in the unemployment rate toward levelsconsistent with its dual mandate. With economic activ-ity and employment continuing to grow at a moderatepace despite tighter fiscal policy, and with global finan-

cial conditions less strained, members generally saw thedownside risks to the outlook for the economy and thelabor market as having diminished since the fall. Infla-tion was running below the Committees longer-runobjective, partly reflecting transitory influences, butlonger-run inflation expectations were stable, and theCommittee anticipated that inflation over the mediumterm would move closer to its 2 percent objective.

In their discussion of monetary policy for the periodahead, all members but one judged that the outlook foreconomic activity and inflation warranted the continua-tion of the Committees current highly accommodative

stance of monetary policy in order to foster a strongereconomic recovery and sustained improvement in labormarket conditions in a context of price stability. In theview of one member, the improvement in the outlookfor the labor market warranted a more deliberatestatement from the Committee that asset purchaseswould be reduced in the very near future. At the con-clusion of its discussion, the Committee decided tocontinue adding policy accommodation by purchasingadditional MBS at a pace of $40 billion per month andlonger-term Treasury securities at a pace of $45 billionper month and to maintain its existing reinvestment

policies. In addition, the Committee reaffirmed its in-tention to keep the target federal funds rate at 0 to percent and retained its forward guidance that it an-ticipates that this exceptionally low range for the feder-al funds rate will be appropriate at least as long as theunemployment rate remains above 6 percent, infla-tion between one and two years ahead is projected tobe no more than a half percentage point above theCommittees 2 percent longer-run goal, and longer-



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term inflation expectations continue to be well an-chored.

Regarding the outlook for policy, members agreed thatmonetary policy in coming quarters would depend onthe evolution of the economic outlook and progresstoward the Committees longer-run objectives of max-imum employment and inflation of 2 percent. Whilerecognizing the improvement in a number of indicatorsof economic activity and labor market conditions sincethe fall, many members indicated that further im-provement in the outlook for the labor market wouldbe required before it would be appropriate to slow thepace of asset purchases. Some added that they would,as well, need to see more evidence that the projectedacceleration in economic activity would occur, beforereducing the pace of asset purchases. For one member,such a decision would also depend importantly on evi-dence that inflation was moving back toward the

Committees 2 percent objective; that member urgedthe Committee to modify its postmeeting statement tosay explicitly that the Committee will act to move infla-tion back toward its goal. A couple of other membersalso worried that the downside risks to inflation hadincreased, with one of them suggesting that the state-ment more explicitly reflect this increased risk. How-ever, several members judged that a reduction in assetpurchases would likely soon be warranted, in light ofthe cumulative decline in unemployment since the Sep-tember meeting and ongoing increases in private pay-rolls, which had increased their confidence in the out-

look for sustained improvement in labor market condi-tions. Two of these members also indicated that theCommittee should begin curtailing its purchases rela-tively soon in order to prevent the potential negativeconsequences of the program from exceeding its antic-ipated benefits. Another member pointed out that ifthe program were ended because of concerns aboutsuch consequences, the Committee would need to ex-plore other options for providing appropriate monetaryaccommodation. Many members indicated that deci-sions about the pace and composition of asset purchas-es were distinct from decisions about the appropriatelevel of the federal funds rate, which would continue tobe guided by the thresholds in the Committees state-ment. In general, members continued to anticipate thatmaintaining the current exceptionally low level of thefederal funds rate was likely to remain appropriate for aconsiderable period after asset purchases are conclud-ed.

At the conclusion of the discussion, the Committeevoted to authorize and direct the Federal Reserve Bank

of 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 seeks

monetary and financial conditions that willfoster maximum employment and price sta-bility. In particular, the Committee seeksconditions in reserve markets consistentwith federal funds trading in a range from0 to percent. The Committee directs theDesk to undertake open market operationsas necessary to maintain such conditions.The Desk is directed to continue purchasinglonger-term Treasury securities at a pace ofabout $45 billion per month and to contin-ue purchasing agency mortgage-backed se-

curities at a pace of about $40 billion permonth. The Committee also directs theDesk to engage in dollar roll and couponswap transactions as necessary to facilitatesettlement of the Federal Reserves agencymortgage-backed securities transactions.The Committee directs the Desk to main-tain 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 sheetthat could affect the attainment over timeof the Committees objectives of maximumemployment and price stability.

The vote encompassed approval of the statement be-low to be released at 2:00 p.m.:

Information received since the FederalOpen Market Committee met in May sug-gests that economic activity has been ex-

panding at a moderate pace. Labor marketconditions have shown further improve-ment in recent months, on balance, but theunemployment rate remains elevated.Household spending and business fixed in-vestment advanced, and the housing sectorhas strengthened further, but fiscal policy isrestraining economic growth. Partly reflect-ing transitory influences, inflation has been



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running below the Committees longer-runobjective, but longer-term inflation expecta-tions have remained stable.

Consistent with its statutory mandate, theCommittee seeks to foster maximum em-ployment and price stability. The Commit-tee expects that, with appropriate policy ac-commodation, economic growth will pro-ceed at a moderate pace and the unem-ployment rate will gradually decline towardlevels the Committee judges consistent withits dual mandate. The Committee sees thedownside risks to the outlook for the econ-omy and the labor market as having dimin-ished since the fall. The Committee alsoanticipates that inflation over the mediumterm likely will run at or below its 2 percentobjective.

To support a stronger economic recoveryand to help ensure that inflation, over time,is at the rate most consistent with its dualmandate, the Committee decided to contin-ue purchasing additional agency mortgage-backed securities at a pace of $40 billion permonth and longer-term Treasury securitiesat a pace of $45 billion per month. TheCommittee is maintaining its existing policyof reinvesting principal payments from itsholdings of agency debt and agency mort-gage-backed securities in agency mortgage-

backed securities and of rolling over matur-ing Treasury securities at auction. Takentogether, these actions should maintaindownward pressure on longer-term interestrates, support mortgage markets, and helpto make broader financial conditions moreaccommodative.

The Committee will closely monitor incom-ing information on economic and financialdevelopments in coming months. TheCommittee will continue its purchases ofTreasury and agency mortgage-backed secu-rities, and employ its other policy tools asappropriate, until the outlook for the labormarket has improved substantially in a con-text of price stability. The Committee isprepared to increase or reduce the pace ofits purchases to maintain appropriate policyaccommodation as the outlook for the labormarket or inflation changes. In determining

the size, pace, and composition of its assetpurchases, the Committee will continue totake appropriate account of the likely effica-cy and costs of such purchases as well as theextent of progress toward its economic ob-jectives.

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 federalfunds rate will be appropriate at least as

long as the unemployment rate remainsabove 6 percent, inflation between oneand two years ahead is projected to be nomore than a half percentage point above theCommittees 2 percent longer-run goal, andlonger-term inflation expectations continueto be well anchored. In determining howlong to maintain a highly accommodativestance of monetary policy, the Committeewill also consider other information, includ-ing additional measures of labor marketconditions, indicators of inflation pressures

and inflation expectations, and readings onfinancial developments. When the Commit-tee decides to begin to remove policy ac-commodation, it will take a balanced ap-proach consistent with its longer-run goalsof maximum employment and inflation of2 percent.

Voting for this action: Ben Bernanke, William C.Dudley, Elizabeth Duke, Charles L. Evans, Jerome H.Powell, Sarah Bloom Raskin, Eric Rosengren, JeremyC. Stein, Daniel K. Tarullo, and Janet L. Yellen.

Voting against this action: James Bullard and EstherL. George.

Mr. Bullard dissented because he believed that, in lightof recent low readings on inflation, the Committeeshould signal more strongly its willingness to defend itsgoal of 2 percent inflation. He pointed out that infla-tion had trended down since the beginning of 2012 andwas now well below target. Going forward, he viewedit as particularly important for the Committee to moni-



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tor price developments closely and to adapt its policy inresponse to incoming economic information.

Ms. George dissented because she viewed the ongoingimprovement in labor market conditions and in theoutlook as warranting a deliberate statement from theCommittee at this meeting that the pace of its assetpurchases would be reduced in the very near future.She continued to have concerns about maintaining ag-gressive monetary stimulus in the face of a growingeconomy and pointed to the potential for financial im-balances to emerge as a result of the high level of mon-etary accommodation.

It was agreed that the next meeting of the Committeewould be held on TuesdayWednesday, July 3031,

2013. The meeting adjourned at 11:25 a.m. on June 19,2013.

Notation VoteBy notation vote completed on May 21, 2013, theCommittee unanimously approved the minutes of theFOMC meeting held on April 30May 1, 2013.

_____________________________William B. English

Secretary



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Summary of Economic Projections

In conjunction with the June 1819, 2013, FederalOpen Market Committee (FOMC) meeting, meetingparticipantsthe 7 members of the Board of Gover-

nors and the 12 presidents of the Federal ReserveBanks, all of whom participate in the deliberations ofthe FOMCsubmitted their assessments of real out-put growth, the unemployment rate, inflation, and thetarget federal funds rate for each year from 2013through 2015 and over the longer run. Each partici-pants assessment was based on information availableat the time of the meeting plus his or her judgment ofappropriate monetary policy and assumptions about thefactors likely to affect economic outcomes. Thelonger-run projections represent each participantsjudgment of the value to which each variable would beexpected to converge, over time, under appropriate

monetary policy and in the absence of further shocksto the economy. Appropriate monetary policy isdefined as the future path of policy that each partici-pant deems most likely to foster outcomes for econom-ic activity and inflation that best satisfy his or her indi-vidual interpretation of the Federal Reserves objectivesof maximum employment and stable prices.

_______________________ Although President Pianalto was unable to attend the

June 1819, 2013, FOMC meeting, she submitted economicprojections.

Overall, FOMC participants projected that, under ap-propriate monetary policy, the pace of economic re-covery would gradually pick up over the 201315 peri-

od, and inflation would move up from recent very lowreadings but remain subdued (table 1 and figure 1).Almost all of the participants projected that inflation,as measured by the annual change in the price index forpersonal consumption expenditures (PCE), would berunning at or a little below the Committees 2 percentobjective in 2015.

As shown in figure 2, most participants judged thathighly accommodative monetary policy was likely to bewarranted over the next few years to support continuedprogress toward maximum employment and a gradualreturn toward 2 percent inflation. Moreover, all partic-

ipants but one judged that it would be appropriate tocontinue purchasing both agency mortgage-backed se-curities (MBS) and longer-term Treasury securities atleast until later this year.

A majority of participants saw the uncertainty associat-ed with their outlook for economic growth and theunemployment rate as similar to that of the past20 years. An equal number of participants also indicat-ed that the risks to the outlook for real gross domesticproduct (GDP) growth and the unemployment ratewere broadly balanced. Some participants, however,continued to see downside risks to growth and upside

Table 1. Economic projections of Federal Reserve Board members and Federal Reserve Bank presidents, June 2013Percent

VariableCentral tendency1 Range2

2013 2014 2015 Longer run 2013 2014 2015 Longer run

Change in real GDP . . . . . 2.3 to 2.6 3.0 to 3.5 2.9 to 3.6 2.3 to 2.5 2.0 to 2.6 2.2 to 3.6 2.3 to 3.8 2.0 to 3.0March projection . . . . . 2.3 to 2.8 2.9 to 3.4 2.9 to 3.7 2.3 to 2.5 2.0 to 3.0 2.6 to 3.8 2.5 to 3.8 2.0 to 3.0

Unemployment rate . . . . . 7.2 to 7.3 6.5 to 6.8 5.8 to 6.2 5.2 to 6.0 6.9 to 7.5 6.2 to 6.9 5.7 to 6.4 5.0 to 6.0March projection . . . . . 7.3 to 7.5 6.7 to 7.0 6.0 to 6.5 5.2 to 6.0 6.9 to 7.6 6.1 to 7.1 5.7 to 6.5 5.0 to 6.0

PCE inflation . . . . . . . . . . . 0.8 to 1.2 1.4 to 2.0 1.6 to 2.0 2.0 0.8 to 1.5 1.4 to 2.0 1.6 to 2.3 2.0March projection . . . . . 1.3 to 1.7 1.5 to 2.0 1.7 to 2.0 2.0 1.3 to 2.0 1.4 to 2.1 1.6 to 2.6 2.0

Core PCE inflation3 . . . . . 1.2 to 1.3 1.5 to 1.8 1.7 to 2.0 1.1 to 1.5 1.5 to 2.0 1.7 to 2.3March projection . . . . . 1.5 to 1.6 1.7 to 2.0 1.8 to 2.1 1.5 to 2.0 1.5 to 2.1 1.7 to 2.6

NOTE: Projections of change in real gross domestic product (GDP) and projections for both measures of inflation are from the fourth quarter of the pre-vious year to the fourth quarter of the year indicated. PCE inflation and core PCE inflation are the percentage rates of change in, respectively, the price indexfor personal consumption expenditures (PCE) and the price index for PCE excluding food and energy. Projections for the unemployment rate are for the aver-age civilian unemployment rate in the fourth quarter of the year indicated. Each participants projections are based on his or her assessment of appropriatemonetary policy. Longer-run projections represent each participants assessment of the rate to which each variable would be expected to converge under ap-propriate monetary policy and in the absence of further shocks to the economy. The March projections were made in conjunction with the meeting of the Fed-eral Open Market Committee on March 1920, 2013.1. The central tendency excludes the three highest and three lowest projections for each variable in each year.2. The range for a variable in a given year includes all participants projections, from lowest to highest, for that variable in that year.3. Longer-run projections for core PCE inflation are not collected.

Page 1_____________________________________________________________________________________________


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Figure 1. Central tendencies and ranges of economic projections, 201315 and over the longer run

Change in real GDP

Percent

3

2

1

0

1

2

3

4

5

-

+

2008 2009 2010 2011 2012 2013 2014 2015 Longerrun

Central tendency of projections

Range of projections

Actual

Unemployment rate

Percent

5

6

7

8

9

10

2008 2009 2010 2011 2012 2013 2014 2015 Longerrun

PCE inflation

Percent

1

2

3

2008 2009 2010 2011 2012 2013 2014 2015 Longerrun

Core PCE inflation

Percent

1

2

3

2008 2009 2010 2011 2012 2013 2014 2015 Longerrun

Note: Definitions of variables are in the general note to table 1. The data for the actual values of the variables areannual.



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Figure 2. Overview of FOMC participants assessments of appropriate monetary policy

1

3

14

1

Appropriate timing of policy firming

Number of participants

1

2

3

4

5

6

7

8

9

10

11

12

13

14

2013 2014 2015 2016

Appropriate pace of policy firming Percent

Target federal funds rate at year-end

0

1

2

3

4

5

6

2013 2014 2015 Longer run

Note: In the upper panel, the height of each bar denotes the number of FOMC participants who judge that, underappropriate monetary policy, the first increase in the target federal funds rate from its current range of 0 to 1/4 percentwill occur in the specified calendar year. In March 2013, the numbers of FOMC participants who judged that the firstincrease in the target federal funds rate would occur in 2013, 2014, 2015, and 2016 were, respectively, 1, 4, 13, and 1.In the lower panel, each shaded circle indicates the value (rounded to the nearest 1/4 percentage point) of an individualparticipants judgment of the appropriate level of the target federal funds rate at the end of the specified calendar yearor over the longer run.

Summary of Economic Projections of the Meeting of June 1819, 2013 Page 3_____________________________________________________________________________________________


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risks to unemployment. A majority of participants in-dicated that the uncertainty surrounding their projec-tions for PCE inflation was similar to historical norms,and nearly all considered the risks to inflation to beeither broadly balanced or weighted to the downside.

The Outlook for Economic ActivityParticipants projected that, conditional on their indi-vidual assumptions about appropriate monetary policy,the economy would grow at a faster pace in 2013 thanit had in 2012. They also generally judged that growthwould strengthen further in 2014 and 2015, in mostcases to a rate above their estimates of the longer-runrate of output growth. Most participants noted that thehigh degree of monetary policy accommodation as-sumed in their projections, continued improvement inthe housing sector and the accompanying rise inhousehold net worth, and the absence of further fiscaltightening should result in a pickup in growth; howev-

er, they pointed to the foreign economic outlook as anongoing downside risk.

The central tendency of participants projections forreal GDP growth was 2.3 to 2.6 percent for 2013,3.0 to 3.5 percent for 2014, and 2.9 to 3.6 percent for2015. Most participants noted that their projectionswere little changed since March, with the downwardrevisions to growth in 2013 reflecting the somewhatslower-than-anticipated growth in the first half. Thecentral tendency for the longer-run rate of growth ofreal GDP was 2.3 to 2.5 percent, unchanged fromMarch.

Participants anticipated a gradual decline in the unem-ployment rate over the forecast period; a large majorityprojected that the unemployment rate would not reachtheir estimates of its longer-run level before 2016. Thecentral tendencies of participants forecasts for the un-employment rate were 7.2 to 7.3 percent at the end of2013, 6.5 to 6.8 percent at the end of 2014, and 5.8 to6.2 percent at the end of 2015. These projections wereslightly lower than in March, with participants reactingto recent data indicating that the unemployment ratehad declined by a little more than they had previouslyexpected. The central tendency of participants esti-mates of the longer-run normal rate of unemploymentthat would prevail under appropriate monetary policyand in the absence of further shocks to the economywas 5.2 to 6.0 percent, the same as in March. Mostparticipants projected that the unemployment ratewould converge to their estimates of its longer-runnormal rate in five or six years, while some judged thatless time would be needed.

As shown in figures 3.A and 3.B, the distributions ofparticipants views regarding the likely outcomes forreal GDP growth and the unemployment rate wererelatively narrow for 2013. Their projections for eco-nomic activity were more diverse for 2014 and 2015,reflecting their individual assessments of appropriate

monetary policy and its economic effects, the likely rateof improvement in the housing sector and householdsbalance sheets, the domestic implications of foreigneconomic developments, the prospective path for U.S.fiscal policy, the extent of structural dislocations to thelabor market, and a number of other factors. The dis-persion of participants projections for 2015 and for thelonger run was little changed relative to March; therewas some reduction in the upper ends of the distribu-tions in 2013 and 2014 for both real GDP growth andthe unemployment rate.

The Outlook for Inflation

All participants marked down their projections for bothPCE and core PCE inflation in 2013, reflecting the lowreadings on inflation so far this year. Participants gen-erally judged that the recent slowing in inflation partlyreflected transitory factors, and their projections forinflation under appropriate monetary policy over theperiod 201415 were only a little lower than in March.Participants projected that both headline and core infla-tion would move up but remain subdued, with nearlyall projecting that inflation would be equal to, orsomewhat below, the FOMCs longer-run objective of2 percent in each year. Specifically, the central tenden-

cy of participants projections for overall inflation, asmeasured by the growth in the PCE price index, moveddown to 0.8 to 1.2 percent in 2013 and was 1.4 to2.0 percent in 2014 and 1.6 to 2.0 percent in 2015. Thecentral tendency of the forecasts for core inflationshifted down slightly in 2013 and 2014, to 1.2 to1.3 percent and 1.5 to 1.8 percent, respectively; the cen-tral tendency in 2015 was little changed and broadlysimilar to that of headline inflation. In discussing fac-tors likely to return inflation to near the Committeesinflation objective of 2 percent, several participantsnoted that the reversal of transitory factors currentlyholding down inflation would cause inflation to moveup a little in the near term. In addition, many partici-pants viewed the combination of stable inflation expec-tations and diminishing resource slack as likely to leadto a gradual pickup in inflation toward the Committeeslonger-run objective.

Figures 3.C and 3.D provide information on the diver-sity of participants views about the outlook for infla-tion. The range of participants projections for overall



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Figure 3.A. Distribution of participants projections for the change in real GDP, 201315 and over the longer run

2013


2

4

6

8

1012

14

16

18

20

2.0 2.2 2.4 2.6 2.8 3.0 3.2 3.4 3.6 3.8- - - - - - - - - -

2.1 2.3 2.5 2.7 2.9 3.1 3.3 3.5 3.7 3.9

Percent range

June projectionsMarch projections

2014


2

4

6

8

10

12

14

16

18

20

2.0 2.2 2.4 2.6 2.8 3.0 3.2 3.4 3.6 3.8- - - - - - - - - -

2.1 2.3 2.5 2.7 2.9 3.1 3.3 3.5 3.7 3.9

Percent range

2015


2

4

6

810

12

14

16

18

20

2.0 2.2 2.4 2.6 2.8 3.0 3.2 3.4 3.6 3.8- - - - - - - - - -

2.1 2.3 2.5 2.7 2.9 3.1 3.3 3.5 3.7 3.9

Percent range

Longer run


2

4

68

10

12

14

16

18

20

2.0 2.2 2.4 2.6 2.8 3.0 3.2 3.4 3.6 3.8- - - - - - - - - -

2.1 2.3 2.5 2.7 2.9 3.1 3.3 3.5 3.7 3.9

Percent range

Note: Definitions of variables are in the general note to table 1.



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Figure 3.B. Distribution of participants projections for the unemployment rate, 201315 and over the longer run

2013


2

4

6

8

1012

14

16

18

20

5.0 5.2 5.4 5.6 5.8 6.0 6.2 6.4 6.6 6.8 7.0 7.2 7.4 7.6- - - - - - - - - - - - - -

5.1 5.3 5.5 5.7 5.9 6.1 6.3 6.5 6.7 6.9 7.1 7.3 7.5 7.7

Percent range


2014


2

4

6

8

10

12

14

16

18

20

5.0 5.2 5.4 5.6 5.8 6.0 6.2 6.4 6.6 6.8 7.0 7.2 7.4 7.6- - - - - - - - - - - - - -

5.1 5.3 5.5 5.7 5.9 6.1 6.3 6.5 6.7 6.9 7.1 7.3 7.5 7.7

Percent range

2015


2

4

6

810

12

14

16

18

20

5.0 5.2 5.4 5.6 5.8 6.0 6.2 6.4 6.6 6.8 7.0 7.2 7.4 7.6- - - - - - - - - - - - - -

5.1 5.3 5.5 5.7 5.9 6.1 6.3 6.5 6.7 6.9 7.1 7.3 7.5 7.7

Percent range

Longer run


2

4

68

10

12

14

16

18

20

5.0 5.2 5.4 5.6 5.8 6.0 6.2 6.4 6.6 6.8 7.0 7.2 7.4 7.6- - - - - - - - - - - - - -

5.1 5.3 5.5 5.7 5.9 6.1 6.3 6.5 6.7 6.9 7.1 7.3 7.5 7.7

Percent range




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Figure 3.C. Distribution of participants projections for PCE inflation, 201315 and over the longer run

2013


2

4

6

8

1012

14

16

18

20

0.7 0.9 1.1 1.3 1.5 1.7 1.9 2.1 2.3 2.5- - - - - - - - - -

0.8 1.0 1.2 1.4 1.6 1.8 2.0 2.2 2.4 2.6

Percent range


2014


2

4

6

8

10

12

14

16

18

20

0.7 0.9 1.1 1.3 1.5 1.7 1.9 2.1 2.3 2.5- - - - - - - - - -

0.8 1.0 1.2 1.4 1.6 1.8 2.0 2.2 2.4 2.6

Percent range

2015


2

4

6

810

12

14

16

18

20

0.7 0.9 1.1 1.3 1.5 1.7 1.9 2.1 2.3 2.5- - - - - - - - - -

0.8 1.0 1.2 1.4 1.6 1.8 2.0 2.2 2.4 2.6

Percent range

Longer run


2

4

68

10

12

14

16

18

20

0.7 0.9 1.1 1.3 1.5 1.7 1.9 2.1 2.3 2.5- - - - - - - - - -

0.8 1.0 1.2 1.4 1.6 1.8 2.0 2.2 2.4 2.6

Percent range




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Figure 3.D. Distribution of participants projections for core PCE inflation, 201315

2013


2

4

6

8

10

12

1416

18

20

1.1 1.3 1.5 1.7 1.9 2.1 2.3 2.5- - - - - - - -

1.2 1.4 1.6 1.8 2.0 2.2 2.4 2.6

Percent range


2014


2

4

6

8

10

12

14

16

18

20

1.1 1.3 1.5 1.7 1.9 2.1 2.3 2.5- - - - - - - -

1.2 1.4 1.6 1.8 2.0 2.2 2.4 2.6

Percent range

2015


2

4

6

8

10

12

14

16

18

20

1.1 1.3 1.5 1.7 1.9 2.1 2.3 2.5- - - - - - - -

1.2 1.4 1.6 1.8 2.0 2.2 2.4 2.6

Percent range




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and core inflation in 2013 shifted down, while thoseranges narrowed in 201415. The distributions forcore and overall inflation in 2015 remained concentrat-ed near the Committees longer-run objective, and allparticipants continued to project that overall inflationwould converge to the FOMCs 2 percent goal over the

longer run.

Appropriate Monetary PolicyAs indicated in figure 2, most participants judged thatexceptionally low levels of the federal funds rate wouldremain appropriate for a couple of years. In particular,14 participants thought that the first increase in thetarget federal funds rate would not be warranted untilsometime in 2015, and one judged that policy firmingwould likely not be appropriate until 2016. Four partic-ipants judged that an increase in the federal funds ratein 2013 or 2014 would be appropriate.

All of the participants who judged that raising the fed-eral funds rate target would become appropriate in2015 also projected that the unemployment rate woulddecline below 6 percent during that year and thatinflation would remain near or below 2 percent. Inaddition, most of those participants also projected thata sizable gap between the unemployment rate and thelonger-run normal level of the unemployment ratewould persist until 2015 or later. Three of the fourparticipants who judged that policy firming shouldbegin in 2013 or 2014 indicated that, in their judgment,the Committee would need to act relatively soon inorder to keep inflation near the FOMCs longer-run

objective of 2 percent and to keep longer-run inflationexpectations well anchored.

Figure 3.E provides the distribution of participantsjudgments regarding the appropriate level of the targetfederal funds rate at the end of each calendar year from2013 to 2015 and over the longer run. As previouslynoted, most participants judged that economic condi-tions would warrant maintaining the current low levelof the federal funds rate at least until 2015. Among thefour participants who saw the federal funds rate leavingthe effective lower bound earlier, their projections forthe federal funds rate at the end of 2014 ranged from1 to 1 percent; however, the median for all partici-pants remained at the effective lower bound. Views onthe appropriate level of the federal funds rate at the endof 2015 varied, with the range of participants projec-tions a bit narrower than in the March Summary ofEconomic Projections and the median value unchangedat 1 percent.

All participants saw the appropriate target for the fed-eral funds rate at the end of 2015 as still well belowtheir assessments of its expected longer-run value. Es-timates of the longer-run target federal funds rateranged from 3 to 4 percent, reflecting the Commit-tees inflation objective of 2 percent and participants

individual judgments about the appropriate longer-runlevel of the real federal funds rate in the absence offurther shocks to the economy.

Participants also described their views regarding theappropriate path of the Federal Reserves balance sheet.Given their respective economic outlooks, all partici-pants but one judged that it would be appropriate tocontinue purchasing both agency MBS and longer-termTreasury securities. About half of these participantsindicated that it likely would be appropriate to end as-set purchases late this year. Many other participantsanticipated that it likely would be appropriate to con-

tinue purchases into 2014. Several participants empha-sized that the asset purchase program was effective insupporting the economic expansion, that the benefitscontinued to exceed the costs, or that continuing pur-chases would be necessary to achieve a substantial im-provement in the outlook for the labor market. A fewparticipants, however, indicated that the Committeecould best foster its dual objectives and limit the poten-tial costs of the program by slowing, or stopping, itspurchases at the June meeting.

Key factors informing participants views of the appro-priate path for monetary policy included their judg-

ments regarding the values of the unemployment rateand other labor market indicators that would be con-sistent with maximum employment; the extent towhich the economy fell short of maximum employ-ment and the extent to which inflation was runningbelow the Committees longer-term objective of 2 per-cent; and the implications of alternative policy paths forthe likely extent of progress, over the medium-term, inreturning employment and inflation to mandate-consistent levels. A couple of participants noted thatpersistent headwinds and somewhat slower productivi-ty growth since the end of the recession made their

assessments of the longer-run normal level of the fed-eral funds rate, and thus of the appropriate path for thefederal funds rate, lower than would otherwise be thecase.

Uncertainty and RisksA majority of participants reported that they saw thelevels of uncertainty about their projections for realGDP growth and unemployment as broadly similar to



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Figure 3.E. Distribution of participants projections for the target federal funds rate, 201315 and over the longer run

2013


2

4

6

8

10

12

14

16

18

20

0.00 0.38 0.63 0.88 1.13 1.38 1.63 1.88 2.13 2.38 2.63 2.88 3.13 3.38 3.63 3.88 4.13 4.38- - - - - - - - - - - - - - - - - -

0.37 0.62 0.87 1.12 1.37 1.62 1.87 2.12 2.37 2.62 2.87 3.12 3.37 3.62 3.87 4.12 4.37 4.62

Percent range


2014


2

4

6

8

10

12

14

16

18

20

0.00 0.38 0.63 0.88 1.13 1.38 1.63 1.88 2.13 2.38 2.63 2.88 3.13 3.38 3.63 3.88 4.13 4.38- - - - - - - - - - - - - - - - - -

0.37 0.62 0.87 1.12 1.37 1.62 1.87 2.12 2.37 2.62 2.87 3.12 3.37 3.62 3.87 4.12 4.37 4.62

Percent range

2015


2

4

6

8

10

12

14

16

18

20

0.00 0.38 0.63 0.88 1.13 1.38 1.63 1.88 2.13 2.38 2.63 2.88 3.13 3.38 3.63 3.88 4.13 4.38- - - - - - - - - - - - - - - - - -

0.37 0.62 0.87 1.12 1.37 1.62 1.87 2.12 2.37 2.62 2.87 3.12 3.37 3.62 3.87 4.12 4.37 4.62

Percent range

Longer run


2

4

6

8

10

12

14

16

18

20

0.00 0.38 0.63 0.88 1.13 1.38 1.63 1.88 2.13 2.38 2.63 2.88 3.13 3.38 3.63 3.88 4.13 4.38- - - - - - - - - - - - - - - - - -

0.37 0.62 0.87 1.12 1.37 1.62 1.87 2.12 2.37 2.62 2.87 3.12 3.37 3.62 3.87 4.12 4.37 4.62

Percent range

Note: The target federal funds rate is measured as the level of the target rate at the end of the calendar year orin the longer run.



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the norm during the previous 20 years, with the re-mainder generally indicating that they saw higher uncer-tainty about these economic outcomes (figure 4).2 InMarch, a similar number of participants had seen thelevel of uncertainty about real GDP growth and theunemployment rate as above average. A majority of

participants continued to judge that the risks to theirforecasts of real GDP growth and unemployment werebroadly balanced, with the remainder generally indicat-ing that they saw the risks to their forecasts for realGDP growth as weighted to the downside and for un-employment as weighted to the upside. The main fac-tors cited as contributing to the uncertainty and balanceof risks about economic outcomes were the limits onthe ability of monetary policy to offset the effects ofadverse shocks when short-term interest rates are neartheir effective lower bound, as well as challenges withforecasting the path of fiscal policy and economic and

financial developments abroad.Participants reported little change in their assessmentsof the level of uncertainty and the balance of risksaround their forecasts for overall PCE inflation andcore inflation. Fourteen participants judged the levelsof uncertainty associated with their forecasts for thoseinflation measures to be broadly similar to, or lowerthan, historical norms; the same number saw the risksto those projections as broadly balanced. A few partic-ipants highlighted the likely role played by the Commit-tees adoption of a 2 percent inflation goal or its com-mitment to maintaining accommodative monetary poli-

cy as contributing to the recent stability of longer-term

2 Table 2 provides estimates of the forecast uncertainty forthe change in real GDP, the unemployment rate, and totalconsumer price inflation over the period from 1993 through2012. At the end of this summary, the box Forecast Uncer-tainty discusses the sources and interpretation of uncertain-ty in the economic forecasts and explains the approach usedto assess the uncertainty and risks attending the participantsprojections.

inflation expectations and, hence, the relatively lowlevel of uncertainty. Four participants saw the risks totheir inflation forecasts as tilted to the downside, re-flecting, for example, risks of disinflation that couldarise from adverse shocks to the economy that policywould have limited scope to offset in the current envi-ronment. Conversely, one participant saw the risks toinflation as weighted to the upside, citing the presenthighly accommodative stance of monetary policy andconcerns about the Committees ability to shift to a lessaccommodative policy stance when it becomes appro-priate to do so.

Table 2. Average historical projection error rangesPercentage points

Variable 2013 2014 2015

Change in real GDP1 . . . . . . . . 1.0 1.6 1.8

Unemployment rate1 . . . . . . . . . 0.4 1.2 1.8

Total consumer prices2 . . . . . . . 0.8 1.0 1.0

NOTE: Error ranges shown are measured as plus or minus the rootmean squared error of projections for 1993 through 2012 that werereleased in the summer by various private and government forecasters.

As described in the box Forecast Uncertainty, under certain assump-tions, there is about a 70 percent probability that actual outcomes forreal GDP, unemployment, and consumer prices will be in ranges impliedby the average size of projection errors made in the past. Further infor-mation is in David Reifschneider and Peter Tulip (2007), Gauging theUncertainty of the Economic Outlook from Historical ForecastingErrors, Finance and Economics Discussion Series 2007-60 (Washing-ton: Board of Governors of the Federal Reserve System, November).

1. Definitions of variables are in the general note to table 1.2. Measure is the overall consumer price index, the price measure

that has been most widely used in government and private economicforecasts. Projection is percent change, fourth quarter of the previousyear to the fourth quarter of the year indicated.



24/25

Figure 4. Uncertainty and risks in economic projections

Uncertainty about GDP growth


2

4

6

8

10

12

14

16

18

20

Lower Broadly Highersimilar

June projections

March projections

Uncertainty about the unemployment rate


2

4

6

8

1012

14

16

18

20


Uncertainty about PCE inflation


2

4

6

810

12

14

16

18

20


Uncertainty about core PCE inflation


2

4

68

10

12

14

16

18

20


Risks to GDP growth


2

4

6

8

10

12

14

16

18

20

Weighted to Broadly Weighted todownside balanced upside

June projections

March projections

Risks to the unemployment rate


2

4

6

8

1012

14

16

18

20


Risks to PCE inflation


2

4

6

810

12

14

16

18

20


Risks to core PCE inflation


2

4

68

10

12

14

16

18

20


Note: For definitions of uncertainty and risks in economic projections, see the box Forecast Uncertainty. Defini-tions of variables are in the general note to table 1.



25/25

Forecast Uncertainty

The economic projections provided bythe members of the Board of Governors andthe presidents of the Federal Reserve Banksinform discussions of monetary policy amongpolicymakers and can aid public understand-ing of the basis for policy actions. Consider-able uncertainty attends these projections,however. The economic and statistical modelsand relationships used to help produce eco-nomic forecasts are necessarily imperfect de-

scriptions of the real world, and the futurepath of the economy can be affected by myr-iad unforeseen developments and events.Thus, in setting the stance of monetary policy,participants consider not only what appears tobe the most likely economic outcome as em-bodied in their projections, but also the rangeof alternative possibilities, the likelihood oftheir occurring, and the potential costs to theeconomy should they occur.

Table 2 summarizes the average historicalaccuracy of a range of forecasts, includingthose reported in past Monetary Policy Reports

and those prepared by the Federal ReserveBoards staff in advance of meetings of theFederal Open Market Committee. The pro-jection error ranges shown in the table il-lustrate the considerable uncertainty associat-ed with economic forecasts. For example,suppose a participant projects that real grossdomestic product (GDP) and total consumerprices will rise steadily at annual rates of, re-spectively, 3 percent and 2 percent. If theuncertainty attending those projections is simi-lar to that experienced in the past and the risks

around the projections are broadly balanced,the numbers reported in table 2 would imply aprobability of about 70 percent that actualGDP would expand within a range of 2.0 to

4.0 percent in the current year, 1.4 to 4.6 per-cent in the second year, and 1.2 to 4.8 percentin the third year. The corresponding 70 percentconfidence intervals for overall inflation wouldbe 1.2 to 2.8 percent in the current year and1.0 to 3.0 percent in the second and third years.

Because current conditions may differfrom those that prevailed, on average, over his-tory, participants provide judgments as towhether the uncertainty attached to their pro-

jections of each variable is greater than, smallerthan, or broadly similar to typical levels offorecast uncertainty in the past, as shown intable 2. Participants also provide judgments asto whether the risks to their projections areweighted to the upside, are weighted to thedownside, or are broadly balanced. That is,participants judge whether each variable ismore likely to be above or below their projec-tions of the most likely outcome. These judg-ments about the uncertainty and the risks at-tending each participants projections are dis-tinct from the diversity of participants views

about the most likely outcomes. Forecast un-certainty is concerned with the risks associatedwith a particular projection rather than withdivergences across a number of different pro-jections.

As with real activity and inflation, the out-look for the future path of the federal fundsrate is subject to considerable uncertainty. Thisuncertainty arises primarily because each partic-ipants assessment of the appropriate stance ofmonetary policy depends importantly on theevolution of real activity and inflation over

time. If economic conditions evolve in an un-expected manner, then assessments of the ap-propriate setting of the federal funds ratewould change from that point forward.


june fomc minutes

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