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Minutes of the Federal Open Market Committee January 28–29, 2014

A meeting of the Federal Open Market Committee was Nellie Liang, Director, Office of Financial Stability Pol- held in the offices of the Board of Governors of the icy and Research, Board of Governors Federal Reserve System in Washington, D.C., on Tuesday, January 28, 2014, at 2:00 p.m. and continued Stephen A. Meyer and William Nelson, Deputy Direc- on Wednesday, January 29, 2014, at 9:00 a.m. tors, Division of Monetary Affairs, Board of Gov- ernors PRESENT: Ben Bernanke, Chairman Jon W. Faust, Special Adviser to the Board, Office of William C. Dudley, Vice Chairman Board Members, Board of Governors Richard W. Fisher Narayana Kocherlakota Linda Robertson and David W. Skidmore, Assistants to Sandra Pianalto the Board, Office of Board Members, Board of Charles I. Plosser Governors Jerome H. Powell Jeremy C. Stein Trevor A. Reeve, Senior Associate Director, Division Daniel K. Tarullo of International Finance, Board of Governors Janet L. Yellen Joyce K. Zickler, Senior Adviser, Division of Monetary Christine Cumming, Charles L. Evans, Jeffrey M. Lack- Affairs, Board of Governors er, Dennis P. Lockhart, and John C. Williams, Al- ternate Members of the Federal Open Market Daniel M. Covitz and Michael T. Kiley, Associate Di- Committee rectors, Division of Research and Statistics, Board of Governors James Bullard, Esther L. George, and Eric Rosengren, Presidents of the Federal Reserve Banks of St. Jane E. Ihrig, Deputy Associate Director, Division of Louis, Kansas City, and Boston, respectively Monetary Affairs, Board of Governors

William B. English, Secretary and Economist Edward Nelson, Assistant Director, Division of Mone- Matthew M. Luecke, Deputy Secretary tary Affairs, Board of Governors; John J. Stevens, Michelle A. Smith, Assistant Secretary Assistant Director, Division of Research and Statis- Scott G. Alvarez, General Counsel tics, Board of Governors Thomas C. Baxter, Deputy General Counsel Steven B. Kamin, Economist Jeremy B. Rudd, Adviser, Division of Research and David W. Wilcox, Economist Statistics, Board of Governors

James A. Clouse, Thomas A. Connors, Evan F. Dana L. Burnett, Section Chief, Division of Monetary Koenig, Thomas Laubach, Michael P. Leahy, Affairs, Board of Governors Loretta J. Mester, Paolo A. Pesenti, Samuel Schulhofer-Wohl, Mark E. Schweitzer, and William Burcu Duygan-Bump, Senior Project Manager, Divi- Wascher, Associate Economists sion of Monetary Affairs, Board of Governors

Simon Potter, Manager, System Open Market Account David H. Small, Project Manager, Division of Mone- tary Affairs, Board of Governors Lorie K. Logan, Deputy Manager, System Open Mar- ket Account Andrew Figura, Group Manager, Division of Research and Statistics, Board of Governors Michael S. Gibson, Director, Division of Banking Su- pervision and Regulation, Board of Governors ______Page 2 Federal Open Market Committee

Michele Cavallo, Senior Economist, Division of Inter- Richard W. Fisher, President of the Federal Reserve national Finance, Board of Governors Bank of Dallas, with Dennis P. Lockhart, President of the Federal Reserve Bank of Atlanta, as alternate Yuriy Kitsul, Economist, Division of Monetary Affairs, Board of Governors Narayana Kocherlakota, President of the Federal Re- serve Bank of Minneapolis, with John C. Williams, Randall A. Williams, Records Project Manager, Divi- President of the Federal Reserve Bank of San Francis- sion of Monetary Affairs, Board of Governors co, as alternate

Kenneth C. Montgomery, First Vice President, Federal By unanimous vote, the Committee selected Ben Reserve Bank of Boston Bernanke to serve as Chairman through January 31, 2014, and Janet L. Yellen to serve as Chairman, effec- David Altig, Glenn D. Rudebusch, and Daniel G. Sulli- tive February 1, 2014, until the selection of her succes- van, Executive Vice Presidents, Federal Reserve sor at the first regularly scheduled meeting of the Banks of Atlanta, San Francisco, and Chicago, re- Committee in 2015. spectively By unanimous vote, the following officers of the Troy Davig, Geoffrey Tootell, and Christopher J. Wal- Committee were selected to serve until the selection of ler, Senior Vice Presidents, Federal Reserve Banks their successors at the first regularly scheduled meeting of Kansas City, Boston, and St. Louis, respectively of the Committee in 2015:

Robert L. Hetzel, Senior Economist, Federal Reserve William C. Dudley Vice Chairman Bank of Richmond William B. English Secretary and Economist Matthew M. Luecke Deputy Secretary Annual Organizational Matters¹ Michelle A. Smith Assistant Secretary In the agenda for this meeting, it was reported that ad- Scott G. Alvarez General Counsel vices of the election of the following members and al- Thomas C. Baxter Deputy General Counsel ternate members of the Federal Open Market Commit- Richard M. Ashton Assistant General Counsel tee (the “Committee”) for a term beginning January 28, Steven B. Kamin Economist 2014, had been received and that these individuals had David W. Wilcox Economist executed their oaths of office. James A. Clouse The elected members and alternate members were as Thomas A. Connors follows: Evan F. Koenig Thomas Laubach William C. Dudley, President of the Federal Reserve Michael P. Leahy Bank of New York, with Christine Cumming, First Loretta J. Mester Vice President of the Federal Reserve Bank of New Paolo A. Pesenti York, as alternate Samuel Schulhofer-Wohl Mark E. Schweitzer Charles I. Plosser, President of the Federal Reserve William Wascher Associate Economists Bank of Philadelphia, with Jeffrey M. Lacker, President of the Federal Reserve Bank of Richmond, as alternate By unanimous vote, the Federal Reserve Bank of New York was selected to execute transactions for the Sys- Sandra Pianalto, President of the Federal Reserve Bank tem Open Market Account. of Cleveland, with Charles L. Evans, President of the Federal Reserve Bank of Chicago, as alternate By unanimous vote, the Authorization for Domestic ______Open Market Operations was approved with an ¹ Versions of the current Committee documents are amendment that makes the structure of paragraphs 1.A available at www.federalreserve.gov/monetarypolicy/ru and 1.B more similar. The Guidelines for the Conduct les_authorizations.htm. of System Open Market Operations in Federal-Agency Issues remained suspended. ______Minutes of the Meeting of January 28–29, 2014 Page 3

AUTHORIZATION FOR DOMESTIC OPEN to lend on an overnight basis U.S. government securi- MARKET OPERATIONS ties and securities that are direct obligations of any (As amended effective January 28, 2014) agency of the United States, held in the System Open Market Account, to dealers at rates that shall be deter- 1. The Federal Open Market Committee authorizes mined by competitive bidding. The Federal Reserve and directs the Federal Reserve Bank of New York, to Bank of New York shall set a minimum lending fee the extent necessary to carry out the most recent do- consistent with the objectives of the program and apply mestic policy directive adopted at a meeting of the reasonable limitations on the total amount of a specific Committee: issue that may be auctioned and on the amount of se- A. To buy or sell in the open market U.S. govern- curities that each dealer may borrow. The Federal Re- ment securities, including securities of the Federal serve Bank of New York may reject bids that could Financing Bank, and securities that are direct obliga- facilitate a dealer’s ability to control a single issue as tions of, or fully guaranteed as to principal and inter- determined solely by the Federal Reserve Bank of New est by, any agency of the United States, from or to York. The Federal Reserve Bank of New York may securities dealers and foreign and international ac- lend securities on longer than an overnight basis to ac- counts maintained at the Federal Reserve Bank of commodate weekend, holiday, and similar trading con- New York, on a cash, regular, or deferred delivery ventions. basis, for the System Open Market Account at mar- 5. In order to ensure the effective conduct of open ket prices, and, for such Account, to exchange matur- market operations, while assisting in the provision of ing U.S. government and federal agency securities short-term investments or other authorized services for with the Treasury or the individual agencies or to al- foreign and international accounts maintained at the low them to mature without replacement; and Federal Reserve Bank of New York and accounts B. To buy or sell in the open market U.S. govern- maintained at the Federal Reserve Bank of New York ment securities, and securities that are direct obliga- as fiscal agent of the United States pursuant to section tions of, or fully guaranteed as to principal and inter- 15 of the Federal Reserve Act, the Federal Open Mar- est by, any agency of the United States, for the Sys- ket Committee authorizes and directs the Federal Re- tem Open Market Account under agreements to re- serve Bank of New York: sell or repurchase such securities or obligations (in- A. For the System Open Market Account, to sell cluding such transactions as are commonly referred U.S. government securities and securities that are di- to as repo and reverse repo transactions) in 65 busi- rect obligations of, or fully guaranteed as to principal ness days or less, at rates that, unless otherwise ex- and interest by, any agency of the United States to pressly authorized by the Committee, shall be deter- such accounts on the bases set forth in paragraph 1.A mined by competitive bidding, after applying reason- under agreements providing for the resale by such able limitations on the volume of agreements with accounts of those securities in 65 business days or individual counterparties. less on terms comparable to those available on such 2. The Federal Open Market Committee authorizes transactions in the market; the Federal Reserve Bank of New York to undertake B. For the New York Bank account, when appro- transactions of the type described in paragraphs 1.A priate, to undertake with dealers, subject to the con- and 1.B from time to time for the purpose of testing ditions imposed on purchases and sales of securities operational readiness. The aggregate par value of such in paragraph l.B, repurchase agreements in U.S. gov- transactions of the type described in paragraph 1.A ernment securities and securities that are direct obli- shall not exceed $5 billion per calendar year. The out- gations of, or fully guaranteed as to principal and in- standing amount of such transactions of the type de- terest by, any agency of the United States, and to ar- scribed in paragraph 1.B shall not exceed $5 billion at range corresponding sale and repurchase agreements any given time. These transactions shall be conducted between its own account and such foreign, interna- with prior notice to the Committee. tional, and fiscal agency accounts maintained at the 3. In order to ensure the effective conduct of open Federal Reserve Bank; and market operations, the Federal Open Market Commit- C. For the New York Bank account, when appro- tee authorizes the Federal Reserve Bank of New York priate, to buy U.S. government securities and obliga- to use agents in agency MBS-related transactions. tions that are direct obligations of, or fully guaran- 4. In order to ensure the effective conduct of open teed as to principal and interest by, any agency of the market operations, the Federal Open Market Commit- United States from such foreign and international ac- tee authorizes the Federal Reserve Bank of New York counts maintained at the Federal Reserve Bank under ______Page 4 Federal Open Market Committee

agreements providing for the repurchase by such ac- guage in the Program for Security of FOMC Infor- counts of those securities on the same business day. mation. Transactions undertaken with such accounts under the provisions of this paragraph may provide for a service AUTHORIZATION FOR FOREIGN CURRENCY fee when appropriate. OPERATIONS 6. In the execution of the Committee’s decision re- (As amended effective January 28, 2014) garding policy during any intermeeting period, the Committee authorizes and directs the Federal Reserve 1. The Federal Open Market Committee authorizes Bank of New York, upon the instruction of the Chair- and directs the Federal Reserve Bank of New York, for man of the Committee, to (i) adjust somewhat in ex- the System Open Market Account, to the extent neces- ceptional circumstances the degree of pressure on re- sary to carry out the Committee’s foreign currency di- serve positions and hence the intended federal funds rective and express authorizations by the Committee rate and to take actions that result in material changes pursuant thereto, and in conformity with such proce- in the composition and size of the assets in the System dural instructions as the Committee may issue from Open Market Account other than those anticipated by time to time: the Committee at its most recent meeting or (ii) under- A. To purchase and sell the following foreign cur- take transactions of the type described in paragraphs rencies in the form of cable transfers through spot or 1.A and 1.B in order to appropriately address tempo- forward transactions on the open market at home rary disruptions of an operational or highly unusual and abroad, including transactions with the U.S. nature in U.S. dollar funding markets. Any such ad- Treasury, with the U.S. Exchange Stabilization Fund justment as described in clause (i) shall be made in the established by section 10 of the Gold Reserve Act of context of the Committee’s discussion and decision at 1934, with foreign monetary authorities, with the its most recent meeting and the Committee’s long-run Bank for International Settlements, and with other objectives to foster maximum employment and price international financial institutions: stability, and shall be based on economic, financial, and monetary developments during the intermeeting peri- Australian dollars od. Consistent with Committee practice, the Chair- Brazilian reais man, if feasible, will consult with the Committee before Canadian dollars making any instruction under this paragraph. Danish kroner euro The Committee voted unanimously to amend the Au- Japanese yen thorization for Foreign Currency Operations, the For- Korean won eign Currency Directive, and the Procedural Instruc- Mexican pesos tions with Respect to Foreign Currency Operations in New Zealand dollars the form shown below. The approval of these docu- Norwegian kroner ments included approval of the System’s warehousing Pounds sterling agreement with the U.S. Treasury. These documents Singapore dollars were modified to incorporate the dollar and foreign Swedish kronor currency liquidity swap arrangements authorized by a Swiss francs resolution on October 29, 2013. Changes were made to the Authorization for Foreign Currency Operations B. To hold balances of, and to have outstanding and the Procedural Instructions with Respect to For- forward contracts to receive or to deliver, the foreign eign Currency Operations to align the treatment of the currencies listed in paragraph A above. liquidity swap arrangements and that of the reciprocal C. To draw foreign currencies and to permit for- currency arrangements that have been in place with the eign banks to draw dollars under the arrangements central banks of Mexico and Canada since 1994 as part listed in paragraph 2 below, in accordance with the of the North American Framework Agreement. The Procedural Instructions with Respect to Foreign Cur- Authorization for Foreign Currency Operations was rency Operations. amended to remove language regarding the transmis- D. To maintain an overall open position in all for- sion of pertinent information on System foreign cur- eign currencies not exceeding $25.0 billion. For this rency operations to appropriate officials of the Treas- purpose, the overall open position in all foreign cur- ury Department because this language duplicated lan- rencies is defined as the sum (disregarding signs) of net positions in individual currencies, excluding ______Minutes of the Meeting of January 28–29, 2014 Page 5

changes in dollar value due to foreign exchange rate 4. It shall be the normal practice to arrange with for- movements and interest accruals. The net position in eign central banks for the coordination of foreign cur- a single foreign currency is defined as holdings of rency transactions. In making operating arrangements balances in that currency, plus outstanding contracts with foreign central banks on System holdings of for- for future receipt, minus outstanding contracts for eign currencies, the Federal Reserve Bank of New York future delivery of that currency, i.e., as the sum of shall not commit itself to maintain any specific balance, these elements with due regard to sign. unless authorized by the Federal Open Market Com- 2. The Federal Open Market Committee directs the mittee. Any agreements or understandings concerning Federal Reserve Bank of New York to maintain for the the administration of the accounts maintained by the System Open Market Account (subject to the require- Federal Reserve Bank of New York with the foreign ments of section 214.5 of Regulation N, Relations with banks designated by the Board of Governors under Foreign Banks and Bankers): section 214.5 of Regulation N shall be referred for re- A. Reciprocal currency arrangements with the fol- view and approval to the Committee. lowing foreign banks: 5. Foreign currency holdings shall be invested to ensure that adequate liquidity is maintained to meet Foreign bank Amount of arrangement anticipated needs and so that each currency portfolio (millions of dollars equivalent) shall generally have an average duration of no more than 18 months (calculated as Macaulay duration). Bank of Canada 2,000 Such investments may include buying or selling out- Bank of Mexico 3,000 right obligations of, or fully guaranteed as to principal and interest by, a foreign government or agency there- B. Standing dollar liquidity swap arrangements of; buying such securities under agreements for repur- with the following foreign banks: chase of such securities; selling such securities under agreements for the resale of such securities; and hold- Bank of Canada ing various time and other deposit accounts at foreign Bank of England institutions. In addition, when appropriate in connec- Bank of Japan tion with arrangements to provide investment facilities European Central Bank for foreign currency holdings, U.S. government securi- Swiss National Bank ties may be purchased from foreign central banks under agreements for repurchase of such securities within 30 C. Standing foreign currency liquidity swap ar- calendar days. rangements with the following foreign banks: 6. All operations undertaken pursuant to the preced- ing paragraphs shall be reported promptly to the For- Bank of Canada eign Currency Subcommittee and the Committee. The Bank of England Foreign Currency Subcommittee consists of the Bank of Japan Chairman and Vice Chairman of the Committee, the European Central Bank Vice Chairman of the Board of Governors, and such Swiss National Bank other member of the Board as the Chairman may des- ignate (or in the absence of members of the Board Dollar and foreign currency liquidity swap arrange- serving on the Subcommittee, other Board members ments have no pre-set size limits. Any new swap ar- designated by the Chairman as alternates, and in the rangements shall be referred for review and approval absence of the Vice Chairman of the Committee, the to the Committee. All swap arrangements are subject Vice Chairman’s alternate). Meetings of the Subcom- to annual review and approval by the Committee. mittee shall be called at the request of any member, or 3. All transactions in foreign currencies undertaken at the request of the manager, System Open Market under paragraph 1.A above shall, unless otherwise ex- Account (“manager”), for the purposes of reviewing pressly authorized by the Committee, be at prevailing recent or contemplated operations and of consulting market rates. For the purpose of providing an invest- with the manager on other matters relating to the man- ment return on System holdings of foreign currencies ager’s responsibilities. At the request of any member or for the purpose of adjusting interest rates paid or of the Subcommittee, questions arising from such re- received in connection with swap drawings, transac- views and consultations shall be referred for determina- tions with foreign central banks may be undertaken at tion to the Federal Open Market Committee. non-market exchange rates. 7. The Chairman is authorized: ______Page 6 Federal Open Market Committee

A. With the approval of the Committee, to enter E. Cooperate in other respects with central banks into any needed agreement or understanding with the of other countries and with international monetary Secretary of the Treasury about the division of re- institutions. sponsibility for foreign currency operations between 3. Transactions may also be undertaken: the System and the Treasury; A. To adjust System balances in light of probable B. To keep the Secretary of the Treasury fully ad- future needs for currencies. vised concerning System foreign currency operations, B. To provide means for meeting System and and to consult with the Secretary on policy matters Treasury commitments in particular currencies, and relating to foreign currency operations; to facilitate operations of the Exchange Stabilization C. From time to time, to transmit appropriate re- Fund. ports and information to the National Advisory C. For such other purposes as may be expressly Council on International Monetary and Financial authorized by the Committee. Policies. 4. System foreign currency operations shall be con- 8. All Federal Reserve Banks shall participate in the ducted: foreign currency operations for System Account in ac- A. In close and continuous consultation and coop- cordance with paragraph 3G(1) of the Board of Gov- eration with the United States Treasury; ernors’ Statement of Procedure with Respect to For- B. In cooperation, as appropriate, with foreign eign Relationships of Federal Reserve Banks dated Jan- monetary authorities; and uary 1, 1944. C. In a manner consistent with the obligations of 9. The Federal Open Market Committee authorizes the United States in the International Monetary Fund the Federal Reserve Bank of New York to undertake regarding exchange arrangements under IMF Article transactions of the type described in paragraphs 1, 2, IV. and 5, and foreign exchange and investment transac- tions that it may be otherwise authorized to undertake PROCEDURAL INSTRUCTIONS WITH RESPECT from time to time for the purpose of testing operation- TO FOREIGN CURRENCY OPERATIONS al readiness. The aggregate amount of such transac- (As amended effective January 28, 2014) tions shall not exceed $2.5 billion per calendar year. These transactions shall be conducted with prior notice In conducting operations pursuant to the authorization to the Committee. and direction of the Federal Open Market Committee (the “Committee”) as set forth in the Authorization for FOREIGN CURRENCY DIRECTIVE Foreign Currency Operations and the Foreign Curren- (As amended effective January 28, 2014) cy Directive, the Federal Reserve Bank of New York, through the manager, System Open Market Account 1. System operations in foreign currencies shall gen- (“manager”), shall be guided by the following proce- erally be directed at countering disorderly market con- dural understandings with respect to consultations and ditions, provided that market exchange rates for the clearances with the Committee, the Foreign Currency U.S. dollar reflect actions and behavior consistent with Subcommittee (the “Subcommittee”), and the Chair- IMF Article IV, Section 1. man of the Committee, unless otherwise directed by 2. To achieve this end the System shall: the Committee. All operations undertaken pursuant to A. Undertake spot and forward purchases and sales such clearances shall be reported promptly to the of foreign exchange. Committee. B. Maintain reciprocal currency arrangements with 1. For the reciprocal currency arrangements author- foreign central banks in accordance with the Author- ized in paragraphs 2.A of the Authorization for Foreign ization for Foreign Currency Operations. Currency Operations: C. Maintain standing dollar liquidity swap ar- A. Drawings must be approved by the Subcommit- rangements with foreign banks in accordance with tee (or by the Chairman, if the Chairman believes the Authorization for Foreign Currency Operations. that consultation with the Subcommittee is not feasi- D. Maintain standing foreign currency liquidity ble in the time available) if the swap drawing pro- swap arrangements with foreign banks in accordance posed by a foreign bank does not exceed the larger of with the Authorization for Foreign Currency Opera- (i) $200 million or (ii) 15 percent of the size of the tions. swap arrangement. ______Minutes of the Meeting of January 28–29, 2014 Page 7

B. Drawings must be approved by the Committee though the change in the System’s net position in (or by the Subcommittee, if the Subcommittee be- that currency (as defined in paragraph 1.D of the lieves that consultation with the full Committee is Authorization for Foreign Currency Operations) not feasible in the time available, or by the Chairman, might be less than the limits specified in 3.A.ii. if the Chairman believes that consultation with the B. The Committee (or by the Subcommittee, if the Subcommittee is not feasible in the time available) if Subcommittee believes that consultation with the full the swap drawing proposed by a foreign bank ex- Committee is not feasible in the time available, or by ceeds the larger of (i) $200 million or (ii) 15 percent the Chairman, if the Chairman believes that consulta- of the size of the swap arrangement. tion with the Subcommittee is not feasible in the time C. The manager shall also consult with the Sub- available) if it would result in a change in the Sys- committee or the Chairman about proposed swap tem’s overall open position in foreign currencies ex- drawings by the System. ceeding $1.5 billion since the most recent regular D. Any changes in the terms of existing swap ar- meeting of the Committee. rangements shall be referred for review and approval 4. The Committee authorizes the Federal Reserve to the Chairman. The Chairman shall keep the Bank of New York to undertake transactions of the Committee informed of any changes in terms, and type described in paragraphs 1, 2, and 5 of the Authori- the terms shall be consistent with principles dis- zation for Foreign Currency Operations and foreign cussed with and guidance provided by the Commit- exchange and investment transactions that it may be tee. otherwise authorized to undertake from time to time 2. For the dollar and foreign currency liquidity swap for the purpose of testing operational readiness. The arrangements authorized in paragraphs 2.B and 2.C of aggregate amount of such transactions shall not exceed the Authorization for Foreign Currency Operations: $2.5 billion per calendar year. These transactions shall A. Drawings must be approved by the Chairman in be conducted with prior notice to the Committee. consultation with the Subcommittee. The Chairman or the Subcommittee will consult with the Commit- In its annual reconsideration of the Statement on tee prior to the initial drawing on the dollar or for- Longer-Run Goals and Monetary Policy Strategy, par- eign currency liquidity swap lines if possible under ticipants generally agreed that only minor updates were the circumstances then prevailing; authority to ap- required at this meeting. It was noted, however, that prove subsequent drawings for either the dollar or because this was the third year in which the statement foreign currency liquidity swap lines may be delegat- was being issued, the coming year would be an appro- ed to the manager by the Chairman. priate time to consider whether the statement could be B. Any changes in the terms of existing swap ar- enhanced in any way. For example, some participants rangements shall be referred for review and approval advocated an explicit indication that inflation persis- to the Chairman. The Chairman shall keep the tently below the Committee’s 2 percent longer-run ob- Committee informed of any changes in terms, and jective and inflation persistently above that objective the terms shall be consistent with principles dis- would be equally undesirable. Some others suggested cussed with and guidance provided by the Commit- that the statement could more clearly describe how the tee. mandated goals of maximum employment and price 3. Any operation must be approved by: stability are linked with the objective of financial stabil- A. The Subcommittee (or by the Chairman, if the ity. Following the discussion, the Committee voted to Chairman believes that consultation with the Sub- approve minor wording changes to the statement and committee is not feasible in the time available) if it: to update the statement’s reference to participants’ es- i. Would result in a change in the System’s timates of the longer-run normal unemployment rate. overall open position in foreign currencies exceed- Mr. Tarullo abstained from the vote because he contin- ing $300 million on any day or $600 million since ued to think that the statement had not advanced the the most recent regular meeting of the Committee. cause of communicating or achieving greater consensus ii. Would result in a change on any day in the in the policy views of the Committee. System’s net position in a single foreign currency exceeding $150 million, or $300 million when the operation is associated with repayment of swap drawings. iii. Might generate a substantial volume of trad- ing in a particular currency by the System, even ______Page 8 Federal Open Market Committee

STATEMENT ON LONGER-RUN GOALS AND most recent projections, FOMC participants’ estimates MONETARY POLICY STRATEGY of the longer-run normal rate of unemployment had a (As amended effective January 28, 2014) central tendency of 5.2 percent to 5.8 percent. In setting monetary policy, the Committee seeks to “The Federal Open Market Committee (FOMC) is mitigate deviations of inflation from its longer-run goal firmly committed to fulfilling its statutory mandate and deviations of employment from the Committee’s from the Congress of promoting maximum employ- assessments of its maximum level. These objectives are ment, stable prices, and moderate long-term interest generally complementary. However, under circum- rates. The Committee seeks to explain its monetary stances in which the Committee judges that the objec- policy decisions to the public as clearly as possible. tives are not complementary, it follows a balanced ap- Such clarity facilitates well-informed decisionmaking by proach in promoting them, taking into account the households and businesses, reduces economic and fi- magnitude of the deviations and the potentially differ- nancial uncertainty, increases the effectiveness of mon- ent time horizons over which employment and infla- etary policy, and enhances transparency and accounta- tion are projected to return to levels judged consistent bility, which are essential in a democratic society. with its mandate. Inflation, employment, and long-term interest rates The Committee intends to reaffirm these principles fluctuate over time in response to economic and finan- and to make adjustments as appropriate at its annual cial disturbances. Moreover, monetary policy actions organizational meeting each January.” tend to influence economic activity and prices with a lag. Therefore, the Committee’s policy decisions reflect By unanimous vote, the Committee amended its Rules its longer-run goals, its medium-term outlook, and its of Organization to add the position of deputy manager assessments of the balance of risks, including risks to of the System Open Market Account. the financial system that could impede the attainment of the Committee’s goals. By unanimous vote, the Committee amended its Pro- The inflation rate over the longer run is primarily de- gram for Security of FOMC Information with minor termined by monetary policy, and hence the Committee changes to the review and reporting process for has the ability to specify a longer-run goal for inflation. breaches in the information security rules and with sev- The Committee reaffirms its judgment that inflation at eral other minor updates and clarifications. the rate of 2 percent, as measured by the annual change in the price index for personal consumption expendi- By unanimous vote, the Committee selected Simon tures, is most consistent over the longer run with the Potter and Lorie K. Logan to serve at the pleasure of Federal Reserve’s statutory mandate. Communicating the Committee as manager and deputy manager of the this inflation goal clearly to the public helps keep long- System Open Market Account, respectively, on the un- er-term inflation expectations firmly anchored, thereby derstanding that their selection was subject to their be- fostering price stability and moderate long-term interest ing satisfactory to the Federal Reserve Bank of New rates and enhancing the Committee’s ability to promote York. maximum employment in the face of significant eco- nomic disturbances. Secretary’s note: Advice subsequently was The maximum level of employment is largely deter- received that the manager and deputy man- mined by nonmonetary factors that affect the structure ager selections indicated above were satisfac- and dynamics of the labor market. These factors may tory to the Federal Reserve Bank of New change over time and may not be directly measurable. York. Consequently, it would not be appropriate to specify a fixed goal for employment; rather, the Committee’s Developments in Financial Markets and the Fed- policy decisions must be informed by assessments of eral Reserve’s Balance Sheet the maximum level of employment, recognizing that The manager of the System Open Market Account such assessments are necessarily uncertain and subject (SOMA) reported on developments in domestic and to revision. The Committee considers a wide range of foreign financial markets as well as System open market indicators in making these assessments. Information operations during the period since the Federal Open about Committee participants’ estimates of the longer- Market Committee met on December 17–18, 2013. run normal rates of output growth and unemployment The manager also presented an update on the ongoing is published four times per year in the FOMC’s Sum- overnight reverse repurchase agreement (ON RRP) mary of Economic Projections. For example, in the exercise. All operations to date had proceeded ______Minutes of the Meeting of January 28–29, 2014 Page 9 smoothly. The number of participating counterparties the purpose of further assessing the potential and total allotment in the daily operations increased in role for such operations in supporting the late December, in part reflecting the fact that overnight implementation of monetary policy. The re- secured rates were low compared with the fixed rate verse repurchase operations authorized by offered in the operations as well as the increase in the this resolution shall be offered at a fixed rate cap on individual counterparty bids to $3 billion from that may vary from zero to five basis points, $1 billion that was implemented on December 23, and for an overnight term, or such longer 2013. Counterparties’ year-end balance sheet adjust- term as is warranted to accommodate week- ments also boosted participation for a time; the ON end, holiday, and similar trading conventions. RRP operations reportedly helped limit downward Any change to the offered rate within the pressure on money market rates around year-end. range specified above or the per- counterparty bid limits will require approval Following the manager’s report, meeting participants of the Chairman. The System Open Market discussed a proposal to extend the Desk’s authority to Account manager will notify the FOMC in conduct the ON RRP exercise for 12 months and to advance about any changes to the terms of lift the per-counterparty bid limit. Under the terms of operations. These operations shall be au- the proposal, the interest rate on ON RRPs would re- thorized through January 30, 2015.” main between 0 and 5 basis points. The Chair of the FOMC would authorize any changes in the offered rate Messrs. Fisher and Plosser dissented because of their or per-counterparty bid limit. Adjustments to the bid preference for retaining a cap on the maximum size of limit would be made in gradual steps, and the Commit- counterparties’ offers during the extension; Mr. Plosser tee would be consulted before the exercise would move also preferred a shorter extension of the exercise. to full allotment. The proposed changes were intended By unanimous vote, the Committee ratified the Open to allow the Committee to obtain additional infor- Market Desk’s domestic transactions over the inter- mation about the potential usefulness of ON RRP op- meeting period. There were no intervention operations erations for affecting market interest rates when that in foreign currencies for the System’s account over the step becomes appropriate. Most meeting participants intermeeting period. supported the proposal, with a couple emphasizing that the period for which the exercise would be extended Staff Review of the Economic Situation was likely sufficiently long that counterparties would be The information reviewed for the January 28–29 meet- willing to adjust their current money market practices, ing indicated that the rate of economic growth picked thereby providing better information on the possible up in the second half of 2013. Total payroll employ- market effects of such operations. It was remarked ment increased in December, but at a slower pace than that the additional insights obtained from the exercise in previous months, and the unemployment rate de- could be useful in the context of the Committee’s fu- clined but was still elevated. Consumer price inflation ture discussions about monetary policy implementation continued to run below the Committee’s longer-run over the medium and longer term. A number of partic- objective, while measures of longer-term inflation ex- ipants, however, indicated a preference for retaining a pectations remained stable. cap on the per-counterparty bid limit until the Commit- Overall, labor market indicators appeared consistent tee has discussed possible approaches to medium-term with a gradual ongoing improvement in labor market policy implementation, and a few of these participants conditions. Total nonfarm payroll employment ex- preferred to extend the exercise for a shorter period. panded by less in December than in the previous two Following the discussion, the Committee approved the months, perhaps partly because of unusually bad following resolution: weather. The unemployment rate declined to 6.7 per- cent in December. The labor force participation rate “The Federal Open Market Committee also decreased, and the employment-to-population ra- (FOMC) authorizes the Federal Reserve tio was little changed. The rate of long-duration un- Bank of New York to conduct a series of employment declined, but the share of workers em- fixed-rate, overnight reverse repurchase op- ployed part time for economic reasons was little erations involving U.S. Government securi- changed, and both measures remained elevated. ties, and securities that are direct obligations Among other indicators of labor market conditions, the of, or fully guaranteed as to principal and in- rate of job openings edged up in recent months, and terest by, any agency of the United States, for the share of small businesses reporting that they had ______Page 10 Federal Open Market Committee hard-to-fill positions trended up. Measures of firms’ December and November’s increase was revised down, hiring plans were higher than a year earlier, but the rate the level of orders remained above that of shipments, of gross private-sector hiring was still low. Initial pointing to further increases in shipments in subse- claims for unemployment insurance moved down, on quent months. Other forward-looking indicators, such balance, over the intermeeting period, and household as surveys of business conditions and capital spending expectations of the labor market situation improved, plans, were also generally consistent with near-term on net, in December and early January. gains in business equipment spending. Nominal ex- penditures for nonresidential construction, which had Manufacturing production increased at a robust pace in been flat in October, moved higher in November. Da- the fourth quarter, with broad-based gains across in- ta on book-value inventories suggested little change in dustries. Indicators of manufacturing production, such the pace of nonfarm inventory investment in the fourth as the readings on new orders from national and re- quarter, and the available information did not point to gional manufacturing surveys, were consistent with a significant inventory imbalances in most industries. further expansion in factory output early this year, but automakers’ production schedules indicated that the Real federal government purchases likely fell sharply in pace of light motor vehicle assemblies would decline in the fourth quarter because of continued declines in the first quarter. defense spending and the temporary partial shutdown of the federal government in October. Increases in real Real personal consumption expenditures (PCE) rose at state and local government purchases appeared to have a faster pace in October and November than in the moderated in the fourth quarter. The payrolls of these third quarter. In December, the components of the governments were about unchanged during the fourth nominal retail sales data used by the Bureau of Eco- quarter, and nominal state and local construction ex- nomic Analysis to construct its estimate of PCE in- penditures for October and November increased at a creased strongly, although sales of light motor vehicles slower pace, on net, than in the third quarter. declined after posting a large gain in November. Re- cent information on several important factors that in- The U.S. international trade deficit narrowed substan- fluence household spending was somewhat mixed. tially in November, as exports increased and imports Households’ real disposable income was little changed fell. The higher value of exports stemmed in large part in October and November, and the expiration of the from an increase in sales of petroleum products, while emergency unemployment compensation program at the fall in imports was primarily due to a decline in the end of 2013 was expected to reduce aggregate in- purchases of crude oil. come growth early this year. However, households’ net Total U.S. consumer price inflation, as measured by the worth likely continued to expand in recent months as a PCE price index, was a little under 1 percent over the result of rising equity prices and home values. Con- 12 months ending in November, well below the Com- sumer sentiment in the Thomson Reuters/University mittee’s 2 percent longer-term objective. Over that of Michigan Surveys of Consumers improved, on bal- period, consumer energy prices declined, consumer ance, in December and early January after a decline in food prices rose modestly, and core PCE prices— the fall of 2013. which exclude consumer food and energy prices— The pace of activity in the housing sector showed some increased slightly more than 1 percent. In December, tentative signs of stabilizing, as the effects of the past the consumer price index (CPI) rose somewhat faster year’s rise in mortgage rates appeared to wane. Single- than in recent months, primarily reflecting an upturn in family housing starts increased in November and only consumer energy prices; core CPI inflation remained partly reversed that gain in December, while permits low. Both near-term and longer-term inflation expecta- for new construction rose a little, on balance, in the tions from the Michigan survey were little changed, on fourth quarter. New home sales declined in November net, in December and early January. Over the 12 and December but were nonetheless higher than in the months ending in December, nominal average hourly third quarter, and existing home sales flattened out in earnings for all employees increased slightly faster than December after decreasing for several months. consumer price inflation. Real private expenditures for business equipment and Foreign economic activity continued to improve, with intellectual property products appeared to strengthen in economic growth in the third quarter of 2013 higher the fourth quarter, as nominal shipments of nonde- than in the first half of the year and more recent indica- fense capital goods rose at a solid pace. Although tors suggesting further gains. The pickup was wide- nominal new orders for these capital goods declined in spread, as the euro area registered a second consecutive ______Minutes of the Meeting of January 28–29, 2014 Page 11 quarter of positive economic growth, the Mexican On balance, 10-and 30-year nominal Treasury yields economy bounced back from a second-quarter contrac- declined about 10 basis points and 20 basis points, re- tion, and stronger external demand boosted growth in spectively, over the intermeeting period, in part because emerging market economies more generally. At the of an increase in safe-haven demands toward the end same time, inflation continued to run below central of the period. The December policy action and subse- bank targets in several advanced economies, and mone- quent muted market reaction led to decreased uncer- tary policy remained expansionary in these economies. tainty about future longer-term interest rates, perhaps Inflation in emerging market economies remained contributing to the decline in longer-term rates. The moderate on average, although Brazil, India, and Tur- measure of 5-year inflation compensation based on key again tightened monetary policy during the inter- Treasury inflation-protected securities increased a little, meeting period in response to concerns about inflation while inflation compensation 5 to 10 years ahead de- and currency depreciation. The policy tightening in creased somewhat. Turkey was particularly sharp and followed several days Conditions in short-term dollar funding markets gener- of heightened financial market pressures toward the ally remained stable. Year-end funding pressures were end of the intermeeting period. Similar pressures were modest, and overnight money market rates declined evident in some other emerging market economies as about in line with their typical behavior in past years. well. Repo rates were quite low at the end of the year and Staff Review of the Financial Situation remained low through most of January, leading to in- Financial market conditions over the intermeeting peri- creased participation in the Federal Reserve’s ON RRP od were importantly influenced by Federal Reserve operations, with a substantial temporary increase in communications, somewhat better-than-expected eco- take-up at year-end. Primarily reflecting the increased nomic data releases, and developments in emerging participation in the exercise, reserve balances expanded market economies. On net, financial conditions in the more slowly and the rate of increase in the monetary United States remained supportive of growth in eco- base slowed in December. M2 continued to expand nomic activity and employment: Equity prices in- moderately. creased a bit, longer-term interest rates declined, and Reflecting the improved outlook for economic activity the dollar appreciated against most other currencies. and despite mixed fourth-quarter earnings results, the While investors were somewhat surprised by the stock prices of bank holding companies rose notably FOMC’s decision at its December meeting to reduce and spreads on credit default swaps for the largest bank the pace of its asset purchases, the policy action and holding companies narrowed somewhat. According to associated communications appeared to have only a the January Senior Loan Officer Opinion Survey on limited effect on market participants’ outlook for the Bank Lending Practices, domestic banks continued to Federal Reserve’s balance sheet. Indeed, the Commit- ease their lending standards and some loan terms on tee’s decision to cut the pace of purchases and its ra- balance; they also experienced an increase in demand, tionale for doing so seemed to increase investors’ con- on net, in most major loan categories in the fourth fidence in the economic outlook, a shift that was fur- quarter. ther supported by subsequent U.S. economic data re- Broad U.S. equity price indexes edged higher, on net, leases. However, those effects were reversed late in the over the intermeeting period, and equity issuance by period when investors appeared to pull back from risk- nonfinancial corporations increased. Credit remained ier assets in reaction to rising concern about develop- widely available to large nonfinancial corporations. ments in some emerging market economies and their Corporate bond spreads continued to narrow over the possible implications for global economic growth. intermeeting period, with investment-grade bond Results from the Desk’s survey of primary dealers con- spreads reaching their lowest levels in several years and ducted prior to the January meeting indicated that deal- those on speculative-grade corporate bonds approach- ers anticipated only minor changes to the Committee’s ing pre-crisis levels. Bond issuance by domestic corpo- postmeeting statement. In addition, the median dealer rations generally stayed strong, commercial and indus- expected a $10 billion reduction in the monthly pace of trial loans on banks’ books increased by a notable asset purchases to be announced at each meeting in the amount late in the fourth quarter, and issuance of lev- first three quarters of 2014, with the purchase program eraged loans and collateralized loan obligations general- ending with a final $15 billion reduction at the October ly continued apace. 2014 meeting. ______Page 12 Federal Open Market Committee

Conditions in the commercial real estate sector recov- preciated against most other currencies over the period, ered further in the fourth quarter, with rising property with particularly large increases against the Argentine prices and fewer distressed sales. In the market for peso and the Turkish lira. commercial mortgage-backed securities, investor de- Staff Economic Outlook mand remained strong and spreads continued to be In the economic projection prepared by the staff for tight despite high issuance near year-end. Commercial the January FOMC meeting, growth of real gross do- real estate loans on banks’ books expanded moderately. mestic product (GDP) in the second half of 2013 was Credit conditions in municipal bond markets generally estimated to have been stronger than the staff had ex- remained stable, although a few issuers continued to pected, though some of the strength in inventory in- experience substantial strain. Available data suggest vestment and net exports was possibly transitory. The that, for the first time in several years, the ratings agen- staff’s medium-term forecast for real GDP growth was cy Moody’s Investors Service made more upgrades little revised, on balance, as the momentum implied by than downgrades to municipal debt in the fourth quar- faster GDP growth in the second half of 2013 was ter. However, Moody’s put Puerto Rico on watch for a largely offset by a higher projected path for the foreign downgrade. exchange value of the dollar. In addition, the staff re- vised downward its view of the pace at which potential Households continued to face mixed credit conditions output had increased over recent years and would in- in the fourth quarter. Consumer credit expanded again crease this year and next. The staff continued to pro- in November, boosted by further gains in auto and stu- ject that real GDP would expand more quickly over the dent loans, and bank credit data indicate that this ex- next few years than in 2013 and that real GDP would pansion likely continued through December. In con- rise faster than potential output. This acceleration in trast, credit card balances were little changed, on net, economic activity was expected to be supported by through November, as underwriting appeared to re- still-accommodative monetary policy and an easing in main quite tight. The volume of mortgage applications the effects of fiscal policy restraint on economic for home purchases held about steady since the previ- growth, as well as by increases in consumer and busi- ous FOMC meeting while refinance applications re- ness confidence, further improvements in credit availa- mained at very low levels. Mortgage rates declined bility and financial conditions, and continued gains in slightly, in line with modestly lower yields on agency foreign economic growth. The expansion in economic mortgage-backed securities. Despite tight mortgage activity was anticipated to lead to a slow reduction in availability and subdued borrowing, house prices con- resource slack over the projection period, and the un- tinued to increase in November, although not as quick- employment rate was expected to decline gradually, ly as earlier in 2013. reaching the staff’s estimate of its longer-run natural Financial market conditions in the advanced foreign rate in 2016. economies over the intermeeting period generally be- The staff’s forecast for inflation was little changed from came more supportive of growth. Long-term govern- the projection prepared for the previous FOMC meet- ment bond yields declined and headline equity indexes ing, although the near-term forecast was revised down increased, on net, in most of these countries, with bank a little to reflect recent declines in energy prices. The stock prices in the euro area rising more than broader staff continued to forecast that inflation would run well indexes. In addition, debt issuance by both govern- below the Committee’s 2 percent objective early this ments and banks in the European periphery picked up, year but above the low level observed over much of and sovereign yield spreads in those countries were flat 2013. Over the medium term, with longer-run inflation to down, on balance, over the period. In contrast, expectations assumed to remain stable, changes in amid a ratcheting-up of financial market strains in some commodity and import prices expected to be muted, emerging market economies, headline stock price in- and slack in labor and product markets receding gradu- dexes in most emerging market economies declined, ally, inflation was projected to move back slowly to- outflows from emerging market mutual funds contin- ward the Committee’s objective. ued, and yield spreads on dollar-denominated emerging market bonds increased. Local-currency yields rose in In considering recent events in emerging market econ- some emerging market economies, such as Brazil, omies, the staff judged that the effects of recent finan- South Africa, and Turkey, and short-term interbank cial market volatility had not been large enough to have rates in China were volatile and trended higher over the a material effect on the overall outlook for those econ- period. The foreign exchange value of the dollar ap- omies and, similarly, that the spillover effects on the ______Minutes of the Meeting of January 28–29, 2014 Page 13

United States of developments to date were likely to be ing that households remained cautious, participants modest. Because conditions were in flux, however, cited a number of factors that were likely to continue to these markets would require careful monitoring. underpin gains in household spending, including rising house prices, growing confidence in the sustainability The staff continued to see a number of risks around its of the economic expansion, increasing payrolls, and the outlook. The downside risks to the forecast for real high ratio of household wealth to disposable income. GDP growth were thought to have diminished, but the risks were still seen as tilted a little to the downside be- Although the recovery in the housing sector had cause, with the target federal funds rate at its effective slowed somewhat in recent months, a number of par- lower bound, the economy was not well positioned to ticipants reported solid activity in their Districts. withstand future adverse shocks. At the same time, the Moreover, various factors were seen as likely to sup- staff viewed the risks around its outlook for the unem- port stronger growth in the sector going forward, in- ployment rate and for inflation as roughly balanced. cluding favorable housing affordability, which was in turn partly due to still-low mortgage rates, and demo- Participants’ Views on Current Conditions and the graphic trends. However, there were also reasons for Economic Outlook being cautious about the prospects for housing con- In their discussion of the economic situation and the struction, such as recent disappointing news on permits outlook, participants generally noted that economic for new construction and the possibility that investors’ activity had strengthened more in the second half of interest in purchasing properties for the rental market 2013 than they had expected at the time of the Decem- would recede. ber meeting. In particular, consumer spending had strengthened, and business investment appeared to be Business contacts in many parts of the country report- on a more solid uptrend. Although the government ed that they were guardedly optimistic about prospects shutdown likely damped economic growth somewhat, for 2014. While inventory investment would likely the extent of restraint on growth from fiscal policy di- come down from its recent unusually high level, partic- minished late in the year. However, several participants ipants heard more reports that the business sector was observed that temporary factors had helped boost real willing to increase spending on capital projects. A GDP during the second half, pointing specifically to number of factors were cited as likely to support such the substantial contributions from net exports and in- an increase, including the high level of profits, the low creased inventory investment. As a result, participants level of interest rates, a reduction in policy uncertainty, generally did not expect the recent pace of economic the easing of lending standards, and large holdings of growth to be sustained, but they nonetheless anticipat- liquid assets by corporations. ed that the economy would expand at a moderate pace In discussing financial developments over the inter- in coming quarters. That expansion was expected to be meeting period, several participants noted that the supported by highly accommodative monetary policy, a Committee’s December decision to make a modest further easing of fiscal restraint, and a modest addition- reduction in the monthly pace of asset purchases had al pickup in global economic growth, as well as contin- not resulted in an adverse market reaction. Several par- ued improvement in credit conditions and the ongoing ticipants observed that current market expectations for strengthening in household balance sheets. A number asset purchases and the future course of the federal of participants noted that recent economic news had funds rate were reasonably well aligned with partici- reinforced their confidence in their projection of mod- pants’ own expectations of the path for policy. How- erate economic growth over the medium run. It was ever, one participant expressed concern that longer- also noted that recent developments in several emerg- term interest rates could rise sharply if market partici- ing market economies, if they continued, could pose pants’ expectations of future monetary policy came to downside risks to the outlook. Overall, most partici- deviate from those of policymakers, as appeared to pants still viewed the risks to the outlook for the econ- have happened last summer, while a couple of others omy and the labor market as having become more argued that the current highly accommodative stance of nearly balanced in recent months. monetary policy could lead investors to take on exces- Consumer spending had advanced strongly in late 2013, sive risk and so undermine longer-term financial stabil- contributing importantly to the pickup in growth of ity. Recent volatility in emerging markets appeared to economic activity. This picture was reinforced by sur- have had only a limited effect to date on U.S. financial vey data that suggested that consumers had become markets. Nevertheless, participants agreed that a num- more optimistic about future income gains. While not- ber of developments in financial markets needed to be ______Page 14 Federal Open Market Committee watched carefully, including the financing situation of the lack of pricing power reported by business contacts the Puerto Rican government and particularly the un- in various parts of the country, the low level of infla- folding events in emerging markets. tion in other advanced economies, and the danger that inflation expectations at short and medium horizons In their discussion of recent labor market develop- might not be as well anchored as longer-run inflation ments, many participants commented on the relatively expectations. Participants noted that inflation persis- small increase in payrolls in December and the further tently below the Committee’s objective would pose decline in the unemployment rate. A number of partic- risks to economic performance and that inflation de- ipants indicated that the December payrolls figure may velopments would need to be monitored carefully. have been an anomaly, perhaps importantly reflecting bad weather, and it was noted that the initial readings In their discussion of the path for monetary policy, on payrolls in recent years had subsequently tended to most participants judged that the incoming information be revised up. In addition, some participants reported about the economy was broadly in line with their ex- that their business contacts had become more positive pectations and that a further modest step down in the about hiring in the year ahead. Participants continued pace of purchases was appropriate. A couple of partic- to debate the reliability of the unemployment rate as an ipants observed that continued low readings on infla- indicator of overall labor market conditions, taking into tion and considerable slack in the labor market raised account the further decline in labor force participation questions about the desirability of reducing the pace of in recent quarters, still-elevated levels of underem- purchases; these participants judged, however, that a ployment and long-term unemployment, and the ap- pause in the reduction of purchases was not justified at parent absence of wage pressures. Much of the down- this stage, especially in light of the strength of the ward trend in the labor force participation rate since economy in the second half of 2013. Several partici- the start of the recession was seen as the result of shifts pants argued that, in the absence of an appreciable in the demographic composition of the workforce and change in the economic outlook, there should be a the retirement of older workers; the extent of the cycli- clear presumption in favor of continuing to reduce the cal portion of the decline was viewed by some as diffi- pace of purchases by a total of $10 billion at each cult to gauge at present. A few participants judged that FOMC meeting. That said, a number of participants the decline in participation for younger and prime-age noted that if the economy deviated substantially from workers likely reflected the slow recovery in jobs and its expected path, the Committee should be prepared to wages and so might be reversed as labor market condi- respond with an appropriate adjustment to the trajecto- tions strengthened. In addition, several others pointed ry of its purchases. out that broader concepts of the unemployment rate, Participants agreed that, with the unemployment rate such as those that include nonparticipants who report approaching 6½ percent, it would soon be appropriate that they want a job and those working part time who for the Committee to change its forward guidance in want full-time work, remained well above the official order to provide information about its decisions re- unemployment rate, suggesting that considerable labor garding the federal funds rate after that threshold was market slack remained despite the reduction in the un- crossed. A range of views was expressed about the employment rate. A few participants noted worker form that such forward guidance might take. Some shortages in specific regions and occupations, with one participants favored quantitative guidance along the District reporting widespread shortages of skilled labor lines of the existing thresholds, while others preferred a leading to emerging labor cost pressures. However, a qualitative approach that would provide additional in- number of participants saw the low rates of increase in formation regarding the factors that would guide the most measures of wages as consistent with continued Committee’s policy decisions. Several participants sug- labor market slack. gested that risks to financial stability should appear Inflation remained below the Committee’s longer-run more explicitly in the list of factors that would guide objective over the intermeeting period. Participants decisions about the federal funds rate once the unem- still anticipated that, with longer-run inflation expecta- ployment rate threshold is crossed, and several partici- tions stable, transitory factors that had been damping pants argued that the forward guidance should give inflation likely to recede, and economic activity picking greater emphasis to the Committee’s willingness to up, inflation would move back toward the Committee’s keep rates low if inflation were to remain persistently 2 percent objective over the medium run. However, below the Committee’s 2 percent longer-run objective. several factors that cast doubt on this outcome were Additional proposals included relying to a greater ex- also mentioned, including slow growth in labor costs, tent on the Summary of Economic Projections as a ______Minutes of the Meeting of January 28–29, 2014 Page 15 communications device and including in the guidance In their discussion of monetary policy in the period an indication of the Committee’s willingness to adjust ahead, all members agreed that the cumulative im- policy to lean against undesired changes in financial provement in labor market conditions and the likeli- conditions. hood of continuing improvement indicated that it would be appropriate to make a further measured re- A few participants raised the possibility that it might be duction in the pace of its asset purchases at this meet- appropriate to increase the federal funds rate relatively ing. Members again judged that, if the economy con- soon. One participant cited evidence that the equilibri- tinued to develop as anticipated, further reductions um real interest rate had moved higher, and a couple of would be undertaken in measured steps. Members also them noted that some standard policy rules tended to underscored that the pace of asset purchases was not suggest that the federal funds rate should be raised on a preset course and would remain contingent on the above its effective lower bound before the middle of Committee’s outlook for the labor market and inflation this year. Other participants, however, suggested that as well as its assessment of the efficacy and costs of prescriptions from standard policy rules were not ap- purchases. Accordingly, the Committee agreed that, propriate in current circumstances, either because the beginning in February, it would add to its holdings of target federal funds rate had been constrained by the agency mortgage-backed securities at a pace of $30 bil- lower bound for some time or because the equilibrium lion per month rather than $35 billion per month, and real rate of interest was likely still being held down by would add to its holdings of longer-term Treasury secu- various factors, including the lingering effects of the rities at a pace of $35 billion per month rather than financial crisis, and was significantly below the value of $40 billion per month. While making a further meas- the longer-run rate built into standard policy rules. ured reduction in its pace of purchases, the Committee Committee Policy Action emphasized that its holdings of longer-term securities Committee members saw the information received were sizable and would still be increasing, which would over the intermeeting period as indicating that growth promote a stronger economic recovery by maintaining in economic activity had picked up in recent quarters. downward pressure on longer-term interest rates, sup- Labor market indicators were mixed but on balance porting mortgage markets, and helping to make broad- showed further improvement. The unemployment rate er financial conditions more accommodative. The had declined but remained elevated when judged Committee also reiterated that it would continue its against members’ estimates of the longer-run normal asset purchases, and employ its other policy tools as rate of unemployment. Household spending and busi- appropriate, until the outlook for the labor market has ness fixed investment had advanced more quickly in improved substantially in a context of price stability. recent months than earlier in 2013, while the recovery In considering forward guidance about the target feder- in the housing sector had slowed somewhat. Fiscal al funds rate, all members agreed to retain the thresh- policy was restraining economic growth, although the olds-based language employed in recent statements. In extent of the restraint had diminished. The Committee addition, the Committee decided to repeat the qualita- expected that, with appropriate policy accommodation, tive guidance, introduced in December, clarifying that a the economy would expand at a moderate pace and the range of labor market indicators would be used when unemployment rate would gradually decline toward assessing the appropriate stance of policy once the un- levels consistent with the dual mandate. Moreover, employment rate threshold had been crossed. Mem- members continued to judge that the risks to the out- bers also agreed to reiterate language indicating the look for the economy and the labor market had be- Committee’s anticipation, based on its current assess- come more nearly balanced. Inflation was running be- ment of additional measures of labor market condi- low the Committee’s longer-run objective, and this was tions, indicators of inflation pressures and inflation seen as posing possible risks to economic performance, expectations, and readings on financial developments, but members anticipated that stable inflation expecta- that it would be appropriate to maintain the current tions and strengthening economic activity would, over target range for the federal funds rate well past the time time, return inflation to the Committee’s 2 percent ob- that the unemployment rate declines below 6½ percent, jective. However, in light of their concerns about the especially if projected inflation continues to run below persistence of low inflation, many members saw a need the Committee’s longer-run objective. for the Committee to monitor inflation developments carefully for evidence that inflation was moving back Members also discussed other elements of the policy toward its longer-run objective. statement to be issued following the meeting. Mem- bers agreed on updating the description of the state of ______Page 16 Federal Open Market Committee the economy to reflect the recent strength of house- indicators were mixed but on balance hold and business spending and to note that, although showed further improvement. The unem- the labor market showed further improvement on bal- ployment rate declined but remains elevated. ance, the recent indicators were mixed. Members did Household spending and business fixed in- not see an appreciable change in the balance of risks vestment advanced more quickly in recent and so left the statement’s description of risks un- months, while the recovery in the housing changed. sector slowed somewhat. Fiscal policy is re- straining economic growth, although the ex- At the conclusion of the discussion, the Committee tent of restraint is diminishing. Inflation has voted to authorize and direct the Federal Reserve Bank been running below the Committee’s longer- of New York, until it was instructed otherwise, to exe- run objective, but longer-term inflation ex- cute transactions in the SOMA in accordance with the pectations have remained stable. following domestic policy directive: Consistent with its statutory mandate, the “Consistent with its statutory mandate, the Committee seeks to foster maximum em- Federal Open Market Committee seeks ployment and price stability. The Committee monetary and financial conditions that will expects that, with appropriate policy ac- foster maximum employment and price sta- commodation, economic activity will expand bility. In particular, the Committee seeks at a moderate pace and the unemployment conditions in reserve markets consistent with rate will gradually decline toward levels the federal funds trading in a range from 0 to Committee judges consistent with its dual ¼ percent. The Committee directs the Desk mandate. The Committee sees the risks to to undertake open market operations as nec- the outlook for the economy and the labor essary to maintain such conditions. Begin- market as having become more nearly bal- ning in February, the Desk is directed to anced. The Committee recognizes that infla- purchase longer-term Treasury securities at a tion persistently below its 2 percent objective pace of about $35 billion per month and to could pose risks to economic performance, purchase agency mortgage-backed securities and it is monitoring inflation developments at a pace of about $30 billion per month. carefully for evidence that inflation will move The Committee also directs the Desk to en- back toward its objective over the medium gage in dollar roll and coupon swap transac- term. tions as necessary to facilitate settlement of the Federal Reserve’s agency mortgage- Taking into account the extent of federal fis- backed securities transactions. The Commit- cal retrenchment since the inception of its tee directs the Desk to maintain its policy of current asset purchase program, the Com- rolling over maturing Treasury securities into mittee continues to see the improvement in new issues and its policy of reinvesting prin- economic activity and labor market condi- cipal payments on all agency debt and agency tions over that period as consistent with mortgage-backed securities in agency growing underlying strength in the broader mortgage-backed securities. The System economy. In light of the cumulative pro- Open Market Account Manager and the Sec- gress toward maximum employment and the retary will keep the Committee informed of improvement in the outlook for labor market ongoing developments regarding the Sys- conditions, the Committee decided to make a tem’s balance sheet that could affect the at- further measured reduction in the pace of its tainment over time of the Committee’s ob- asset purchases. Beginning in February, the jectives of maximum employment and price Committee will add to its holdings of agency stability.” mortgage-backed securities at a pace of $30 billion per month rather than $35 billion The vote encompassed approval of the statement be- per month, and will add to its holdings of low to be released at 2:00 p.m.: longer-term Treasury securities at a pace of “Information received since the Federal $35 billion per month rather than $40 billion Open Market Committee met in December per month. The Committee is maintaining indicates that growth in economic activity its existing policy of reinvesting principal picked up in recent quarters. Labor market payments from its holdings of agency debt ______Minutes of the Meeting of January 28–29, 2014 Page 17

and agency mortgage-backed securities in 6½ percent, inflation between one and two agency mortgage-backed securities and of years ahead is projected to be no more than a rolling over maturing Treasury securities at half percentage point above the Committee’s auction. The Committee’s sizable and still- 2 percent longer-run goal, and longer-term increasing holdings of longer-term securities inflation expectations continue to be well an- should maintain downward pressure on chored. In determining how long to main- longer-term interest rates, support mortgage tain a highly accommodative stance of mone- markets, and help to make broader financial tary policy, the Committee will also consider conditions more accommodative, which in other information, including additional turn should promote a stronger economic measures of labor market conditions, indica- recovery and help to ensure that inflation, tors of inflation pressures and inflation ex- over time, is at the rate most consistent with pectations, and readings on financial devel- the Committee’s dual mandate. opments. The Committee continues to an- ticipate, based on its assessment of these fac- The Committee will closely monitor incom- tors, that it likely will be appropriate to main- ing information on economic and financial tain the current target range for the federal developments in coming months and will funds rate well past the time that the unem- continue its purchases of Treasury and agen- ployment rate declines below 6½ percent, cy mortgage-backed securities, and employ especially if projected inflation continues to its other policy tools as appropriate, until the run below the Committee’s 2 percent longer- outlook for the labor market has improved run goal. When the Committee decides to substantially in a context of price stability. If begin to remove policy accommodation, it incoming information broadly supports the will take a balanced approach consistent with Committee’s expectation of ongoing im- its longer-run goals of maximum employ- provement in labor market conditions and ment and inflation of 2 percent.” inflation moving back toward its longer-run objective, the Committee will likely reduce Voting for this action: Ben Bernanke, William C. the pace of asset purchases in further meas- Dudley, Richard W. Fisher, Narayana Kocherlakota, ured steps at future meetings. However, as- Sandra Pianalto, Charles I. Plosser, Jerome H. Powell, set purchases are not on a preset course, and Jeremy C. Stein, Daniel K. Tarullo, and Janet L. Yellen. the Committee’s decisions about their pace Voting against this action: None. will remain contingent on the Committee’s outlook for the labor market and inflation as It was agreed that the next meeting of the Committee well as its assessment of the likely efficacy would be held on Tuesday–Wednesday, March 18–19, and costs of such purchases. 2014. The meeting adjourned at 10:55 a.m. on January 29, 2014. To support continued progress toward max- imum employment and price stability, the Notation Vote Committee today reaffirmed its view that a By notation vote completed on January 7, 2014, the highly accommodative stance of monetary Committee unanimously approved the minutes of the policy will remain appropriate for a consider- Committee meeting held on December 17–18, 2013. able time after the asset purchase program

ends and the economic recovery strengthens.

The Committee also reaffirmed its expecta-

tion that the current exceptionally low target ______range for the federal funds rate of 0 to William B. English ¼ percent will be appropriate at least as long Secretary as the unemployment rate remains above