September 21, 2010 1 of 151 Meeting of the Federal Open Market Committee on September 21, 2010 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held in the offices of the Board of Governors in Washington, D.C., on Tuesday, September 21, 2010, at 8:00 a.m. Those present were the following: Ben Bernanke, Chairman William C. Dudley, Vice Chairman James Bullard Elizabeth Duke Thomas M. Hoenig Sandra Pianalto Eric Rosengren Daniel K. Tarullo Kevin Warsh Christine Cumming, Charles L. Evans, Richard W. Fisher, Narayana Kocherlakota, and Charles I. Plosser, Alternate Members of the Federal Open Market Committee Jeffrey M. Lacker, Dennis P. Lockhart, and Janet L. Yellen, Presidents of the Federal Reserve Banks of Richmond, Atlanta, and San Francisco, respectively William B. English, Secretary and Economist Deborah J. Danker, Deputy Secretary Matthew M. Luecke, Assistant Secretary David W. Skidmore, Assistant Secretary Michelle A. Smith, Assistant Secretary Scott G. Alvarez, General Counsel Thomas C. Baxter, Deputy General Counsel Nathan Sheets, Economist David J. Stockton, Economist Alan D. Barkema, James A. Clouse, Thomas A. Connors, Jeff Fuhrer, Steven B. Kamin, Lawrence Slifman, Mark S. Sniderman, Christopher J. Waller, and David W. Wilcox, Associate Economists Brian Sack, Manager, System Open Market Account Jennifer J. Johnson, Secretary of the Board, Office of the Secretary, Board of Governors Charles S. Struckmeyer, Deputy Staff Director, Office of the Staff Director, Board of Governors September 21, 2010 2 of 151 Maryann F. Hunter, Deputy Director, Division of Banking Supervision and Regulation, Board of Governors; William Nelson, Deputy Director, Division of Monetary Affairs, Board of Governors Linda Robertson, Assistant to the Board, Office of Board Members, Board of Governors David Reifschneider and William Wascher, Senior Associate Directors, Division of Research and Statistics, Board of Governors Eric M. Engen and Michael G. Palumbo, Deputy Associate Directors, Division of Research and Statistics, Board of Governors Brian J. Gross, Special Assistant to the Board, Office of Board Members, Board of Governors David H. Small, Project Manager, Division of Monetary Affairs, Board of Governors Jennifer E. Roush, Senior Economist, Division of Monetary Affairs, Board of Governors Penelope A. Beattie, Assistant to the Secretary, Office of the Secretary, Board of Governors Randall A. Williams, Records Management Analyst, Division of Monetary Affairs, Board of Governors Gordon Werkema, First Vice President, Federal Reserve Bank of Chicago Harvey Rosenblum and Daniel G. Sullivan, Executive Vice Presidents, Federal Reserve Banks of Dallas and Chicago, respectively David Altig, John A. Weinberg, and Kei-Mu Yi, Senior Vice Presidents, Federal Reserve Banks of Atlanta, Richmond, and Minneapolis, respectively Chris Burke, John Fernald, and James M. Nason, Vice Presidents, Federal Reserve Banks of New York, San Francisco, and Philadelphia, respectively Gauti B. Eggertsson, Research Officer, Federal Reserve Bank of New York September 21, 2010 3 of 151 Transcript of the Federal Open Market Committee Meeting on September 21, 2010 CHAIRMAN BERNANKE. Good morning, everybody. I need a motion to close the Board meeting. MR. WARSH. So moved. CHAIRMAN BERNANKE. The five at the table are stretching out pretty well here. We’re thinking of leasing out a few offices. [Laughter] I think there is potentially some good news, in that we have some prospect of getting two people appointed before the Congress goes back on break. Peter Diamond will have to have another hearing—he needs to convince Senator Shelby that he’s a qualified economist. [Laughter] Is Linda Robertson here? Any comments? MS. ROBERTSON. It’s a positive step. As one knows with the United States Senate, steps have to add up to actual completion by vote or acclamation with unanimous consent, and these steps can get tricky. But it’s definitely a positive step. CHAIRMAN BERNANKE. We’re making progress, and we hope to come to a resolution at some point. Before we get started, I wanted to address an issue that came up during the intermeeting period relating to the preparation of the minutes. One of our colleagues raised a concern that the first draft of the minutes this time didn’t fully reflect the discussion at the meeting, and I wanted to explain what happened and what we did about it. The background is that, based on longstanding tradition and reflecting the Federal Reserve Act’s requirement that we explain why the Committee took the action it did, we have always had a so-called “policy paragraph,” which explains the action taken by the Committee and gives the specific reasons cited by the members, that is, the voters, for their support of that decision. Normally, there’s no issue, because September 21, 2010 4 of 151 generally there’s a substantial overlap of views between the voting members and nonvoting members, and we’re able to represent the full range of the discussion. But in the first round of the review of the minutes from the last meeting, it was felt that that was not the case. I’ve had some discussions with Scott and with the Secretariat. This matter was actually raised at the December 2004 FOMC meeting, when we discussed the more rapid turnaround of the minutes. There’s a very longstanding tradition of restricting that paragraph to the views of the members. That being said, I certainly believe, and I’m sure that we all agree, that the minutes ought to reflect the full range of discussion at the table and not just the views of those who happen to be in the voting cycle. We were able to do that this time by looking for overlaps between views expressed by participants and members, by including additional material, and so on. So let me just assure everybody that we will continue to maintain the principle that the full range of views should be reflected in the minutes, and we will find ways to do that. I think changing the current structure of the minutes is something we would not do lightly. It’s a very longstanding tradition, and if we want to change it, I think we need to have a fuller discussion. President Plosser, do you want to comment? If anyone wants to comment, I can take one or two comments, but if we want to go into this in greater detail, we probably need to put it on the agenda for a future meeting. Do you want to make a comment? MR. PLOSSER. Let me just make one or two comments. I think this is an important issue, because it’s about transparency—it’s about making sure that the minutes reflect the range of the discussion. Mr. Chairman, you’re correct, that, given the turnover in members, oftentimes the differences in views between members and participants aren’t that great. This time happened to be more unusual in that regard. September 21, 2010 5 of 151 I understand the longstanding tradition of focusing the policy paragraph on why the members chose to do what they did. Because we distinguish between members and participants in other sections of the minutes, I’m not convinced particularly that you can’t carry out a similar strategy in that paragraph, talking about what members said, what participants said, and then at the end noting that the members decided “X.” The alternative would be, I would think, to expand the economic go-round, where you do talk a lot about members and participants. You could open that section up more to policy discussions between members and participants, even if you kept the policy paragraph focused on the members. I think we ought to be able to find a way to make sure that this long tradition of distinguishing between what members and participants say gets incorporated, because, otherwise, I do worry that down the road somebody is going to look at the transcripts and the minutes and find a disconnect, and I don’t think that would serve us well. So I would encourage continued work on this, and I think we ought to have some process that ensures that this happens in some way. Those are my comments. CHAIRMAN BERNANKE. Bill, did you have a comment? MR. ENGLISH. I just wanted to point out one thing. In the structure of the minutes, until you get to the policy paragraph, everything is in terms of the participants. So there isn’t a separate discussion of participants versus members at that point. MR. PLOSSER. Oh, is that right? MR. ENGLISH. It’s all in terms of participants, and then in the policy round, it’s in terms of members. MR. PLOSSER. I stand corrected then. September 21, 2010 6 of 151 CHAIRMAN BERNANKE. I agree with what you said, President Plosser. On the one hand you need to have this correspondence of the members because, for one thing, we report their votes. MR. ENGLISH. Right. CHAIRMAN BERNANKE. That being said, I think that there are plenty of ways to make sure that there is substantial description of the discussion so that everybody’s views are represented. President Lacker. MR. LACKER. I was a participant in the December 2004 discussion—a member actually. I’ve always been curious about this disconnect and expressed to the Chairman at the time that it seemed to me more logical to have a broader reporting. I wasn’t aware of Scott’s interpretation of the Federal Reserve Act. Personally, I can’t see why it would preclude reporting on participants’ policy views. The widespread understanding of anyone who has paid attention to this issue, including people outside the Fed, is that participants’ policy views are not reported in the minutes—they do not appear.