March 17–18, 2015 1 of 239 Meeting of the Federal Open Market Committee on March 17–18, 2015 A meeting of the Federal Open Market Committee was held in the offices of the Board of Governors of the Federal Reserve System in Washington, D.C., on Tuesday, March 17, 2015, at 10:30 a.m. and continued on Wednesday, March 18, 2015, at 9:00 a.m. Those present were the following: Janet L. Yellen, Chair William C. Dudley, Vice Chairman Lael Brainard Charles L. Evans Stanley Fischer Jeffrey M. Lacker Dennis P. Lockhart Jerome H. Powell Daniel K. Tarullo John C. Williams James Bullard, Christine Cumming, Esther L. George, Loretta J. Mester, and Eric Rosengren, Alternate Members of the Federal Open Market Committee Narayana Kocherlakota, President of the Federal Reserve Bank of Minneapolis Helen E. Holcomb and Blake Prichard, First Vice Presidents, Federal Reserve Banks of Dallas and Philadelphia, respectively Thomas Laubach, Secretary and Economist Matthew M. Luecke, Deputy Secretary David W. Skidmore, Assistant Secretary Michelle A. Smith, Assistant Secretary Scott G. Alvarez, General Counsel Thomas C. Baxter, Deputy General Counsel Steven B. Kamin, Economist David W. Wilcox, Economist David Altig, Thomas A. Connors, Michael P. Leahy, William R. Nelson, Glenn D. Rudebusch, Daniel G. Sullivan, William Wascher, and John A. Weinberg, Associate Economists Simon Potter, Manager, System Open Market Account Lorie K. Logan, Deputy Manager, System Open Market Account March 17–18, 2015 2 of 239 Robert deV. Frierson,1 Secretary of the Board, Office of the Secretary, Board of Governors Michael S. Gibson, Director, Division of Banking Supervision and Regulation, Board of Governors James A. Clouse, Deputy Director, Division of Monetary Affairs, Board of Governors William B. English, Senior Special Adviser to the Board, Office of Board Members, Board of Governors Andrew Figura, David Reifschneider, and Stacey Tevlin, Special Advisers to the Board, Office of Board Members, Board of Governors Trevor A. Reeve, Special Adviser to the Chair, Office of Board Members, Board of Governors Linda Robertson, Assistant to the Board, Office of Board Members, Board of Governors David E. Lebow and Michael G. Palumbo, Senior Associate Directors, Division of Research and Statistics, Board of Governors Michael T. Kiley, Senior Adviser, Division of Research and Statistics, and Senior Associate Director, Office of Financial Stability Policy and Research, Board of Governors Ellen E. Meade and Joyce K. Zickler, Senior Advisers, Division of Monetary Affairs, Board of Governors Fabio M. Natalucci2 and Gretchen C. Weinbach,1 Associate Directors, Division of Monetary Affairs, Board of Governors Jane E. Ihrig and David Lpez-Salido, Deputy Associate Directors, Division of Monetary Affairs, Board of Governors; John J. Stevens, Deputy Associate Director, Division of Research and Statistics, Board of Governors Glenn Follette, Assistant Director, Division of Research and Statistics, Board of Governors; Elizabeth Klee, Assistant Director, Division of Monetary Affairs, Board of Governors Penelope A. Beattie,1 Assistant to the Secretary, Office of the Secretary, Board of Governors ________________ 1 Attended the joint session of the Federal Open Market Committee and the Board of Governors. 2 Attended the portion of the meeting following the joint session of the Federal Open Market Committee and the Board of Governors. March 17–18, 2015 3 of 239 Dana L. Burnett and Don Kim, Section Chiefs, Division of Monetary Affairs, Board of Governors Katie Ross,1 Manager, Office of the Secretary, Board of Governors David H. Small, Project Manager, Division of Monetary Affairs, Board of Governors Zeynep Senyuz, Economist, Division of Monetary Affairs, Board of Governors Kenneth C. Montgomery, First Vice President, Federal Reserve Bank of Boston Ron Feldman, Executive Vice President, Federal Reserve Bank of Minneapolis Michael Dotsey, Craig S. Hakkio, Evan F. Koenig, and Paolo A. Pesenti, Senior Vice Presidents, Federal Reserve Banks of Philadelphia, Kansas City, Dallas, and New York, respectively David Andolfatto, Todd E. Clark, Antoine Martin, Joe Peek, and Douglas Tillett, Vice Presidents, Federal Reserve Banks of St. Louis, Cleveland, New York, Boston, and Chicago, respectively March 17–18, 2015 4 of 239 Transcript of the Federal Open Market Committee Meeting on March 17–18, 2015 March 17 Session CHAIR YELLEN. Good morning, everybody. As you know, we had a farewell luncheon for President Plosser at the January meeting. And in a couple of hours, we will also have a chance to say farewell to President Fisher at a luncheon. In light of those departures, I would like to welcome Helen Holcomb back to the table. She represented the Federal Reserve Bank of Dallas here before President Fisher took office and will be representing the Dallas Bank again today. I would also like to welcome Blake Prichard to the table, representing the Federal Reserve Bank of Philadelphia. He is serving as acting president of the Philadelphia Bank until Patrick Harker takes office on July 1. Before we begin today’s agenda, I want to briefly update you about developments that relate to press briefings. At recent meetings, we have discussed the fact that it is important for the Committee not to feel constrained from taking action whenever we deem appropriate, at any meeting, regardless of whether there is a postmeeting press conference scheduled. And a number of you have suggested to me that I schedule press conferences after every meeting. Now, a decision to have press conferences at every meeting is likely to be irreversible. It is something I have, therefore, carefully considered. For now, at least, I think my decision is that it would be best not to schedule press conferences after every meeting. Let me just say that, by way of explanation, the time that is required for me and all of our senior staff to prepare for these press conferences is truly nontrivial. In part, that is because preparations involve being up-to-date not only on matters pertaining to monetary policy and the economy, but also on all matters pertaining to Federal Reserve-related issues. And all of that preparation occurs at exactly the same time when all of us are preparing for these meetings. March 17–18, 2015 5 of 239 As I reflect on it—and, again, this is just a decision for now, so I am not saying this can’t be revisited—it seems to me that when we are in a more normal mode for conducting monetary policy, and I hope that time is not too far off, and the economic environment is more normal, every-meeting press conferences, especially after meetings for which there are no forecast updates, are really not likely to have much focus on monetary policy decisions and the economy. What I believe will happen is they will become opportunities for the media to explore a host of nonmonetary policy issues, which ultimately could be a distraction rather than a help to us. That would all occur on meeting days. But, at the same time, though I am not inclined now to go to press conferences every meeting, I do think it is important for us to feel—and also to convince the public and market participants—that we are not constrained from taking decisions at meetings for which there is not a subsequent press conference, so that market expectations of our future actions can be appropriately responsive to incoming data. As I have mentioned in the past, we have long had the capability to conduct press briefings by telephone on very short notice. Chairman Bernanke did so a number of times during the financial crisis. So the plan I would like to propose is that we remind the public, the markets, and the press that we have that capability and would indeed use it when necessary. And, to firm up that expectation, late on the second day of our meeting in April, the Board’s Public Affairs office plans to conduct a test of our system for media conference calls. We will permit news organizations to report afterward that we conducted this test, and we will state that the reason for the test is to refresh news organizations’ familiarity with how the system works, so that we can use it, if necessary, on meeting days when no press conference is scheduled. That is currently the plan, and I welcome any input that any of you would like to offer on it. But that is what we thought, for the moment. March 17–18, 2015 6 of 239 Let’s now turn to the agenda. The first two items will be considered in a joint meeting with the Board of Governors, so we need a Board vote to close that meeting. Do I have a motion? MR. FISCHER. So moved, Madam Chair. CHAIR YELLEN. Thank you. Without objection. I am going to call on Simon Potter to begin the Desk report. MR. POTTER.1 Thank you, Madam Chair. We will be splitting the Desk briefing in two parts. I will talk about financial market developments, then Lorie will talk about Desk operations. Over the intermeeting period, the backdrop of monetary policy easing overseas, relative stability in oil prices, and some positive global economic data reportedly contributed to a reduction in perceived downside global growth risks. Longer-dated forward interest rates among major developed economies diverged over the period, as shown in the top-left panel of your first exhibit. The trend of declining longer-run nominal interest rates since the start of 2014 partially retraced itself in the United States and United Kingdom, as some incoming economic data, most notably employment reports, reinforced expectations that the Federal Reserve and Bank of England will begin normalizing policy within the next year. The top-right panel shows a summation of daily changes in U.S.