_____________________________________________________________________________________________Page 1 Minutes of the Federal Open Market Committee November 7–8, 2018 A joint meeting of the Federal Open Market Committee Lorie K. Logan, Deputy Manager, System Open and the Board of Governors was held in the offices of Market Account the Board of Governors of the Federal Reserve System in Washington, D.C., on Wednesday, Novem- Ann E. Misback, Secretary, Office of the Secretary, ber 7, 2018, at 1:00 p.m. and continued on Thursday, Board of Governors November 8, 2018, at 9:00 a.m.1 Matthew J. Eichner,2 Director, Division of Reserve PRESENT: Bank Operations and Payment Systems, Board of Jerome H. Powell, Chairman Governors; Michael S. Gibson, Director, Division John C. Williams, Vice Chairman of Supervision and Regulation, Board of Thomas I. Barkin Governors; Andreas Lehnert, Director, Division of Raphael W. Bostic Financial Stability, Board of Governors Lael Brainard Richard H. Clarida Daniel M. Covitz, Deputy Director, Division of Mary C. Daly Research and Statistics, Board of Governors; Loretta J. Mester Rochelle M. Edge, Deputy Director, Division of Randal K. Quarles Monetary Affairs, Board of Governors; Michael T. Kiley, Deputy Director, Division of Financial James Bullard, Charles L. Evans, Esther L. George, Stability, Board of Governors Eric Rosengren, and Michael Strine, Alternate Members of the Federal Open Market Committee Jon Faust, Senior Special Adviser to the Chairman, Office of Board Members, Board of Governors Patrick Harker, Robert S. Kaplan, and Neel Kashkari, Presidents of the Federal Reserve Banks of Antulio N. Bomfim, Special Adviser to the Chairman, Philadelphia, Dallas, and Minneapolis, respectively Office of Board Members, Board of Governors James A. Clouse, Secretary Brian M. Doyle, Joseph W. Gruber, Ellen E. Meade, Matthew M. Luecke, Deputy Secretary and John M. Roberts, Special Advisers to the David W. Skidmore, Assistant Secretary Board, Office of Board Members, Board of Michelle A. Smith, Assistant Secretary Governors Mark E. Van Der Weide, General Counsel Michael Held, Deputy General Counsel Linda Robertson, Assistant to the Board, Office of Steven B. Kamin, Economist Board Members, Board of Governors Thomas Laubach, Economist David W. Wilcox, Economist Eric M. Engen, Senior Associate Director, Division of Research and Statistics, Board of Governors; David Altig, Thomas A. Connors, Trevor A. Reeve, Christopher J. Erceg, Senior Associate Director, Ellis W. Tallman, William Wascher, and Beth Anne Division of International Finance, Board of Wilson, Associate Economists Governors Simon Potter, Manager, System Open Market Account Edward Nelson, Senior Adviser, Division of Monetary Affairs, Board of Governors; S. Wayne Passmore, 1 The Federal Open Market Committee is referenced as the “FOMC” and the “Committee” in these minutes. 2 Attended through the discussion of developments in finan- cial markets and open market operations. _____________________________________________________________________________________________Page 2 Federal Open Market Committee Senior Adviser, Division of Research and Statistics, Andre Anderson, First Vice President, Federal Reserve Board of Governors Bank of Atlanta William F. Bassett, Associate Director, Division of Jeff Fuhrer, Sylvain Leduc, Kevin Stiroh,4 Daniel G. Financial Stability, Board of Governors; Marnie Sullivan, and Christopher J. Waller, Executive Vice Gillis DeBoer3 and David López-Salido, Associate Presidents, Federal Reserve Banks of Boston, San Directors, Division of Monetary Affairs, Board of Francisco, New York, Chicago, and St. Louis, Governors; Molly E. Mahar,3 Associate Director, respectively Division of Supervision and Regulation, Board of Governors; Stacey Tevlin, Associate Director, Paolo A. Pesenti, Paula Tkac,3 Luke Woodward, Mark Division of Research and Statistics, Board of L.J. Wright, and Nathaniel Wuerffel,3 Senior Vice Governors Presidents, Federal Reserve Banks of New York, Atlanta, Kansas City, Minneapolis, and New York, Jeffrey D. Walker,2 Deputy Associate Director, respectively Division of Reserve Bank Operations and Payment Systems, Board of Governors; Min Wei, Deputy Roc Armenter,3 Satyajit Chatterjee, Deborah L. Associate Director, Division of Monetary Affairs, Leonard,3 Pia Orrenius, Matthew D. Raskin,3 and Board of Governors Patricia Zobel,3 Vice Presidents, Federal Reserve Banks of Philadelphia, Philadelphia, New York, Christopher J. Gust, Laura Lipscomb,3 and Zeynep Dallas, New York, New York, respectively Senyuz,3 Assistant Directors, Division of Monetary Affairs, Board of Governors; Patrick E. McCabe, John P. McGowan,3 Assistant Vice President, Federal Assistant Director, Division of Research and Reserve Bank of New York Statistics, Board of Governors Andreas L. Hornstein, Senior Advisor, Federal Reserve Penelope A. Beattie,4 Assistant to the Secretary, Office Bank of Richmond of the Secretary, Board of Governors Samuel Schulhofer-Wohl, Senior Economist and Michiel De Pooter, Section Chief, Division of Research Advisor, Federal Reserve Bank of Monetary Affairs, Board of Governors Chicago David H. Small, Project Manager, Division of Gara Afonso,3 Research Officer, Federal Reserve Bank Monetary Affairs, Board of Governors of New York Alyssa G. Anderson3 and Kurt F. Lewis, Principal Long-Run Monetary Policy Implementation Economists, Division of Monetary Affairs, Board Frameworks of Governors Committee participants resumed their discussion of po- tential long-run frameworks for monetary policy imple- Joshua S. Louria,3 Lead Financial Institution and Policy mentation, a topic last discussed at the November 2016 Analyst, Division of Monetary Affairs, Board of FOMC meeting. The staff provided briefings that de- Governors scribed changes in recent years in banks’ uses of re- serves, outlined tradeoffs associated with potential Sriya Anbil,3 Senior Economist, Division of Monetary choices of operating regimes to implement monetary Affairs, Board of Governors policy and control short-term interest rates, reviewed potential choices of the policy target rate, and summa- Randall A. Williams, Senior Information Manager, rized developments in the policy implementation frame- Division of Monetary Affairs, Board of Governors works of other central banks. 3 Attended through the discussion of the long-run monetary 4 Attended Wednesday session only. policy implementation frameworks. _____________________________________________________________________________________________Minutes of the Meeting of November 7–8, 2018 Page 3 The staff noted that banks’ liquidity management prac- affect overnight unsecured rates paid by banks, such as tices had changed markedly since the financial crisis, the effective federal funds rate (EFFR) and the over- with large banks now maintaining substantial buffers of night bank funding rate (OBFR). These rates could also reserves, among other high-quality liquid assets, to meet be targeted with abundant excess reserves, as could in- potential outflows and to comply with regulatory re- terest rates on secured funding or a mixture of secured quirements. Information from bank contacts as well as and unsecured rates. a survey of banks indicated that, in an environment in which money market interest rates were very close to the Participants commented on the advantages of a regime interest rate paid on excess reserve balances, banks of policy implementation with abundant excess reserves. would likely be comfortable operating with much lower Based on experience over recent years, such a regime levels of reserve balances than at present but would wish was seen as providing good control of short-term money to maintain substantially higher levels of balances than market rates in a variety of market conditions and effec- before the crisis. On average, survey responses sug- tive transmission of those rates to broader financial con- gested that banks might reduce their reserve holdings ditions. Participants commented that, by contrast, inter- only modestly from those “lowest comfortable” levels if est rate control might be difficult to achieve in an oper- money market interest rates were somewhat above the ating regime of limited excess reserves in view of the po- interest on excess reserves (IOER) rate. Across banks, tentially greater unpredictability of reserve demand re- however, individual survey responses on this issue varied sulting from liquidity regulations or changes in risk ap- substantially. petite, or the increased variability of factors affecting re- serve supply. Participants also observed that regimes The staff highlighted how changes in the determinants with abundant excess reserves could provide effective of reserve demand since the crisis could affect the control of short-term rates even if large amounts of li- tradeoffs between two types of operating regimes: quidity needed to be added to address liquidity strains or (1) one in which aggregate excess reserves are suffi- if large-scale asset purchases needed to be undertaken to ciently limited that money market interest rates are sen- provide macroeconomic stimulus in situations where sitive to small changes in the supply of reserves and short-term rates are at their effective lower bound. (2) one in which aggregate excess reserves are suffi- Monetary policy operations in this regime would also not ciently abundant that money market interest rates are not require active management of reserve supply. In addi- sensitive to small changes in reserve supply. In the for-