November 2–3, 2010 1 of 238 Meeting of the Federal Open Market Committee on November 2–3, 2010 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, November 2, 2010, at 1:00 p.m. and continued on Wednesday, November 3, 2010, at 9:00 a.m. Those present were the following: Ben Bernanke, Chairman William C. Dudley, Vice Chairman James Bullard Elizabeth Duke Thomas M. Hoenig Sandra Pianalto Sarah Bloom Raskin Eric Rosengren Daniel K. Tarullo Kevin Warsh Janet L. Yellen 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 and Dennis P. Lockhart, Presidents of the Federal Reserve Banks of Richmond and Atlanta, respectively John F. Moore, First Vice President, Federal Reserve Bank of San Francisco 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 James A. Clouse, Thomas A. Connors, Jeff Fuhrer, Steven B. Kamin, Simon Potter, Lawrence Slifman, Christopher J. Waller, and David W. Wilcox, Associate Economists Brian Sack, Manager, System Open Market Account Patrick M. Parkinson, Director, Division of Bank Supervision and Regulation, Board of Governors November 2–3, 2010 2 of 238 Nellie Liang, Director, Office of Financial Stability Policy and Research, 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 Charles S. Struckmeyer, Deputy Staff Director, Office of the Staff Director, Board of Governors Seth B. Carpenter and Andrew T. Levin, Senior Associate Directors, Division of Monetary Affairs, Board of Governors; Michael Leahy, Senior Associate Director, Division of International Finance, Board of Governors; David Reifschneider, Senior Associate Director, Division of Research and Statistics, Board of Governors Stephen A. Meyer, Senior Adviser, Division of Monetary Affairs, Board of Governors Daniel M. Covitz and David E. Lebow, Deputy Associate Directors, Division of Research and Statistics, Board of Governors; Gretchen C. Weinbach, Deputy Associate Director, Division of Monetary Affairs, Board of Governors Brian J. Gross, Special Assistant to the Board, Office of Board Members, Board of Governors Mark A. Carlson, Economist, Division of Monetary Affairs, Board of Governors Randall A. Williams, Records Management Analyst, Division of Monetary Affairs, Board of Governors Sarah G. Green, First Vice President, Federal Reserve Bank of Richmond Loretta J. Mester, Harvey Rosenblum, Daniel G. Sullivan, and John C. Williams, Executive Vice Presidents, Federal Reserve Banks of Philadelphia, Dallas, Chicago, and San Francisco, respectively David Altig, Richard P. Dzina, Mark E. Schweitzer, and Kei-Mu Yi, Senior Vice Presidents, Federal Reserve Banks of Atlanta, New York, Cleveland, and Minneapolis, respectively Todd E. Clark, Vice President, Federal Reserve Bank of Kansas City Robert L. Hetzel, Senior Economist, Federal Reserve Bank of Richmond November 2–3, 2010 3 of 238 Transcript of the Federal Open Market Committee Meeting on November 2–3, 2010 November 2—Afternoon Session CHAIRMAN BERNANKE. Good afternoon, everybody. Governor Raskin attended the videoconference, but this is her first in-person, live, face-to-face FOMC meeting, so I’d like to welcome her. Also, Janet has been to a few meetings [laughter] but not in her current capacity as Vice Chair of the Board. Congratulations, Janet. And thanks, also, to First Vice President John Moore, who will be representing San Francisco today. We have no new information on the nomination of Peter Diamond to be a member of the Board of Governors. As you’ll recall, his qualifications to serve had been questioned. He has since taken steps to remedy that. [Laughter] It’s good work, but whether it will be sufficient I don’t know. Still, we ’re hopeful that he will be reviewed and confirmed. I have spoken to him, and he remains as committed to joining the Board as he was prior to the announcement of his Nobel Prize. The first item today is an unusual one. I hope to talk a bit about our external communications, and I would like to limit this discussion to 45 minutes or so. I mentioned at the videoconference three issues that had been of concern, not just to me but also to a number of people around the table who had spoken to me about it. The first was leaks to the press, and particularly some leaks that involved characterizations of other people’s views at the meeting, confidential materials, and the like. We circulated the Program for Security of FOMC Information to remind folks about the rules. The second issue, which arose a bit later, was prompted by a wire story that raised concerns about inappropriate access to information by outsiders other than the media, including consultants, market people, and so on. We obviously have important reasons to talk to people like that, and, certainly, there’s some basis for November 2–3, 2010 4 of 238 exchanging ideas. But, clearly, there’s also the possibility that some of these folks could profit from information gained in talking to Federal Reserve principals or staff, and I think there’s considerable risk to us if it turns out that someone improperly used that information. I think we would all agree that it’s important to manage these two matters appropriately, and I’d like to propose that we create a small subcommittee, consisting of Presidents and Governors, to look at these issues, to talk to people, and to try to come up with some guidelines to help us address them. Janet Yellen has agreed to chair the subcommittee. The third issue I mentioned at the videoconference is a little more squishy—it may be more a matter of preference and operating procedure than security per se. It’s the tendency for people to take very strong, very inflexible positions on policy matters prior to the meetings at which those decisions will be made. It’s a longstanding tradition at the FOMC to try to maintain at least some plausible deniability in order to have a reason for a meeting—otherwise, we could just do notation votes and save all the travel expenses. Now, this may or may not be a fixable issue. It may be a function of the difficult circumstances that we are currently involved in. But I wanted to put that on the table as well. We circulated Michelle’s memo describing the protocol for public statements, which is given to all new members of the FOMC. I’d be interested in your views on the substance as well as on whether it would make sense to have Janet’s subcommittee look at this issue as well, perhaps as a project that’s separate from the first two. Again, it’s possible that nothing much can be done about it, but maybe we could come together and find some basis for a more cooperative solution than what we currently have. As I said, I don’t want to spend too much of the Committee’s time on these issues—no more than 45 minutes or so—and I don’t want to do a full go-round, as there’s no need for that. But I certainly would be happy to have some comments on the issues, on the subcommittee, on November 2–3, 2010 5 of 238 the charge of the subcommittee, or anything else people would like to talk about. Janet, did you want to introduce that? MS. YELLEN. Yes. Thanks, Ben. Let me just say that I share your concerns. I think we’ve come in for a lot of criticism of our external communications—we’re getting low grades, and they’re not entirely undeserved. I personally see them as damaging our credibility and our reputation at a time when the institution is under enormous scrutiny, and we can ill afford it. I think the first issue that you raised on communication should be a no-brainer. We’re obliged to maintain the confidentiality of FOMC information—period, full stop. And that includes documents that we look at in the FOMC and information on who said what. It’s obvious that these guidelines have been breached. I also know from personal experience over the years that it’s easy for this to happen—it can happen pretty innocently when an experienced reporter lures one into revealing things that end up crossing the line. But I’m assuming it should be completely noncontroversial that we all need to be more careful and to abide by the Program for Security of FOMC Information. So I think it’s not going to take long for our subcommittee to look at that—at least I hope not. The second issue you raised is more subtle, and it is an important one for the subcommittee to take up: How do we ensure that our conversations with market participants and outside consultants don’t create the impression, and even the reality, that well-connected outsiders have access to inside information? I myself sometimes talk to market participants, and I do value those discussions, but I think we are placing ourselves at risk. I think the guidelines that Michelle prepared and circulated are a terrific starting point, but maybe we need to go further, and I look forward to hearing your ideas on this. November 2–3, 2010 6 of 238 Regarding the third issue—voicing policy views prior to meetings—I believe it’s a long-standing tradition of the Committee to refrain from publicly articulating firm positions on the stance that a member is going to take on future monetary policy moves.