_____________________________________________________________________________________________Page 1 Minutes of the Federal Open Market Committee December 13, 2011 A joint meeting of the Federal Open Market Commit- Robert deV. Frierson, Deputy Secretary, Office of tee and the Board of Governors of the Federal Reserve the Secretary, Board of Governors System was held in the offices of the Board of Gover- nors in Washington, D.C., on Tuesday, December 13, Maryann F. Hunter, Deputy Director, Division of 2011, at 8:30 a.m. Banking Supervision and Regulation, Board of Governors; William Wascher, Deputy Direc- PRESENT: tor, Division of Research and Statistics, Board Ben Bernanke, Chairman of Governors William C. Dudley, Vice Chairman Elizabeth Duke Andreas Lehnert, Deputy Director, Office of Fi- Charles L. Evans nancial Stability Policy and Research, Board of Richard W. Fisher Governors Narayana Kocherlakota Charles I. Plosser Andrew T. Levin, Special Advisor to the Board, Sarah Bloom Raskin Office of Board Members, Board of Gover- Daniel K. Tarullo nors Janet L. Yellen Linda Robertson, Assistant to the Board, Office of Christine Cumming, Jeffrey M. Lacker, Dennis P. Board Members, Board of Governors Lockhart, Sandra Pianalto, and John C. Wil- liams, Alternate Members of the Federal Open Seth B. Carpenter, Senior Associate Director, Divi- Market Committee sion of Monetary Affairs, Board of Governors; Michael P. Leahy, Senior Associate Director, James Bullard, Esther L. George, and Eric Rosen- Division of International Finance, Board of gren, Presidents of the Federal Reserve Banks Governors of St. Louis, Kansas City, and Boston, respec- tively Ellen E. Meade, Stephen A. Meyer, and Joyce K. Zickler, Senior Advisers, Division of Monetary William B. English, Secretary and Economist Affairs, Board of Governors Deborah J. Danker, Deputy Secretary Matthew M. Luecke, Assistant Secretary Eric M. Engen, Michael T. Kiley, and Michael G. David W. Skidmore, Assistant Secretary Palumbo, Associate Directors, Division of Re- Michelle A. Smith, Assistant Secretary search and Statistics, Board of Governors Scott G. Alvarez, General Counsel Thomas C. Baxter, Deputy General Counsel David H. Small, Project Manager, Division of Steven B. Kamin, Economist Monetary Affairs, Board of Governors David W. Wilcox, Economist Penelope A. Beattie, Assistant to the Secretary, Of- Thomas A. Connors, Loretta J. Mester, Simon Pot- fice of the Secretary, Board of Governors ter, David Reifschneider, Harvey Rosenblum, and Lawrence Slifman, Associate Economists Gordon Werkema, First Vice President, Federal Reserve Bank of Chicago Brian Sack, Manager, System Open Market Ac- count Jeff Fuhrer and Mark S. Sniderman, Executive Vice Presidents, Federal Reserve Banks of Boston Jennifer J. Johnson, Secretary of the Board, Office and Cleveland, respectively of the Secretary, Board of Governors _____________________________________________________________________________________________Page 2 Federal Open Market Committee David Altig, Alan D. Barkema, Richard P. Dzina, The unemployment rate dropped to 8.6 percent in No- Spencer Krane, and Christopher J. Waller, vember, and private nonfarm employment continued to Senior Vice Presidents, Federal Reserve Banks increase moderately during the past two months. Nev- of Atlanta, Kansas City, New York, Chicago, ertheless, employment at state and local governments and St. Louis, respectively declined further, and both long-duration unemploy- ment and the share of workers employed part time for Mary C. Daly, Group Vice President, Federal Re- economic reasons remained elevated. Initial claims for serve Bank of San Francisco unemployment insurance moved down, on net, since early November but were still at a level consistent with Alexander L. Wolman, Senior Economist and Re- only modest employment gains, and indicators of job search Advisor, Federal Reserve Bank of openings and businesses’ hiring plans were little Richmond changed. Industrial production rose in October, reflecting in part Samuel Schulhofer-Wohl, Senior Economist, Fed- a rebound in motor vehicle production from the effects eral Reserve Bank of Minneapolis of supply chain disruptions earlier in the year. Factory output outside of the motor vehicle sector also contin- ued to rise, and the rate of manufacturing capacity utili- By unanimous vote, the Committee selected Steven B. zation moved up. However, motor vehicle assemblies Kamin to serve as Economist until the selection of a were scheduled to only edge higher, on balance, in the successor at the first regularly scheduled meeting of the coming months, and broader indicators of manufactur- Committee in 2012. ing activity, such as the diffusion indexes of new orders Developments in Financial Markets and the Fed- from the national and regional manufacturing surveys, eral Reserve’s Balance Sheet were at levels that suggested only modest increases in The Manager of the System Open Market Account production in the near term. (SOMA) reported on developments in domestic and Revised estimates indicated that households’ real dis- foreign financial markets during the period since the posable income declined in the second and third quar- Federal Open Market Committee (FOMC) met on No- ters, and the net wealth of households decreased in the vember 1–2, 2011. He also reported on System open third quarter. Nonetheless, overall real personal con- market operations, including the ongoing reinvestment sumption expenditures (PCE) rose modestly in Octo- into agency-guaranteed mortgage-backed securities ber following significant gains in the previous month, (MBS) of principal payments received on SOMA hold- as spending for consumer goods continued to increase ings of agency debt and agency-guaranteed MBS as well at a strong pace while outlays for consumer services as the operations related to the maturity extension pro- were roughly flat. In November, nominal retail sales, gram authorized at the September 20–21 FOMC meet- excluding purchases at motor vehicle and parts outlets, ing. By unanimous vote, the Committee ratified the expanded further, and sales of light motor vehicles Desk’s domestic transactions over the intermeeting stepped up. But consumer sentiment was still at a sub- period. There were no intervention operations in for- dued level in early December despite some improve- eign currencies for the System’s account over the in- ment in recent months. termeeting period. Activity in the housing market continued to be de- Staff Review of the Economic Situation pressed by the substantial inventory of foreclosed and The information reviewed at the December 13 meeting distressed properties and by weak demand that reflect- indicated that U.S. economic activity expanded mod- ed tight credit conditions for mortgage loans and un- erately despite some apparent slowing in the growth of certainty about future home prices. Starts and permits foreign economies and strains in global financial mar- for new single-family homes in October stayed around kets. Conditions in the labor market seemed to have the low levels that prevailed since the middle of last improved somewhat, while overall consumer price in- year. Sales of new and existing homes remained slow flation continued to be more modest than earlier in the in recent months, and home prices moved down fur- year and measures of long-run inflation expectations ther. remained stable. Real business spending on equipment and software seemed to be decelerating. Nominal orders and ship- _____________________________________________________________________________________________Minutes of the Meeting of December 13, 2011 Page 3 ments of nondefense capital goods excluding aircraft Foreign economic growth, especially in the euro area, edged down in October, and the slowing accumulation appeared to weaken in recent months. Real gross do- of unfilled orders suggested that increases in outlays for mestic product (GDP) in the euro area barely edged up business equipment would be muted in subsequent in the third quarter. Moreover, industrial production in months. Also, survey measures of business conditions the region fell sharply in September, and indicators of and sentiment remained at relatively downbeat levels in manufacturing activity in October and November November. Real business spending for nonresidential pointed to lower output. Measures of business and construction moved up in October but was still at a consumer confidence in the euro area continued to low level, reflecting high vacancy rates and restricted decline in recent months. In other advanced foreign credit conditions for construction loans. Inventories in economies, real GDP in Japan rebounded in the third most industries looked to be reasonably well aligned quarter from the effects of the earthquake in March, with sales, although motor vehicle stocks continued to and real GDP recovered in Canada as oil production be lean. picked up after several months of shutdowns; however, available indicators of manufacturing activity in both of In the government sector, real federal defense purchas- these economies pointed to declines during the fourth es appeared to have stepped down in October and No- quarter. Among emerging market economies, real vember from their level in the third quarter. At the GDP in Brazil was flat in the third quarter, while ex- state and local level, real purchases seemed to be de- ports from China slowed in recent months, although creasing at a slower pace in recent months than earlier Chinese domestic demand appeared