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106th Annual Report
2019

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

Frontmatter

106th Annual Report
2019

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

This and other Federal Reserve Board reports and publications are available online at
https://www.federalreserve.gov/publications/default.htm.
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or contact:
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(ph) 202-452-3245
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(email) Publications-BOG@frb.gov

Contents

1 Overview ................................................................................................................................. 1
About the Federal Reserve System ............................................................................................... 2

2 Monetary Policy and Economic Developments ........................................................ 3
Monetary Policy Report February 2020 .......................................................................................... 3
Monetary Policy Report July 2019 ............................................................................................... 20

3 Financial Stability

............................................................................................................. 33

Monitoring Risks to Financial Stability ......................................................................................... 33
Domestic and International Cooperation and Coordination ........................................................... 39

4 Supervision and Regulation ........................................................................................... 41
Supervised and Regulated Institutions ......................................................................................... 41
Supervisory Developments ......................................................................................................... 43
Regulatory Developments ........................................................................................................... 54

5 Payment System and Reserve Bank Oversight

........................................................ 57

Payment Services to Depository and Other Institutions ................................................................ 57
Currency and Coin ..................................................................................................................... 60
Fiscal Agency and Government Depository Services .................................................................... 61
Evolutions and Improvements to the System ............................................................................... 63
Oversight of Federal Reserve Banks ............................................................................................ 65
Pro Forma Financial Statements for Federal Reserve Priced Services ........................................... 69

6 Consumer and Community Affairs ............................................................................. 75
Supervision and Examinations .................................................................................................... 75
Consumer Laws and Regulations ................................................................................................ 83
Consumer Research and Analysis of Emerging Issues and Policy ................................................. 84
Community Development ........................................................................................................... 85

Appendixes ............................................................................................................................ 89
A Federal Reserve System Organization

....................................................................... 91

Board of Governors ................................................................................................................... 91
Federal Open Market Committee ............................................................................................... 97
Board of Governors Advisory Councils ....................................................................................... 98
Federal Reserve Banks and Branches ...................................................................................... 102

B Minutes of Federal Open Market Committee Meetings

................................... 121

Meeting Held on January 29–30, 2019 ...................................................................................... 122
Meeting Held on March 19–20, 2019 ........................................................................................ 144
Meeting Held on April 30–May 1, 2019 ..................................................................................... 174
Meeting Held on June 18–19, 2019 .......................................................................................... 188
Meeting Held on July 30–31, 2019 ........................................................................................... 217
Meeting Held on September 17–18, 2019 ................................................................................. 233
Meeting Held on October 29–30, 2019 ..................................................................................... 265
Meeting Held on December 10–11, 2019 .................................................................................. 283

C Federal Reserve System Audits

.................................................................................. 313

Office of Inspector General Activities ........................................................................................ 314
Government Accountability Office Reviews ............................................................................... 315

D Federal Reserve System Budgets ............................................................................... 317
System Budgets Overview ....................................................................................................... 317
Board of Governors Budgets ................................................................................................... 319
Federal Reserve Banks Budgets .............................................................................................. 324
Currency Budget ..................................................................................................................... 329

E Record of Policy Actions of the Board of Governors

....................................... 333

Rules and Regulations ............................................................................................................. 333
Policy Statements and Other Actions ....................................................................................... 339
Discount Rates for Depository Institutions in 2019 .................................................................... 340
Regulatory Developments ........................................................................................................ 341
The Board of Governors and the Government Performance and Results Act .............................. 348

F Litigation

........................................................................................................................... 349
Pending .................................................................................................................................. 349
Resolved ................................................................................................................................ 349

G Statistical Tables

............................................................................................................. 351

H Index ................................................................................................................................... 381

Overview

This report covers the calendar-year 2019 operations
and activities of the Federal Reserve, the central bank
of the United States, categorized in the five key functional areas:
• Conducting monetary policy and monitoring economic developments. Section 2 provides adapted
versions of the Board’s semiannual Monetary
Policy Reports to Congress. Highlights in 2019
include
Â detailed assessments of both economic developments and Federal Reserve monetary policy
activities
Â a review of the Federal Reserve’s strategic framework for monetary policy
• Promoting financial system stability. Section 3
reviews Board and System activities and research
undertaken to foster a resilient and stable financial
system. Highlights in 2019 include
Â publication of semiannual Financial Stability
Reports and continued quarterly assessments of
vulnerabilities relevant for financial stability
Â interpretive guidance finalized by the Financial
Stability Oversight Council regarding nonbank
financial company designations
• Supervising and regulating financial institutions and
their activities. Section 4 summarizes the Board’s
efforts related to financial institution oversight and
examinations, supervisory policymaking, and regulatory activities and enforcement. Highlights in
2019 include
Â implementation of all of the major provisions of
the Economic Growth, Regulatory Relief, and
Consumer Protection Act
Â publication of the semiannual Supervision and
Regulation Report

Federal Reserve Response
to COVID-19
Since this report covers only Federal Reserve 2019
operations and activities, it does not include information on our response to the COVID-19 pandemic. For
more detail on our response to the pandemic, visit
the Board’s website at https://www.federalreserve
.gov/covid-19.htm.

• Fostering payment and settlement system safety and
efficiency. Section 5 describes actions by the Board
and Reserve Banks to promote the effectiveness of
the nation’s payment systems, discusses initiatives
to promote payment system safety, and provides
data on Reserve Bank services and income. Highlights in 2019 include
Â plans to develop the FedNow Service to support
faster payments in the United States
Â research, technical experimentation, and policy
analysis on stablecoins, central bank digital currencies, and the role of BigTech firms in
payments
• Promoting consumer protection and community
development. Section 6 provides information on the
Board’s efforts to promote a fair and transparent
financial services market for consumers, protect
consumer rights, and ensure that Board policies
and research take consumer and community perspectives into account. Highlights in 2019 include
Â community development listening sessions and
roundtables held to hear perspectives on such
topics as the state of rural banking and modernization of the Community Reinvestment Act
Â oversight and enforcement of consumer protection laws and regulations, including fair lending
and unfair and deceptive acts or practices

106th Annual Report | 2019

About the Federal Reserve System
The Federal Reserve was created by an act of Congress on December 23, 1913, to provide the nation
with a safer, more flexible, and more stable monetary
and financial system. In establishing the Federal
Reserve System, the United States was divided geographically into 12 Districts, each with a separately
incorporated Reserve Bank (see figure 1).

For more information about the Federal Reserve
Board and the Federal Reserve System, visit the
Board’s website at https://www.federalreserve.gov/
aboutthefed/default.htm. An online version of this
annual report is available at https://www
.federalreserve.gov/publications/annual-report/
default.htm.

Figure 1. The Federal Reserve System
The Federal Reserve System consists of a seven-member Board of Governors with headquarters in Washington, D.C., and the 12 Reserve Banks located in major cities throughout the United States (for more information on the System and Districts, including leadership at the Board and the Banks, see “Federal Reserve
System Organization” in appendix A).

Federal Reserve Bank city
Board of Governors of the Federal Reserve System, Washington, D.C.

Monetary Policy and
Economic Developments

As required by section 2B of the Federal Reserve Act,
the Federal Reserve Board submits written reports to
the Congress that contain discussions of “the conduct of monetary policy and economic developments
and prospects for the future.” The Monetary Policy
Report, submitted semiannually to the Senate Committee on Banking, Housing, and Urban Affairs and
to the House Committee on Banking and Financial
Services, is delivered concurrently with testimony
from the Federal Reserve Board Chair.
The following discussion is a review of U.S. monetary
policy and economic developments in 2019, excerpted
from the Monetary Policy Report published in February 2020 and July 2019. Those complete reports are
available on the Board’s website at https://www
.federalreserve.gov/monetarypolicy/files/20200207_
mprfullreport.pdf (February 2020) and https://www
.federalreserve.gov/monetarypolicy/files/20190705_
mprfullreport.pdf (July 2019).

Monetary Policy Report
February 2020
Summary
The U.S. economy continued to grow moderately last
year and the labor market strengthened further. With
these gains, the current expansion entered its 11th
year, becoming the longest on record. However, inflation was below the Federal Open Market Committee’s (FOMC) longer-run objective of 2 percent. In
light of the implications of global developments for
the economic outlook as well as muted inflation pressures, the FOMC lowered the target range for the
federal funds rate at its July, September, and October
meetings, bringing it to the current range of 1½ to
1¾ percent. In the Committee’s subsequent meetings,
it judged that the prevailing stance of monetary
policy was appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation returning to the Committee’s
symmetric 2 percent objective.

Economic and Financial Developments
The labor market. The labor market continued to
strengthen last year. Payroll employment growth
remained solid in the second half of 2019, and while
the pace of job gains during the year as a whole was
somewhat slower than in 2018, it was faster than
what is needed to provide jobs for new entrants to the
labor force. The unemployment rate moved down
from 3.9 percent at the end of 2018 to 3.5 percent in
December, and the labor force participation rate
increased. Meanwhile, wage gains remained moderate although above the pace of gains seen earlier in
the expansion.
Inflation. After having been close to the FOMC’s
objective of 2 percent in 2018, consumer price inflation, as measured by the price index for personal consumption expenditures, moved back below 2 percent
last year, where it has been during most of the current expansion. The 12-month change was 1.6 percent in December 2019, as was the 12-month measure
that excludes consumer food and energy prices (socalled core inflation), which historically has been a
better indicator of where inflation will be in the
future than the overall figure. The downshift relative
to 2018 partly results from particularly low readings
in the monthly price data in the early part of last
year that appear to reflect transitory influences.
Survey-based measures of longer-run inflation expectations have been broadly stable since the middle of
last year, and market-based measures of inflation
compensation are little changed on net.
Economic growth. Real gross domestic product
(GDP) is reported to have increased at a moderate
rate in the second half of 2019, although growth was
somewhat slower than in the first half of the year
and in 2018. Consumer spending rose at a moderate
pace, on average, and residential investment turned
up after having declined in 2018 and the first half of
2019. In contrast, business fixed investment declined
in the second half of last year, reflecting a number of
factors that likely include trade policy uncertainty
and weak global growth. Downside risks to the U.S.

106th Annual Report | 2019

outlook seem to have receded in the latter part of the
year, as the conflicts over trade policy diminished
somewhat, economic growth abroad showed signs of
stabilizing, and financial conditions eased. More
recently, possible spillovers from the effects of the
coronavirus in China have presented a new risk to the
outlook.
Financial conditions. Domestic financial conditions
for businesses and households remained supportive
of spending and economic activity. After showing
some volatility over the summer, nominal Treasury
yields declined and equity prices increased notably,
on balance, supported by accommodative monetary
policy actions and easing of investors’ concerns
regarding trade policy prospects and the global economic outlook. Spreads of yields on corporate bonds
over those on comparable-maturity Treasury securities continued to narrow, and mortgage rates
remained low. Moreover, loans remained widely
available for most businesses and households, and
credit provided by commercial banks continued to
expand at a moderate pace.
Financial stability. The U.S. financial system is substantially more resilient than it was before the financial crisis. Leverage in the financial sector appears
low relative to historical norms. Total household debt
has grown at a slower pace than economic activity
over the past decade, in part reflecting that mortgage
credit has remained tight for borrowers with low
credit scores, undocumented income, or high debt-toincome ratios. In contrast, the levels of business debt
continue to be elevated compared with the levels of
either business assets or GDP, with the riskiest firms
accounting for most of the increase in debt in recent
years. While overall liquidity and maturity mismatches
and funding risks in the financial system remain low,
the volatility in repurchase agreement (repo) markets
in mid-September 2019 highlighted the possibility for
frictions in repo markets to spill over to other markets. Finally, asset valuations are elevated and have
risen since July 2019, as investor risk appetite appears
to have increased. (See the box “Developments Related
to Financial Stability” on pages 24–25 of the February 2020 Monetary Policy Report.)
International developments. After weakening in 2018,
foreign economic growth slowed further in 2019, held
down by a slump in global manufacturing, elevated
trade tensions, and political and social unrest in several countries. Growth in Asian economies slowed
markedly, especially in Hong Kong and India, and
many Latin American economies continued to

underperform. The pace of economic activity weakened in several advanced foreign economies as well.
However, recent indicators provide tentative signs of
stabilization. The global slowdown in manufacturing
and trade appears to be nearing an end, and consumer spending and services activity around the
world continue to hold up. Moreover, in some economically important regions, such as China and the
euro area, data through early this year suggested that
growth was steadying. The recent emergence of the
coronavirus, however, could lead to disruptions in
China that spill over to the rest of the global
economy. Amid weak economic activity and dormant
inflation pressures, foreign central banks generally
adopted a more accommodative policy stance.
Financial conditions abroad eased in the second half
of last year, supported by accommodative actions by
central banks and, later in the period, positive political developments, including progress on the U.S.–
China trade negotiations and diminished risks of a
disorderly Brexit. On balance, since July global equity
prices moved higher, sovereign bond spreads in the
European periphery narrowed, and measures of sovereign spreads in emerging market economies
decreased somewhat. In many advanced foreign
economies, long-term interest rates remained well
below the levels seen at the end of 2018.
Monetary Policy
Interest rate policy. In light of the implications of
global developments for the economic outlook as
well as muted inflation pressures, the FOMC lowered
the target range for the federal funds rate over the
second half of 2019. Specifically, at its July, September, and October meetings, the FOMC lowered the
target range a cumulative 75 basis points, bringing it
to the current range of 1½ to 1¾ percent. In its subsequent meetings, the Committee judged that the prevailing stance of monetary policy was appropriate to
support sustained expansion of economic activity,
strong labor market conditions, and inflation returning to the Committee’s symmetric 2 percent objective. The Committee noted that it will continue to
monitor the implications of incoming information
for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate.
Balance sheet policy. At its July meeting, the FOMC
decided to conclude the reduction of its aggregate
securities holdings in the System Open Market
Account, or SOMA, in August. Ending the runoff
earlier than initially planned was seen as having only
very small effects on the balance sheet, with negli-

Monetary Policy and Economic Developments

gible implications for the economic outlook; it was
also seen as helpful in simplifying communications
regarding the use of the Committee’s policy tools at
a time when the Committee was lowering the target
range for the federal funds rate. As discussed further
in the next paragraph, since October 2019, the size of
the balance sheet has been expanding to provide an
ample level of reserves to ensure that the federal
funds rate trades within the FOMC’s target range.
Monetary policy implementation. Domestic shortterm funding markets were volatile in mid-September—amid large flows related to corporate tax payments and settlement of Treasury securities—and
experienced a significant tightening of conditions.
Since then, the Federal Reserve has been conducting
open market operations—repo operations and Treasury bill purchases—in order to maintain ample
reserve balances over time. While the balance sheet
has expanded in light of the open market operations
to maintain ample reserves, these operations are
purely technical measures to support the effective
implementation of the FOMC’s monetary policy, are
not intended to change the stance of monetary
policy, and reflect the Committee’s intention to
implement monetary policy in a regime with an
ample supply of reserves. The Committee will continue to monitor money market developments as it
assesses the level of reserves most consistent with
efficient and effective policy implementation and
stands ready to adjust the details of its technical
operations as necessary to foster efficient and effective implementation of monetary policy. (See the box
“Money Market Developments and Monetary Policy
Implementation”on pages 42–43 of the February 2020 Monetary Policy Report.)
Special Topics
Manufacturing and U.S. business cycles. After
increasing solidly in 2017 and 2018, manufacturing
output turned down last year. This decline raised
fears among some observers that the weakness could
spread and potentially lead to an economy-wide
recession. In general, a decline in manufacturing
similar to that in 2019 would not be large enough to
initiate a major downturn for the economy. Furthermore, after accounting for changing trends in growth
of manufacturing output, mild slowdowns have often
occurred during expansionary phases of business
cycles. In contrast, a more pronounced contraction in
manufacturing has historically been associated with
an economy-wide recession. (See the box “Manufacturing and U.S. Business Cycles” on pages 14–15
of the February 2020 Monetary Policy Report.)

Monetary policy rules. Prescriptions for the policy
interest rate from monetary policy rules often depend
on judgments and assumptions about economic variables that are inherently uncertain and may change
over time. Notably, many policy rules depend on estimates of resource slack and of the longer-run neutral
real interest rate, both of which are not directly
observable and are estimated with a high degree of
uncertainty. As a result, the amount of policy accommodation that these rules prescribe—and whether
that amount is appropriate in light of underlying economic conditions—is also uncertain. Such a situation
cautions against mechanically following the prescriptions of any specific rule. (See the box “Monetary
Policy Rules and Uncertainty in Monetary Policy
Settings” on pages 33–37 of the February 2020 Monetary Policy Report.)
Framework review and Fed Listens events. In 2019, the
Federal Reserve System began a broad review of the
monetary policy strategy, tools, and communication
practices it uses to pursue its statutory dual-mandate
goals of maximum employment and price stability.
The Federal Reserve sees this review as particularly
important at this time because the U.S. economy
appears to have changed in ways that matter for
monetary policy. For example, the neutral level of the
policy interest rate appears to have fallen in the
United States and abroad, increasing the risk that the
effective lower bound on interest rates will constrain
central banks from reducing their policy interest rates
enough to effectively support economic activity during downturns. The review is considering what monetary policy strategy will best enable the Federal
Reserve to meet its dual mandate in the future,
whether the existing monetary policy tools are sufficient to achieve and maintain the dual mandate, and
how communication about monetary policy can be
improved.
A key component of the review has been a series of
public Fed Listens events engaging with a broad
range of stakeholders in the U.S. economy about how
the Federal Reserve can best meet its statutory goals.
During 14 Fed Listens events in 2019, policymakers
heard from individuals and groups around the country on issues related to the labor market, inflation,
interest rates, and the transmission of monetary
policy. (See the box “Federal Reserve Review of
Monetary Policy Strategy, Tools, and Communication Practices” on pages 40–41 of the February 2020
Monetary Policy Report.)

106th Annual Report | 2019

Part 1: Recent Economic and Financial
Developments

since 1969 (figure 2). In addition, the unemployment
rate is 0.6 percentage point below the median of Federal Open Market Committee (FOMC) participants’
estimates of its longer-run normal level.3

Domestic Developments
The labor market strengthened further last year
but at a slower pace than in 2018 . . .

Payroll employment gains were solid in the second
half of 2019 and averaged 176,000 per month during
the year as a whole. This pace is somewhat slower
than the average monthly gains in 2018, even
accounting for the anticipated effects of the Bureau
of Labor Statistics’ upcoming benchmark revision to
payroll employment (figure 1).1 However, the pace of
job gains appears to have remained faster than what
is needed to provide jobs for net new entrants to the
labor force as the population grows.2
Reflecting the employment gains over this period, the
unemployment rate declined further in 2019 and
stood at 3.5 percent in December, 0.4 percentage
point below its year-earlier level and at its lowest level
1

The annual benchmark revision to payroll employment will be
published on February 7, after this report has gone to print.
According to the Bureau of Labor Statistics’ preliminary estimates, increases in payrolls will be revised downward roughly
40,000 per month from April 2018 through March 2019. Payroll
figures after March 2019 are subject to revision as well.
To keep up with population growth, roughly 115,000 to
145,000 payroll jobs per month need to be created, on average,
to maintain a constant unemployment rate with an unchangedlabor force participation rate. There is considerable uncertainty
around these estimates, as the difference between monthly payroll gains and employment changes from the Current Population
Survey (the source of the unemployment and participation
rates) can be quite volatile over short periods.

Figure 1. Net change in payroll employment
Monthly

Thousands of jobs

Total nonfarm (12-month)

300
250
200
150
100
50

Total nonfarm (3-month)
2013

2015

2017

Note: The data are 3-month and 12-month moving averages.
Source: Bureau of Labor Statistics via Haver Analytics.

Strengthening labor market conditions are also evident in rising labor force participation rates
(LFPRs)—that is, the shares of the population either
working or actively seeking work. The LFPR for
individuals aged 16 and over was 63.2 percent in
December, above its level a year ago despite the
downward pressure of about ¼ percentage point per
year associated with the aging of the population. The
LFPR for prime-age individuals (between 25 and
54 years old), which is much less sensitive to the
effects of population aging, has been rising over the
past few years and continued to increase in 2019 (figure 3). The employment-to-population ratio for individuals aged 16 and over—that is, the share of people
who are working—was 61.0 percent in December and
has been increasing since 2011.
Other indicators are also consistent with strong labor
market conditions, albeit with some slowing in the
pace of improvement since 2018. As reported in the
Job Openings and Labor Turnover Survey (JOLTS),
job openings have remained plentiful, although the
private-sector job openings rate has come down over
the past year. Similarly, the quits rate in the JOLTS
has remained near the top of its historical range, an
indication that workers are being bid away from their
current jobs or have become more confident that they
can successfully switch jobs if they so wish. These
data accord well with surveys of consumers that indicate households perceive jobs as plentiful. The
JOLTS layoff rate and the number of people filing
initial claims for unemployment insurance benefits—
historically, a good early indicator of economic
downturns—have both remained quite low.
. . . and unemployment rates have fallen, on net,
for all major demographic groups over the past
several years

Differences in unemployment rates across ethnic and
racial groups have narrowed in recent years, on net,
as they typically do during economic expansions,
after having widened during the 2007–09 recession.
The decline in the unemployment rate for African
Americans has been particularly sizable, and its average rate in the second half of October 2019 was the

2019
3

See the most recent economic projections that were released
after the December FOMC meeting in Part 3 of the February 2020 Monetary Policy Report.

Monetary Policy and Economic Developments

Figure 2. Measures of labor underutilization
Monthly

Percent

18
U-6

U-4

U-5

12
10
8
6

Unemployment rate

4
2

2009

2011

2013

2015

2017

2019

Note: Unemployment rate measures total unemployed as a percentage of the labor force. U-4 measures total unemployed plus discouraged workers, as a percentage of the
labor force plus discouraged workers. Discouraged workers are a subset of marginally attached workers who are not currently looking for work because they believe no jobs are
available for them. U-5 measures total unemployed plus all marginally attached to the labor force, as a percentage of the labor force plus persons marginally attached to the
labor force. Marginally attached workers are not in the labor force, want and are available for work, and have looked for a job in the past 12 months. U-6 measures total unemployed plus all marginally attached workers plus total employed part time for economic reasons, as a percentage of the labor force plus all marginally attached workers. The
shaded bar indicates a period of business recession as defined by the National Bureau of Economic Research.
Source: Bureau of Labor Statistics via Haver Analytics.

above those for whites and for Asians, those differentials in the second half of 2019 were at their narrowest levels on record. The rise in LFPRs for prime-age
individuals over the past few years has also been
apparent in each of these racial and ethnic groups.

lowest recorded since the data began in 1972.
Although the unemployment rates for African
Americans and for Hispanics remain substantially
Figure 3. Labor force participation rates and
employment-to-population ratio

Increases in labor compensation have remained
moderate by historical standards . . .

Percent

Labor force participation rate

60
58

81
Employment-to-population ratio

80
2001

2004

2007

2010

Prime-age labor force
participation rate

2013

2016

2019

Note: The data are monthly. The prime-age labor force participation rate is a percentage of the population aged 25 to 54. The labor force participation rate and the
employment-to-population ratio are percentages of the population aged 16 and
over.
Source: Bureau of Labor Statistics via Haver Analytics.

Despite strong labor market conditions, the available
indicators generally suggest that increases in hourly
labor compensation have remained moderate, averaging about 3 percent over the past two years. These
indicators include the employment cost index, a
measure of both wages and the cost to employers of
providing benefits; compensation per hour in the
business sector, a broad-based but volatile measure of
wages, salaries, and benefits; and average hourly
earnings from the payroll survey, a monthly index
that is timely but does not account for benefits. The
median 12-month wage growth of individuals reporting to the Current Population Survey calculated by
the Federal Reserve Bank of Atlanta, which tends to
be higher than broader-based measures of wage
growth, remains near the upper portion of its range

106th Annual Report | 2019

over the past couple of years.4 Interestingly, wage
growth over the past few years has been strongest for
workers in relatively low-paying jobs, suggesting that
the strong labor market is having a more pronounced
benefit for these workers.

Figure 4. Change in the price index for personal
consumption expenditures
Monthly

3.0

. . . and likely have been restrained by slow
growth in labor productivity over much of the
expansion

These moderate rates of hourly compensation gains
likely reflect the offsetting influences of a strengthening labor market and productivity growth that has
been weak through much of the expansion. From
2008 to 2018, labor productivity increased a little
more than 1 percent per year, on average, well below
the average pace from 1996 to 2007 of nearly 3 percent and also below the average gain in the 1974–95
period. Although considerable debate remains about
the reasons for the slowdown in productivity growth
over this period, the weakness may be partly attributable to the sharp pullback in capital investment,
including on research and development, during the
most recent recession and the relatively slow recovery
that followed. More recently, labor productivity is
estimated to have increased 1.5 percent over the four
quarters ending in 2019:Q3—a small improvement
from the preceding year, especially given the volatility
of the productivity data, but still moderate relative to
earlier periods. While it is uncertain whether productivity growth will continue to improve, a sustained
pickup in productivity growth, as well as additional
labor market strengthening, would support stronger
gains in labor compensation.
Inflation was below 2 percent last year

After having been close to the FOMC’s objective of
2 percent in 2018, inflation moved back below 2 percent last year, where it has been for most of the time
since the end of the most recent recession. The
12-month change in the price index for personal consumption expenditures (PCE) was 1.6 percent in
December 2019, as was the 12-month measure of
inflation that excludes food and energy items (socalled core inflation), which historically has been a
better indicator of where inflation will be in the
future than the overall index (figure 4). Both measures are down from the rates recorded a year ago; the
slowing partly results from particularly low readings
in the monthly price data in the first quarter of 2019,
which appear to reflect idiosyncratic price declines in

Trimmed mean
Excluding food
and energy

The Atlanta Fed’s measure differs from others in that it measures the wage growth only of workers who were employed both
in the current survey month and 12 months earlier.

2.5
2.0
1.5
1.0

Total

.5
0
2013

2014

2015

2016

2017

2018

2019

Source: For trimmed mean, Federal Reserve Bank of Dallas; for all else, Bureau of
Economic Analysis; all via Haver Analytics.

a number of specific categories such as apparel, used
cars, banking services, and portfolio management
services. Indeed, core inflation picked up after the
first quarter and was at an average annual rate of
1.9 percent over the remainder of the year.
The trimmed mean PCE price index, calculated by
the Federal Reserve Bank of Dallas, also suggests a
transitory element to inflation readings early last
year. The trimmed mean provides an alternative way
to purge inflation of transitory influences, and it is
less sensitive than the core index to idiosyncratic
price movements such as those noted earlier.5 The
12-month change in this measure was about the same
in December 2019 as it was in 2018.
Oil prices fluctuated in 2019

After falling from more than $80 per barrel to less
than $60 per barrel in late 2018, the Brent spot price
of crude oil fluctuated between $60 and $70 for most
of 2019. Prices generally moved up in the second half
of last year, supported by expectations of supply cuts
in OPEC member countries and, later on, diminished
concerns about the global outlook (figure 5). Prices
also spiked briefly in early January over tensions with
Iran. In recent weeks, however, oil prices moved
lower amid heightened fears that the coronavirus outbreak that started in China might weigh on economic
growth and the demand for oil. Despite these fluctua5

12-month percent change

The trimmed mean index excludes prices that showed particularly large increases or decreases in a given month. Note that,
since 1995, 12-month changes in the trimmed mean index have
averaged about 0.3 percentage point above core PCE inflation
and 0.2 percentage point above total PCE inflation.

Monetary Policy and Economic Developments

Figure 5. Spot and futures prices for crude oil
Weekly

Dollars per barrel

130
120
110
100
90
80
70
60
50
40
30
20

Brent spot price

24-month-ahead
futures contracts

2014

2015

2016

2017

2018

2019

2020

Note: The data are weekly averages of daily data. The weekly data begin on
Thursdays and extend through January 29, 2020.
Source: ICE Brent Futures via Bloomberg.

tions in oil prices, retail gasoline prices generally
edged lower since mid-2019. For 2019 as a whole,
consumer energy prices rose modestly more than the
core index. Meanwhile, food prices posted only a
small increase in 2019, held down by soft prices for
farm commodities, and contributed very little to
overall consumer price inflation.
Reported prices of imports other than energy fell

Nonfuel import prices, before accounting for the
effects of tariffs on the price of imported goods, have
continued to decline from their mid-2018 peak,
responding to lower foreign inflation and declines in
non-oil commodity prices.6 After declining in the
first half of 2019, prices of industrial metals appear
to have bottomed out in recent months, consistent
with increased optimism about global demand following positive trade developments.

index over the next 10 years has been very close to
2 percent for the past several years (figure 6). In the
University of Michigan Surveys of Consumers, the
median value for inflation expectations over the next
5 to 10 years has fluctuated within a narrow range
around 2½ percent since the end of 2016, though this
level is between ¼ and ½ percentage point lower than
had prevailed through 2014. In the Survey of Consumer Expectations, conducted by the Federal
Reserve Bank of New York, the median of respondents’ expected inflation rate three years hence
moved lower, on net, in the second half of last year
and averaged 2.5 percent, ¼ percentage point below
its average over the preceding three years.
. . . and market-based measures of inflation
compensation have also been little changed

Michigan survey of consumers,
next 5 to 10 years

NY Fed
survey of consumers,
3 years ahead

Published import price indexes exclude tariffs. However, tariffs
add to the prices that purchasers of imports actually pay, and
tariff-inclusive import prices have likely increased, rather than
declined, since mid-2018.

Survey-based measures of inflation expectations
have been broadly stable . . .

2
Survey of Professional
Forecasters,
next 10 years

2006

2008

2010

2012

2014

2016

2018

2020

Note: The series are medians of the survey responses. The Michigan survey data
are monthly and extend through January 2020. The Survey of Professional Forecasters data for inflation expectations for personal consumption expenditures are
quarterly and begin in 2007:Q1. The NY Fed survey data are monthly and begin in
June 2013.
Source: University of Michigan Surveys of Consumers; Federal Reserve Bank of
New York, Survey of Consumer Expectations; Federal Reserve Bank of Philadelphia, Survey of Professional Forecasters.

106th Annual Report | 2019

Figure 7. Change in real gross domestic product and gross
domestic income
Percent, annual rate

Gross domestic product
Gross domestic income

5
4
3

H1
H2

2
1

2014

2015

2016

2017

2018

2019

Note: Gross domestic income is not yet available for 2019:H2.
Source: Bureau of Economic Analysis via Haver Analytics.

10 years before the start of notable declines in mid2014.7 The TIPS-based measure of 5-to-10-yearforward inflation compensation and the analogous
measure from inflation swaps are now about 1¾ percent and 2 percent, respectively.8
Growth of gross domestic product was moderate
in the second half of 2019 . . .

Real gross domestic product (GDP) is reported to
have increased at a moderate average annual rate of
2.1 percent in the second half of 2019, although
growth was somewhat slower than in the first half of
the year and in 2018 (figure 7). Consumer spending
rose at a moderate pace, on average, and residential
investment turned up after having declined since the
end of 2017. In contrast, business fixed investment
declined in the second half of last year, reflecting a
number of factors that likely include uncertainty
regarding trade tensions and the weak global growth
outlook. Those factors also continued to weigh on
manufacturing output, which declined over the first
7

half of 2019 and has moved roughly sideways since
then. (See the box “Manufacturing and U.S. Business
Cycles” on pages 14–15 of the February 2020 Monetary Policy Report.) Despite those headwinds, the
economic expansion continues to be supported by
steady job gains, increases in household wealth,
expansionary fiscal policy, and supportive domestic
financial conditions that include moderate borrowing
costs and easy access to credit for many households
and businesses.
. . . and downside risks to the outlook receded
somewhat

Downside risks to the economic outlook seem to
have receded somewhat in the latter part of 2019.
Labor market conditions and economic growth in the
United States have been resilient to the global headwinds in 2019, and conflicts over trade policy diminished somewhat toward the end of the year. Economic growth abroad also shows signs of stabilizing,
though the coronavirus outbreak presents a more
recent risk. Reflecting these factors as well as more
accommodative monetary policy stances in the
United States and some foreign economies, financial
conditions eased somewhat over the second half of
the year. Statistical models designed to gauge the
probability of recession using various indicators,
including the Treasury yield curve, suggest that the
likelihood of a recession occurring over the next year
has fallen noticeably in recent months. Similarly, as
shown in Part 3, when Federal Reserve policymakers
most recently presented their economic projections,
in December, fewer participants judged the risks to
the outlook to be tilted to the downside compared
with their projections from last June.
Ongoing improvements in the labor market
continue to support household income and
consumer spending

Consumer spending rose at a moderate pace, on average, in the third and fourth quarters of 2019 and
posted another solid gain for the year as a whole
(figure 8). The growth in real PCE in recent years
reflects the continued improvements in the labor market, which have supported further increases in household income. Real disposable personal income, a
measure of households’ after-tax purchasing power,
increased 2.6 percent in 2019, a solid gain albeit
below the robust increase in 2018 that was bolstered
by a reduction in personal income taxes. The personal saving rate, at 7.7 percent in the fourth quarter,
was little changed from the previous year.

Monetary Policy and Economic Developments

Figure 8. Change in real personal consumption
expenditures and disposable personal income

Figure 9. Private housing starts and permits
Monthly

Millions of units, annual rate

Percent, annual rate

1.2

Personal consumption expenditures
Disposable personal income

6
5

1.0
Single-family starts

.8
Single-family
permits

4
H1
H2

.6
.4

Multifamily starts

0
1
2009
2014

2015

2016

2017

2018

2019

2011

2013

2015

2017

2019

Source: U.S. Census Bureau via Haver Analytics.

Source: Bureau of Economic Analysis via Haver Analytics.

Spending was also supported by high household
wealth . . .

The relatively high level of aggregate household net
worth also supported consumer spending last year.
House prices, which are of particular importance for
the value of assets held by a large portion of households, continued to increase in 2019, although at a
more moderate pace than in recent years. In addition,
U.S. equity prices, which fell sharply at the end of
2018, have rebounded since then. Equity wealth is
more concentrated among high-wealth households
with high propensities to save than is housing wealth,
however, and may therefore provide less support for
consumption. The ratio of aggregate household net
worth to household income held steady through the
third quarter of last year at 6.9, near its all-time high.
. . . and consumer sentiment remains strong

Consumers have remained upbeat during the past
year. The Michigan index of consumer sentiment,
which declined last summer as trade tensions spiked,
recovered in recent months and currently stands at a
high level by historical standards. The sentiment
measure from the Conference Board, which has been
more stable, also suggests consumers are fairly upbeat.
Borrowing conditions for households remain
generally favorable, and borrowing costs have
moved down since the middle of 2019 . . .

Financing conditions for consumers remain supportive of growth in household spending. Interest rates
on credit cards and auto loans declined, on net, during the second half of 2019, and consumer credit
continued to expand at a moderate pace. Standards

and delinquency rates for these loans have been generally stable. For student loans, credit remains widely
available, with over 90 percent of such credit being
extended by the federal government. After peaking in
2013, delinquencies on such loans have been gradually declining, reflecting in part the continued
improvements in the labor market. In the mortgage
market, credit has continued to be readily available
for households with solid credit profiles but remains
noticeably tighter than before the most recent recession for borrowers with low credit scores.
. . . and activity in the housing sector has picked
up, likely reflecting lower interest rates

Residential investment picked up in the second half
of 2019 after declining for six straight quarters.
Housing starts for single-family and multifamily
housing units increased sharply in the second half of
last year and posted appreciable gains for the year as
a whole, with starts and permits for new construction
rising to the highest levels in more than 10 years
(figure 9). Sales of new and existing homes also
increased during 2019. This improvement appears to
have importantly reflected the reduction in mortgage
interest rates; after increasing appreciably from mid2017 through 2018, rates declined markedly last year,
fully reversing those earlier increases. Despite the
lower mortgage rates, households’ perceptions of
homebuying conditions have remained low, likely
reflecting ongoing increases in housing prices.
In contrast, business fixed investment weakened
in the second half of 2019 . . .

After increasing more than 5 percent per year in 2017
and 2018, business fixed investment—spending by

106th Annual Report | 2019

businesses on structures, equipment, and intangibles
such as research and development—stalled in 2019,
as a moderate gain in the first quarter was offset by
small declines over the rest of the year. The softness
in business investment last year was evident in each
of the three main components, and a portion of the
weakening appears to reflect concerns over trade
policy and slower foreign growth; other factors
included the suspension of deliveries of the Boeing
737 Max aircraft and the continued decline in drilling
and mining structures investment amid oil prices that
fell back from the levels reached in 2018. Forwardlooking indicators of business spending—such as
orders of capital goods, surveys of business conditions and sentiment, and profit expectations from
industry analysts—all appear to have stabilized in
recent months but suggest that investment is likely to
remain subdued (figure 10).
. . . despite corporate financing conditions that
remained accommodative overall

Financing conditions for nonfinancial firms have
remained accommodative amid lower interest rates.
Flows of credit to large nonfinancial firms remained
solid overall in the third quarter of 2019. The gross
issuance of corporate bonds, although lower than in
the first half of last year, was robust across credit categories. Yields on both investment- and speculativegrade corporate bonds continued to decrease and are
near historical lows. Spreads on corporate bond
yields over comparable-maturity Treasury securities
have continued to narrow, on net, since the middle of
last year and are at the lower end of their historical

Figure 10. Change in real business fixed investment

Net exports added to GDP growth in 2019, as
exports grew little but imports declined

Real exports grew only a touch in 2019, as tariffs on
U.S. exports increased and foreign growth weakened.
Real imports declined last year, in part reflecting
higher tariffs on imported goods and weakness in
investment and manufacturing. As a result, real net
exports—after having subtracted from U.S. real GDP
growth in 2018—provided a modest boost to GDP
growth in 2019. Relative to 2018, the nominal trade
deficit is slightly less negative, and the current
account deficit is little changed as a percent of GDP
(figure 11).
Federal fiscal policy actions continued to boost
economic growth in 2019 while raising the
federal unified budget deficit . . .

The effects of fiscal policy actions enacted at the federal level in earlier years continued to boost GDP
growth in 2019; the Tax Cuts and Jobs Act of 2017

Figure 11. U.S. trade and current account balances

Percent, annual rate

Structures
Equipment and intangible capital

distributions. Respondents to the January Senior
Loan Officer Opinion Survey on Bank Lending Practices, or SLOOS, reported that banks eased several
terms on commercial and industrial (C&I) loans but
that demand for C&I loans has continued to weaken,
consistent with the slowdown in business investment.
C&I loan growth at banks has slowed since the first
half of last year, while commercial real estate loan
growth has continued to be strong. Meanwhile,
financing conditions for small businesses have
remained generally accommodative, but credit
growth has been subdued.

Annual

Percent of nominal GDP

+
0
_

3
+
0
_
3

3
Trade

6
9

Current account

2015

2016

2017

2018

2019

6
7

12
2014

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

Note: Business fixed investment is known as “private nonresidential fixed investment” in the National Income and Product Accounts.

Note: GDP is gross domestic product. Current account data for 2019 are the average of the first three quarters of the year.

Source: Bureau of Economic Analysis via Haver Analytics.

Monetary Policy and Economic Developments

lowered personal and business income taxes, and rising appropriations consistent with the Bipartisan
Budget Act of 2018 boosted federal purchases.9 In
2019, federal purchases rose 4.3 percent, well above
the 2.7 percent increase of 2018.
The federal unified budget deficit widened further in
fiscal year 2019 to 4½ percent of nominal GDP from
3¾ percent of GDP in 2018, as expenditures moved
up as a share of the economy while receipts moved
sideways. Expenditures, at 21 percent of GDP, are
above the level that prevailed in the decade before the
start of the 2007–09 recession, while receipts have
continued to run below their average levels. The ratio
of federal debt held by the public to nominal GDP
rose to 79 percent in fiscal 2019 and was quite
elevated relative to historical norms. The Congressional Budget Office projects that this ratio will rise
further over the next several years, reflecting large
and rising deficits under current fiscal policy.
. . . and the fiscal position of most state and local
governments is stable

The fiscal position of most state and local governments remains stable, although there is a range of
experiences across these governments. Revenues for
these governments have continued to grow in recent
quarters, as the economic expansion pushes up
income and sales tax collections for state governments, and past house price gains continue to push
up property tax collections for local governments.
Boosted by a rebound in construction spending following two years of weak growth, real purchases by
state and local governments rose moderately last year
but still remained quite restrained, partly reflecting
budget pressures associated with pension and retiree
health-care obligations. State and local government
payrolls increased moderately in 2019 but have only
roughly regained the peak observed before the current expansion, and real outlays for construction are
more than 10 percent below their pre-recession peak.
The debt of these governments as a share of the
economy has continued to edge lower and currently
equals around 14 percent of GDP, well below the previous peak of 21 percent following the most recent
recession.

The Congressional Budget Office (CBO) estimated that the Tax
Cuts and Jobs Act would reduce annual tax revenue by around
1 percent of GDP, on average, from fiscal years 2018 through
2021. This revenue projection includes the CBO’s estimated
macroeconomic effects of the legislation, which add almost
¼ percentage point to GDP growth, on average, over the same
period.

Financial Developments
The expected path of the federal funds rate over
the next several years shifted down

Market-based measures of the expected path of the
federal funds rate over the next several years have
moved down, on net, since the middle of last year
and show about a 30 basis point decrease in the federal funds rate over 2020 and a relatively flat path
thereafter. Survey-based measures of the expected
path of the policy rate also shifted down from the
levels observed in the middle of 2019 but indicate no
change to the target range for the federal funds rate
over 2020 from its level at the end of 2019. According
to the results of the most recent Survey of Primary
Dealers and Survey of Market Participants, both
conducted by the Federal Reserve Bank of New York
in December, the median of respondents’ modal projections implies a flat trajectory for the target range
of the federal funds rate for the next few years.10
Additionally, market-based measures of uncertainty
about the policy rate approximately one to two years
ahead declined, on balance, from their levels at the
end of last June and are close to their average level in
recent years.
U.S. nominal Treasury yields decreased on net

After moving significantly lower over the first half of
2019, nominal Treasury yields also fell sharply in
August, largely in response to investors’ concerns
regarding trade tensions between the United States
and China and the global economic outlook (figure 12).
Later in the year, as these concerns abated, Treasury
yields rose, the yield curve steepened, and uncertainty
about near-term Treasury yields—measured by
option-implied volatility on short- and longer-dated
swap rates—declined. However, in the second half of
January, investors’ concerns about the implications of
the coronavirus outbreak for the economic outlook
weighed on Treasury yields and led to a flattening of
the yield curve as well as some increase in uncertainty
about near-term Treasury yields. Since the middle of
last year, Treasury yields ended lower on net.
Consistent with changes in the yields on nominal
Treasury securities, yields on 30-year agency
mortgage-backed securities (MBS)—an important
determinant of mortgage interest rates— decreased,
10

The results of the Survey of Primary Dealers and the Survey of
Market Participants are available on the Federal Reserve Bank
of New York’s website at https://www.newyorkfed.org/
markets/primarydealer_survey_questions.html and https://www
.newyorkfed.org/markets/survey_market_participants,
respectively.

106th Annual Report | 2019

Figure 12. Yields on nominal Treasury securities

Figure 13. Equity prices

Daily

Percent

Daily

December 31, 2009 = 100

300

250

10-year
5-year

S&P 500 index

200

150
100

Dow Jones bank index

2-year

2010

2012

2014

2016

2018

2020

Source: Department of the Treasury via Haver Analytics.

on balance, since the middle of last year and
remained low by historical standards. Meanwhile,
yields on both investment- and speculative-grade corporate bonds continued to decline and also stayed
low by historical standards. Spreads on corporate
bond yields over comparable-maturity Treasury
yields narrowed moderately, on net, over the second
half of 2019 and remained in the lower end of their
historical distribution.
Broad equity price indexes increased notably

Equity prices fluctuated in August and September
along with investors’ concerns about trade developments and the economic outlook. Later in 2019 and
into 2020, as these concerns abated, equity prices
rose substantially and were reportedly boosted by
greater certainty among investors that monetary
policy would remain accommodative in the near term
(figure 13). Gains were spread across most major
economic sectors, with the exception of the energy
sector, for which stock prices declined markedly.
Measures of implied and realized stock price volatility for the S&P 500 index—the VIX and the 20-day
realized volatility—increased in August to fairly
elevated levels but declined later in the year (figure 14).
(For a discussion of financial stability issues, see the
box “Developments Related to Financial
Stability” on pages 24–25 of the February 2020 Monetary Policy Report.)

2010

2012

2014

2016

2018

2020

Source: S&P’s Dow Jones Indices via Bloomberg. (For Dow Jones Indices licensing
information, see the note on the Contents page.)

half of 2019—including bid-ask spreads, bid sizes,
and estimates of transaction costs—some, such as
measures of market depth, have decreased. However,
the decline in measures of market depth has reportedly not led to any concerns about Treasury market
liquidity. Liquidity conditions in the agency MBS
market were also generally stable. Credit conditions
in municipal bond markets remained stable as well,
with yield spreads on 20-year general obligation
municipal bonds over comparable-maturity Treasury
securities declining notably and standing near historically low levels.
Figure 14. S&P 500 volatility
Daily

Percent

VIX

50
40
30
20
10

Realized volatility
0

2010

2012

2014

2016

2018

2020

Markets for Treasury securities,
mortgage-backed securities, and municipal
bonds have functioned well

Note: The VIX is a measure of implied volatility that represents the expected annualized change in the S&P 500 index over the following 30 days. For realized volatility, five-minute S&P 500 returns are used in an exponentially weighted moving
average with 75 percent of weight distributed over the past 20 days.

While available indicators of Treasury market functioning have generally remained stable since the first

Source: Cboe Volatility Index® (VIX®) accessed via Bloomberg; Federal Reserve
Board staff estimates.

Monetary Policy and Economic Developments

Money market rates moved down in line with
decreases in the FOMC’s target range, except for
some notable volatility in mid-September

Decreases in the FOMC’s target range for the federal
funds rate in July, September, and October transmitted effectively through money markets, with yields on
a broad set of money market instruments moving
lower in response to the FOMC’s policy actions.
The effective federal funds rate moved nearly in parity with the interest rate paid on reserves and was
closely tracked by the overnight Eurodollar rate.
Other short-term interest rates, including those on
commercial paper and negotiable certificates of
deposit, also moved down in line with decreases in
the policy rate. Domestic short-term funding markets
were volatile in mid-September—amid large flows
related to corporate tax payments and settlement of
Treasury securities—and experienced significant
tightening of conditions. The effective federal funds
rate rose above the target range on September 17 but
then moved back within the target range following
the Federal Reserve’s open market operations, which
eased pressures in money markets (see the box “Money
Market Developments and Monetary Policy Implementation” on pages 42–43 of the February 2020
Monetary Policy Report).
Bank credit continued to expand, and bank
profitability remained robust

Aggregate credit provided by commercial banks continued to expand through the second half of 2019, as
the strength in commercial real estate and residential
real estate loan growth, helped by falling interest
rates, more than offset the slowdown in C&I and
consumer loans. In the second half of last year, the
pace of bank credit expansion was about in line with
that of nominal GDP, leaving the ratio of total commercial bank credit to current-dollar GDP little
changed from its value last June (figure 15). Overall,
measures of bank profitability ticked down a bit in
the third quarter because of narrower net interest
margins but remain near their post-crisis highs.
International Developments
Growth in advanced foreign economies
weakened, but it appears to be stabilizing

Real GDP growth in several advanced foreign economies (AFEs) appears to have stepped down in the
second half of the year. However, incoming data suggest that the slowdown in the AFEs may have bottomed out. Household spending has generally
remained resilient, sustained by low unemployment

Figure 15. Ratio of total commercial bank credit to nominal
gross domestic product
Quarterly

Percent

75
70
65
60
55

2005

2007

2009

2011

2013

2015

2017

2019

Source: Federal Reserve Board, Statistical Release H.8, “Assets and Liabilities of
Commercial Banks in the United States”; Bureau of Economic Analysis via Haver
Analytics.

rates and rising wages. Financial conditions have
improved further, supported in part by accommodative monetary policy actions. The protracted slump
in global manufacturing, which weighed on external
demand across the AFEs, is showing tentative signs
of nearing an end. In the euro area, where manufacturing activity was particularly weak, recent indicators suggest that growth may be steadying. In Japan,
real GDP appears to have contracted sharply at the
end of 2019, following a consumption tax hike in
October, but its effects are likely to be transitory. In
the United Kingdom, Brexit-related uncertainty
weighed on economic activity throughout 2019;
around the turn of the year, U.K. and European
Union authorities took the necessary steps to prevent
a disorderly Brexit from occurring on January 31,
2020, but they still need to negotiate a new trade
arrangement.
Inflationary pressures remained subdued in many
advanced foreign economies

Against a backdrop of slower economic growth, consumer prices in many AFEs continued to rise at a
subdued pace, especially in the euro area and Japan.
Canada remains an exception, as inflation there hovered around 2 percent.
Central banks in several advanced foreign
economies provided accommodation

In response to subdued growth and below-target
inflation, the European Central Bank introduced a
new stimulus package in September of last year,
including a deposit rate cut of 10 basis points to

106th Annual Report | 2019

negative 0.5 percent, a restart of its Asset Purchase
Programme, and more favorable terms for its targeted
longer-term refinancing operations. Similarly, the
Reserve Bank of Australia and the Reserve Bank of
New Zealand reduced their policy rates in the second
half of last year, citing concerns about the global
outlook. The Bank of Canada, the Bank of England,
and the Bank of Japan kept their policy rates
unchanged, although communications by their officials took a more dovish tone, emphasizing increased
downside risks to the global economy. In contrast,
Sweden’s Riksbank and Norway’s Norges Bank
increased their policy rates, citing favorable macroeconomic conditions and concerns about growing
financial imbalances.
Financial conditions in advanced foreign
economies eased further

Notwithstanding slowing global growth and bouts of
political tensions, financial conditions in the AFEs,
on balance, eased further in the second half of 2019,
supported by accommodative central bank actions,
progress on trade negotiations between the United
States and China, and diminished fears of a hard
Brexit. Long-term interest rates in many AFEs
remained well below the levels seen at the end of
2018. Equity prices, as well as prices of other risky
assets, increased moderately. Sovereign bond spreads
over German bund yields for euro-area peripheral
countries narrowed slightly. In recent weeks, however,
equity and bond markets gave up some of their gains
as uncertainty about the economic effects of the
coronavirus weighed on investors’ sentiment.
Growth slowed markedly in many emerging
market economies, but there are tentative signs
of stabilization

Chinese GDP growth slowed further in the second
half of 2019 against the backdrop of increased tariffs
on Chinese exports, global weakness in trade and
manufacturing, and authorities’ deleveraging campaign that continued to exert a drag on the economy.
However, recent data suggest that China’s economic
activity picked up at the end of last year, in part supported by some fiscal and monetary policy stimulus
and some easing of trade tensions. In emerging Asia
excluding China, economic growth was dragged
down by a sharp contraction in Hong Kong, where
social and political unrest resulted in severe economic
disruptions, and by weakness in India, where an
ongoing credit crunch continues to weigh on activity.
In several other Asian economies, GDP growth held
steady but at a lackluster pace amid headwinds from
moderating global growth. GDP growth in Korea,

Taiwan, and the Philippines rebounded in the last
quarter of 2019, consistent with signs of stabilization
in the global manufacturing cycle, especially in the
high-tech sector. However, the recent emergence of
the coronavirus could lead to disruptions in China
that spill over to other Asian countries and, more
generally, to the rest of the global economy.
Many Latin American economies continued to
underperform. Economic stagnation persisted in
Mexico, reflecting both domestic factors—including
market concerns about economic policies—and
external factors, notably, renewed weakness in U.S.
manufacturing production. Severe social unrest in
several countries—including Chile, Ecuador, and
Bolivia—disrupted economic activity. Argentina’s
financial crisis continued, while Venezuela’s economy
likely continued to contract. Growth in Brazil, in
contrast, edged up as aggregate demand continued to
recover, supported by further reductions in policy
interest rates.
Financial conditions in emerging market
economies fluctuated but, on net, eased
somewhat

Notwithstanding social and political tensions as well
as concerns about the global outlook, financial conditions in the emerging market economies (EMEs)
eased somewhat in the second half of 2019. Conditions were supported by the accommodative actions
of the FOMC and several foreign central banks and,
later in the year, by progress in the negotiations
between the United States and its major trading partners as well as improved prospects about global
growth. EME equity prices generally increased, especially for Brazil. And measures of EME sovereign
bond spreads over U.S. Treasury yields generally
decreased. Political tensions in Hong Kong contributed to an underperformance of Chinese risky assets.
After several months of withdrawals, flows to dedicated EME mutual funds resumed in the fourth quarter of 2019, consistent with the improved sentiment
toward global prospects. However, in reaction to the
emergence of the coronavirus, in late January equity
and bond markets gave up some of their gains.
The dollar fluctuated but is, on balance, little
changed

The foreign exchange value of the U.S. dollar fluctuated but is, on balance, little changed compared with
last July (figure 16). While concerns about global
growth and trade tensions contributed to the appreciation of the dollar over the summer, monetary
policy easing by the Federal Reserve and progress on

Monetary Policy and Economic Developments

and inflation returning to its symmetric 2 percent
objective.

Figure 16. U.S. dollar exchange rate indexes
Weekly

Week ending January 7, 2015 = 100

Dollar appreciation
British pound

130
Broad dollar
120
110
Euro

100

Chinese renminbi

2015

2016

2017

2018

2019

2020

Note: The data, which are in foreign currency units per dollar, are weekly averages
of daily data. The weekly data begin on Thursdays and extend through January 29, 2020. As indicated by the left most arrow, increases in the data represent
U.S. dollar appreciation, and decreases represent U.S. dollar depreciation.
Source: Federal Reserve Board, Statistical Release H.10, “Foreign Exchange
Rates.”

U.S.–China trade negotiations led to a depreciation
of the dollar, especially with respect to the Chinese
renminbi. The British pound appreciated notably
against the dollar as fears of a disorderly Brexit
diminished.

Part 2: Monetary Policy
The Federal Open Market Committee reduced
the federal funds rate to support sustained
economic expansion and foster a return of
inflation to the Committee’s 2 percent objective

After having gradually increased its target range for
the federal funds rate from late 2015 through the end
of 2018, the Committee maintained its target range
for the federal funds rate at 2¼ to 2½ percent during
the first half of 2019. In light of the implications of
global developments for the economic outlook as
well as muted inflation pressures, the Federal Open
Market Committee (FOMC) lowered the target
range for the federal funds rate at its July, September,
and October meetings by 25 basis points each, bringing it to 1½ to 1¾ percent (figure 17).11 At its
December and January meetings, the Committee
judged that the prevailing stance of monetary policy
was appropriate to support sustained expansion of
economic activity, strong labor market conditions,
11

See the FOMC statements issued after the July, September, and
October meetings, which are available (along with other postmeeting statements) on the Monetary Policy portion of the
Board’s website at https://www.federalreserve.gov/
monetarypolicy.htm.

Future changes in the federal funds rate will
depend on the economic outlook and risks to the
outlook as informed by incoming data

The FOMC has continued to emphasize that the
actual path of monetary policy will depend on the
evolution of the economic outlook and risks to the
outlook as informed by incoming data. Specifically,
in deciding on the timing and size of future adjustments to the target range for the federal funds rate,
the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and symmetric 2 percent inflation.
This assessment will take into account a wide range
of information, including measures of labor market
conditions, indicators of inflation pressures and
inflation expectations, and readings on financial and
international developments.
In addition to evaluating a wide range of economic
and financial data and information gathered from
business contacts and other informed parties around
the country, policymakers routinely consult prescriptions for the policy interest rate from various monetary policy rules, which can provide useful guidance
to the FOMC. Although many practical considerations make it undesirable for the FOMC to
mechanically follow the prescriptions of any specific
rule, the FOMC’s framework for conducting systematic monetary policy respects key principles of good
monetary policy embodied by these rules, while at the
same time, providing flexibility to address many of
the limitations of these policy rules (see the box
“Monetary Policy Rules and Uncertainty in Monetary Policy Settings” on pages 33–37 of the February 2020 Monetary Policy Report).
The FOMC concluded the reduction of its
aggregate securities holdings in the System
Open Market Account . . .

At its July meeting, along with its decision to lower
the target range for the federal funds rate, the FOMC
also announced that it was ending the runoff of
securities holdings two months earlier than the initially planned termination at the end of September.12
Ending the runoff earlier than initially planned was
12

The Committee had initially indicated in its Balance Sheet Normalization Principles and Plans, issued in March 2019, that it
intended to conclude the reduction of its aggregate securities
holdings in the System Open Market Account at the end of September 2019. The document is available on the Board’s website
at https://www.federalreserve.gov/newsevents/pressreleases/
monetary20190320c.htm.

106th Annual Report | 2019

Figure 17. Selected interest rates
Daily

Percent

5
10-year Treasury rate

4
3
2

2-year Treasury rate

1
0

Target federal funds rate
2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Note: The 2-year and 10-year Treasury rates are the constant-maturity yields based on the most actively traded securities.
Source: Department of the Treasury; Federal Reserve Board.

seen as having only very small effects on the balance
sheet, with negligible implications for the economic
outlook. Moreover, doing so avoided the appearance
of inconsistency in continuing to allow the balance
sheet to run off while simultaneously lowering the
target range for the federal funds rate.
Since then, the Federal Reserve has rolled over at
auction all principal payments from its holdings of
Treasury securities and has reinvested all principal
payments from its holdings of agency debt and
agency mortgage-backed securities (MBS) received
during each calendar month. The Committee intends
to continue to reduce its holdings of agency debt and
agency MBS, consistent with the aim of holding primarily Treasury securities in the long run. To allow
for a gradual runoff of the MBS portfolio, principal
payments from agency debt and agency MBS of up
to $20 billion per month have been reinvested in
Treasury securities; agency MBS principal payments
in excess of $20 billion each month have been reinvested in agency MBS.13
. . . and reaffirmed its intention to implement
monetary policy in a regime with an ample supply
of reserves

In a monetary policy regime with an ample supply of
reserves, control over the level of the federal funds
rate and other short-term interest rates is exercised
primarily through the setting of the Federal Reserve’s
administered rates, and active management of the
13

See the Balance Sheet Normalization Principles and Plans in
note 12. Since August, the Federal Reserve has reinvested, on
average, about $7 billion per month in agency MBS.

supply of reserves is not required. The Federal
Reserve will still conduct periodic open market
operations as necessary to accommodate the trend
growth in the demand for its nonreserve liabilities,
such as currency in circulation, and maintain an
ample supply of reserves over time. Separate from
such periodic open market operations, beginning in
October 2019, the Federal Reserve has implemented
a temporary program of open market operations,
specifically Treasury bill purchases, aimed at durably
raising reserves to levels at or above those prevailing
in early September (see the box “Money Market
Developments and Monetary Policy Implementation” on pages 42–43 of the February 2020 Monetary
Policy Report). These actions are purely technical
measures to support the effective implementation of
the FOMC’s monetary policy and are not intended
to change the stance of monetary policy. These
Treasury bill purchases are distinct from the largescale asset purchase programs that the Federal
Reserve deployed after the financial crisis. In those
programs, the Federal Reserve purchased longer-term
securities to put downward pressure on longer-term
interest rates and ease broader financial conditions.
The Federal Reserve’s total assets have increased
from about $3.8 trillion last July to about $4.1 trillion
at present, with holdings of Treasury securities at
approximately $2.4 trillion and holdings of agency
debt and agency MBS at approximately $1.4 trillion
(figure 18). The increase in the size of the balance
sheet partly reflects an increase in the level of nonreserve liabilities—such as currency in circulation and
the TGA—and a rise in the level of reserve balances,

Monetary Policy and Economic Developments

Figure 18. Federal Reserve assets and liabilities
Weekly

Trillions of dollars

Assets

5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
.5
0
.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0

Other assets
Agency debt and mortgage-backed securities holdings
Credit and liquidity
facilities

Treasury securities held outright
Federal Reserve notes in circulation
Deposits of depository institutions

Capital and other liabilities

Liabilities and capital
2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Note: “Credit and liquidity facilities” consists of primary, secondary, and seasonal credit; term auction credit; central bank liquidity swaps; support for Maiden Lane, Bear
Stearns, and AIG; and other credit facilities, including the Primary Dealer Credit Facility, the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the
Commercial Paper Funding Facility, and the Term Asset-Backed Securities Loan Facility. “Other assets” includes repurchase agreements as well as unamortized premiums and
discounts on securities held outright. “Capital and other liabilities” includes reverse repurchase agreements, the U.S. Treasury General Account, and the U.S. Treasury Supplementary Financing Account. The data extend through January 29, 2020.
Source: Federal Reserve Board, Statistical Release H.4.1, “Factors Affecting Reserve Balances.”

which have increased from approximately $1.5 trillion
last July to approximately $1.6 trillion at present.
Meanwhile, interest income on the Federal Reserve’s
securities holdings has continued to result in substantial remittances to the U.S. Treasury. Preliminary
data indicate that the Federal Reserve remitted about
$55 billion in 2019.
The effective federal funds rate moved down in
line with the FOMC’s target range for the federal
funds rate

The Federal Reserve reduced the effective federal
funds rate following the FOMC’s decisions in July,
September, and October to lower the target range for
the federal funds rate by reducing the interest rate
paid on required and excess reserve balances and the
interest rate offered on overnight reverse repurchase
agreements (ON RRPs). Specifically, the Federal
Reserve lowered the interest rate paid on required
and excess reserve balances to 2.10 percent in July,
1.80 percent in September, and 1.55 percent in October. In addition, the Federal Reserve lowered the
ON RRP offering rate to 2 percent in July, 1.70 per-

cent in September, and 1.45 percent in October. The
Federal Reserve also approved a ¼ percentage point
decrease in the discount rate (the primary credit rate)
in July, September, and October. Yields on a broad
set of money market instruments also moved lower,
roughly in line with the effective federal funds rate, in
response to the FOMC’s policy decisions in July,
September, and October.
The Federal Reserve continued the review of its
strategic framework for monetary policy

In the second half of 2019, the Federal Reserve continued the review of its monetary policy strategy,
tools, and communication practices. The goal of this
assessment is to identify possible ways to improve the
Committee’s current policy framework in order to
ensure that the Federal Reserve is best positioned
going forward to achieve its statutory mandate of
maximum employment and price stability. (The box
“Federal Reserve Review of Monetary Policy Strategy,
Tools, and Communication Practices” on
pages 40–41 of the February 2020 Monetary Policy
Report discusses the review and the public outreach
that has accompanied it.)

106th Annual Report | 2019

Monetary Policy Report July 2019
Summary
Economic activity increased at a solid pace in the
early part of 2019, and the labor market has continued to strengthen. However, inflation has been running below the Federal Open Market Committee’s
(FOMC) longer-run objective of 2 percent. At its
meeting in June, the FOMC judged that current and
prospective economic conditions called for maintaining the target range for the federal funds rate at 2¼ to
2½ percent. Nonetheless, in light of increased uncertainties around the economic outlook and muted
inflation pressures, the Committee indicated that it
will closely monitor the implications of incoming
information for the economic outlook and will act as
appropriate to sustain the expansion, with a strong
labor market and inflation near the Committee’s
symmetric 2 percent objective.
Economic and Financial Developments
The labor market. The labor market has continued to
strengthen. Over the first five months of 2019, payrolls increased an average of 165,000 per month. This
rate is down from the average pace of 223,000 in
2018, but it is faster than what is needed to provide
jobs for new entrants into the labor force. The unemployment rate moved down from 3.9 percent in
December to 3.6 percent in May; meanwhile, wage
gains have remained moderate.
Inflation. Consumer price inflation, as measured by
the 12-month change in the price index for personal
consumption expenditures, moved down from a little
above the FOMC’s objective of 2 percent in the
middle of last year to a rate of 1.5 percent in May.
The 12-month measure of inflation that excludes
food and energy items (so-called core inflation),
which historically has been a better indicator than the
overall figure of where inflation will be in the future,
was 1.6 percent in May—down from a rate of 2 percent from a year ago. However, these year-over-year
declines mainly reflect soft readings in the monthly
price data earlier this year, which appear to reflect
transitory influences. Survey-based measures of
longer-run inflation expectations are little changed,
while market-based measures of inflation compensation have declined recently to levels close to or below
the low levels seen late last year.
Economic growth. In the first quarter, real gross
domestic product (GDP) is reported to have
increased at an annual rate of 3.1 percent, bolstered

by a sizable contribution from net exports and business inventories. By contrast, consumer spending in
the first quarter was lackluster but appears to have
picked up in recent months. Meanwhile, following
robust gains last year, business fixed investment
slowed in the first quarter, and indicators suggest
that investment decelerated further in the spring. All
told, incoming data for the second quarter suggest a
moderation in GDP growth—despite a pickup in
consumption—as the contributions from net exports
and inventories reverse and the impetus from business investment wanes further.
Financial conditions. Nominal Treasury yields moved
significantly lower over the first half of 2019, largely
reflecting investors’ concerns about trade tensions
and the global economic outlook, as well as expectations of a more accommodative path for the federal
funds rate than had been anticipated earlier. On net,
since the end of 2018, spreads of yields on corporate
bonds over those on comparable-maturity Treasury
securities have narrowed, and stock prices have
increased. Moreover, loans remained widely available
for most households, and credit provided by commercial banks continued to expand at a moderate pace.
Overall, domestic financial conditions for businesses
and households continued to be supportive of economic growth over the first half of 2019.
Financial stability. The U.S. financial system continues to be substantially more resilient than in the
period leading up to the financial crisis. Asset valuations remain somewhat elevated in a number of markets, with investors continuing to exhibit high appetite for risk. Borrowing by businesses continues to
outpace GDP, with the most rapid increases in debt
concentrated among the riskiest firms. In contrast,
household borrowing remains modest relative to
income, and the debt growth is concentrated among
borrowers with high credit scores. Key financial institutions, including the largest banks, continue to be
well capitalized and hold large quantities of liquid
assets. Funding risks in the financial system remain
low relative to the period leading up to the crisis.
International developments. After slowing in 2018,
foreign economic growth appears to have stabilized
in the first half of the year, but at a restrained pace.
While aggregate activity in the advanced foreign
economies (AFEs) increased slowly from the soft
patch of late last year, activity in emerging Asia generally struggled to gain a solid footing, and several
Latin American economies continued to underperform. Growth abroad has been held down in part by

Monetary Policy and Economic Developments

a slowdown in the manufacturing sector against the
backdrop of softening global trade flows. With both
inflation and activity in the AFEs remaining subdued, AFE central banks took a more accommodative policy stance.
Despite trade tensions that weighed on financial markets, financial conditions abroad generally eased in
the first half of the year, supported by accommodative communications by major central banks. On balance, global equity prices moved higher, sovereign
yields in major foreign economies declined, and sovereign bond spreads in the emerging market economies were little changed. Market-implied paths of
policy rates in AFEs generally declined.
Monetary Policy
Interest rate policy. In its meetings over the first half
of 2019, the FOMC judged that the stance of monetary policy was appropriate to achieve the Committee’s objectives of maximum employment and 2 percent inflation, and it decided to maintain the target
range for the federal funds rate at 2¼ to 2½ percent.
These decisions reflected incoming information
showing the solid fundamentals of the U.S. economy
supporting continued growth and strong employment. For most of this period, the Committee indicated that, in light of global economic and financial
developments and muted inflation pressures, it would
be patient as it determines what future adjustments
to the target range for the federal funds rate may be
appropriate. At the June FOMC meeting, however,
the Committee noted that uncertainties about the
global and domestic economic outlook had
increased. In light of these uncertainties and muted
inflation pressures, the Committee indicated that it
will act as appropriate to sustain the expansion, with
a strong labor market and inflation near its symmetric 2 percent objective.
In the most recent Summary of Economic Projections, which was compiled at the time of the June
FOMC meeting, participants generally revised down
their individual assessments of the appropriate path
for monetary policy relative to their assessments at
the time of the March meeting. (The participants’
most recent economic projections—released after the
June FOMC meeting—are discussed in more detail
in Part 3 of the July 2019 Monetary Policy Report.)
However, as the Committee has continued to emphasize, the timing and size of future adjustments to the
target range for the federal funds rate will depend on
the Committee’s assessment of realized and expected

economic conditions relative to its objectives of
maximum employment and 2 percent inflation.
Balance sheet policy. Over the first half of the year,
the FOMC made two announcements regarding the
longer-run policy implementation framework and its
plans for normalizing the balance sheet. Following its
January meeting, the Committee noted that it
decided to continue to implement monetary policy in
a regime with ample reserves. Consistent with that
decision, in March, the Committee announced plans
to conclude the reduction of its aggregate securities
holdings at the end of September 2019. (See the box
“Framework for Monetary Policy Implementation
and Normalization of the Federal Reserve's Balance
Sheet” on pages 42–43 of the July 2019 Monetary
Policy Report.) The Committee is prepared to adjust
the details for completing balance sheet normalization in light of economic and financial developments,
consistent with its policy objectives of maximum
employment and price stability.
Special Topics
Labor market conditions for lower- and highereducated workers. The labor market has strengthened
since the end of the last recession, but the pattern of
recovery has varied across workers with different levels of education. Workers with a college degree or
more experienced a swifter recovery in employment,
while those with a high school degree or less had a
much more delayed recovery in employment. This
pattern is typical of business cycles, and recent
research sheds light on mechanisms that may lead to
differences in the timing of recovery for lower- and
higher-educated workers. (See the box “How Have
Lower-Educated Workers Fared since the Great
Recession?” on pages 8–9 of the July 2019 Monetary
Policy Report.)
Global manufacturing and trade. Growth in global
trade and manufacturing has weakened significantly
since 2017 even as growth in services has held up.
Trade policy developments appear to have lowered
trade flows to some extent, while uncertainty surrounding trade policy may be weighing on investment. The global tech cycle and a general slowdown
in global demand, reflecting idiosyncratic factors specific to different economies, have also likely weighed
on demand for traded goods. (See the box “The
Persistent Slowdown in Global Trade and Manufacturing” on pages 30–31 of the July 2019 Monetary
Policy Report.)

106th Annual Report | 2019

Monetary policy rules. Monetary policy rules are
mathematical formulas that relate a policy interest
rate, such as the federal funds rate, to a small number
of other economic variables, typically including the
deviation of inflation from its target value and a
measure of resource slack in the economy. The prescriptions for the policy interest rate from these rules
can provide helpful guidance for the FOMC. This
discussion presents five policy rules—illustrative of
the many rules that have received attention in the
research literature—and provides examples of two
ways to compute historical prescriptions of policy
rules. (See the box Monetary Policy Rules and Their
Interactions with the Economy” on pages 37–41 of
the July 2019 Monetary Policy Report.)
Monetary policy implementation and balance sheet
normalization. Since the beginning of this year, the
FOMC has made important decisions regarding its
framework for monetary policy implementation and
the process of normalizing the size of its balance
sheet. The Committee decided to continue to implement monetary policy in a regime with an ample supply of reserves and announced that it intends to conclude the reduction of its aggregate securities holdings in the System Open Market Account at the end
of September 2019. (See the box “Framework for
Monetary Policy Implementation and Normalization
of the Federal Reserve’s Balance Sheet” on
pages 42–43 of the July 2019 Monetary Policy Report.)

Part 1: Recent Economic and Financial
Developments
Domestic Developments
The labor market strengthened further during the
first half of 2019 but at a slower pace than last
year . . .

Labor market conditions have continued to
strengthen so far this year but at a pace slower than
last year. Total nonfarm payroll employment has
averaged gains of about 165,000 per month over the
first five months of 2019, according to the Bureau of
Labor Statistics. This pace is slower than the average
monthly gains in 2018, but it is faster than what is
needed to provide jobs for net new entrants into the
labor force as the working-age population grows.1
1

Owing to population growth, roughly 115,000 to 145,000 jobs
per month need to be created, on average, to keep the unemployment rate constant with an unchangedlabor force participation
rate. However, the participation rate fell over the December to
May period, reducing the number of job gains that would have
been needed. There is considerable uncertainty around these

In April and May of this year, the unemployment
rate stood at 3.6 percent, ¼ percentage point lower
than its level in December 2018 and its lowest level
since 1969. In addition, the unemployment rate is
½ percentage point below the median of Federal
Open Market Committee (FOMC) participants’ estimates of its longer-run normal level.2
In May, the labor force participation rate (LFPR) for
individuals 16 and over—that is, the share of the
population either working or actively seeking work—
was 62.8 percent, and it has changed little, on net,
since late 2013. The aging of the population is an
important contributor to an underlying downward
trend in the overall participation rate. In particular,
members of the baby-boom cohort are increasingly
moving into their retirement years, ages when labor
force participation typically falls. The flat trajectory
in the overall LFPR is therefore consistent with
strengthening labor market conditions; indeed, the
LFPR for prime-age individuals (between 25 and
54 years old), which is much less sensitive to the
effects of population aging, has been rising over the
past few years. Combining both the unemployment
rate and the LFPR, the employment-to-population
ratio (EPOP) for individuals 16 and over—the share
of that segment of the population who are working—was 60.6 percent in May and has been gradually
increasing throughout the expansion. The increase
has been considerably larger for those with at least
some college education than for those with no more
than a high school diploma. (The box “How Have
Lower-Educated Workers Fared since the Great
Recession?”on pages 8–9 of the July 2019 Monetary
Policy Report discusses movements in the EPOP by
educational level over the current expansion.)
Other indicators are also consistent with strong labor
market conditions. As reported in the Job Openings
and Labor Turnover Survey (JOLTS), the average of
the private-sector job openings rate over the first four
months of the year was near its historical high, consistent with surveys indicating that businesses see
vacancies as hard to fill. Similarly, the quits rate in
the JOLTS is also near the top of its historical range,
an indication that workers are being bid away from
their current jobs or have become more confident

estimates, as the difference between monthly payroll gains and
employment changes from the Current Population Survey (the
source of the unemployment and participation rates) can be
quite volatile over short periods.
See the most recent economic projections that were released
after the June FOMC meeting in Part 3 of the July 2019 Monetary Policy Report.

Monetary Policy and Economic Developments

that they can successfully switch jobs if they wish to.
This interpretation accords well with surveys of consumers that indicate households perceive jobs as
plentiful. The JOLTS layoff rate and the number of
people filing initial claims for unemployment insurance benefits have both remained quite low.
. . . and unemployment rates have fallen for all
major demographic groups over the past several
years

Differences in unemployment rates across ethnic and
racial groups have narrowed in recent years, as they
typically do during economic expansions, after having widened during the recession. However, unemployment rates for African Americans and Hispanics
remain substantially above those for whites and
Asians. The rise in LFPRs for prime-age individuals
over the past few years has also been apparent in
each of these racial and ethnic groups.
Increases in labor compensation have picked up
but remain moderate by historical standards . . .

Despite strong labor market conditions, the available
indicators generally suggest that increases in hourly
labor compensation have remained moderate. The
employment cost index—a measure of both wages
and the cost to employers of providing benefits—was
2¾ percent higher in March of 2019 relative to its
year-earlier level. Compensation per hour in the business sector—a broad-based but volatile measure of
wages, salaries, and benefits—rose 1½ percent over
the four quarters ending in 2019:Q1, less than the
annual increases over the preceding couple of years.
Among measures that do not account for benefits,
average hourly earnings rose 3.1 percent in May relative to 12 months earlier, a slightly faster rate of
increase than during the same period of a year ago.
According to the Federal Reserve Bank of Atlanta,
the median 12-month wage growth of individuals
reporting to the Current Population Survey increased
about 3¾ percent in May, near the upper portion of
its range over the past couple of years.3
. . . and likely have been restrained by slow
growth in labor productivity over much of the
expansion

The Atlanta Fed’s measure differs from others in that it measures the wage growth only of workers who were employed both
in the current survey month and 12 months earlier.

more than 1 percent per year, on average, well below
the average pace from 1996 to 2007 of nearly 3 percent and also below the average gain in the 1974–95
period. Although considerable debate remains about
the reasons for the slowdown in productivity growth
over this period, the weakness may be partly attributable to the sharp pullback in capital investment during the most recent recession and the relatively slow
recovery that followed. More recently, however, labor
productivity rose 1¾ percent in 2018 and picked up
further in the first quarter of 2019.4 While it is uncertain whether this faster rate of growth will persist, a
sustained pickup in productivity growth, as well as
additional labor market strengthening, would support stronger gains in labor compensation.
Price inflation has dipped below 2 percent this year

Consumer price inflation has moved down below the
FOMC’s objective of 2 percent this year.5 As measured by the 12-month change in the price index for
personal consumption expenditures (PCE), inflation
is estimated to have been 1.5 percent in May after
being at or above 2 percent for much of 2018. Core
PCE inflation—which excludes consumer food and
energy prices that are often quite volatile, and which
therefore typically provides a better indication than
the total measure of where overall inflation will be in
the future—also moved lower in recent months and is
estimated to have been 1.6 percent over the
12 months ending in May. The slowing in core inflation to date reflects particularly low readings in the
first three months of the year that appear due to
idiosyncratic price declines in a number of specific
categories such as apparel, used cars, and banking
services and portfolio management services. Indeed,
in April and May, core inflation accelerated, posting
larger average monthly gains than in the first quarter.
The trimmed mean PCE price index, produced by the
Federal Reserve Bank of Dallas, provides an alternative way to purge inflation of transitory influences,
and it is less sensitive than the core index to idiosyncratic price movements such as those noted earlier.6
4

In the first quarter, labor productivity surged 3½ percent at an
annual rate, bringing the four-quarter change to 2½ percent,
reflecting a strong pickup in business-sector output and unusual
weakness in hours relative to measured gains in payroll employment. This weakness is attributable to a steep decline in a volatile component of hours that is not directly measured in the
Bureau of Labor Statistics’ establishment survey.
The increases in tariffs on imported goods last year likely provided only a small boost to inflation in 2018 and in the first half
of this year.
The trimmed mean index excludes whichever prices showed the
largest increases or decreases in a given month. Note that, since

106th Annual Report | 2019

The 12-month change in this measure was 2 percent
in May.

. . . while market-based measures of inflation
compensation have come down since the first
half of 2018

Oil prices rebounded through the spring but have
moved down recently . . .

Inflation expectations can also be gauged by marketbased measures of inflation compensation. However,
the inference is not straightforward, because marketbased measures can be importantly affected by
changes in premiums that provide compensation for
bearing inflation and liquidity risks. Measures of
longer-term inflation compensation—derived either
from differences between yields on nominal Treasury
securities and those on comparable-maturity Treasury Inflation-Protected Securities (TIPS) or from
inflation swaps—tend to fall when markets are volatile because of the incorporation of liquidity risks.
Such declines occurred around the turn of the year
and again in May and June, when market volatility
picked up again. Despite the fluctuations this year,
these measures of inflation compensation remain
notably below levels that prevailed in the summer of
2018.8 The TIPS-based measure of 5-to-10-yearforward inflation compensation and the analogous
measure from inflation swaps are now about 1¾ percent and 2 percent, respectively, with both measures
below their respective ranges that prevailed for most
of the 10 years before the start of the notable
declines in mid-2014.9

After dropping sharply late last year, the Brent price
of crude oil moved up to almost $75 per barrel in
mid-April, partly reflecting declines in production in
Iran and Venezuela and voluntary supply cuts by
other OPEC members and partner countries. More
recently, however, prices have fallen back to around
$65 per barrel because of concerns about global
growth. The changes in oil prices have contributed to
similar movements in retail gasoline prices, which
rose through early spring but have also fallen back
recently.
. . . and prices of imports other than energy fell

Nonfuel import prices, before accounting for the
effects of tariffs on the price of imported goods, have
continued to decline from their mid-2018 peak,
responding to dollar appreciation, lower foreign
inflation, and declines in non-oil commodity prices.7
In particular, prices of industrial metals have fallen in
recent months, partly on concerns about weak global
demand.
Survey-based measures of inflation expectations
have been stable . . .

Expectations of inflation likely influence actual inflation by affecting wage- and price-setting decisions.
Survey-based measures of inflation expectations at
medium- and longer-term horizons have remained
generally stable over the past year. In the Survey of
Professional Forecasters, conducted by the Federal
Reserve Bank of Philadelphia, the median expectation for the annual rate of increase in the PCE price
index over the next 10 years has been very close to
2 percent for the past several years. In the University
of Michigan Surveys of Consumers, the median
value for inflation expectations over the next 5 to
10 years has fluctuated around 2½ percent since the
end of 2016, though this level is about ¼ percentage
point lower than had prevailed through 2014. In the
Survey of Consumer Expectations, conducted by the
Federal Reserve Bank of New York, the median of
respondents’ expected inflation rate three years hence
has fluctuated between 2½ percent and 3 percent
over the past five years.

1995, changes in the trimmed mean index have averaged about
0.3 percentage point above core PCE inflation and 0.2 percentage point above total PCE inflation.
Published import price indexes exclude tariffs. However, tariffs
add to the prices that purchasers of imports actually pay.

Real gross domestic product growth was strong
in the first quarter, but there are recent signs of
slowing

Real gross domestic product (GDP) rose at an annual
rate of 3 percent in 2018. In the first quarter, real
GDP again moved up at an annual rate of around
3 percent. However, there are indications that growth
will moderate in the second quarter.10 Net exports
8

Inflation compensation implied by the TIPS breakeven inflation
rate is based on the difference, at comparable maturities,
between yields on nominal Treasury securities and yields on
TIPS, which are indexed to the total consumer price index
(CPI). Inflation swaps are contracts in which one party makes
payments of certain fixed nominal amounts in exchange for cash
flows that are indexed to cumulative CPI inflation over some
horizon. Inflation compensation derived from inflation swaps
typically exceeds TIPS-based compensation, but week-to-week
movements in the two measures are highly correlated.
As these measures are based on the CPI inflation index, one
should probably subtract about ¼ percentage point—the average differential with PCE inflation and CPI inflation over the
past two decades—to infer inflation compensation on a PCE
price basis.
It is worth noting that gross domestic income (GDI) has been
notably weaker than GDP. GDI is reported to have risen only
1.7 percent in the first quarter relative to the same period of a
year ago, 1½ percentage points less than measured GDP
growth. GDP and GDI measure the same economic concept,
and any difference between the two figures reflects measurement
error.

Monetary Policy and Economic Developments

and business inventories provided a sizable boost to
first-quarter GDP growth, but their contributions
appear to have reversed in the months following.
Notably, private domestic final purchases—that is,
final purchases by households and businesses, which
tend to provide a better indication of future GDP
growth than most other components of overall
spending—posted only a modest increase in the first
quarter. The slowing that occurred in consumer
spending appears to have been temporary, but the
slowing in business fixed investment appears to be
more persistent. Manufacturing output fell in the
first quarter, and it moved down further in April
before posting a small gain in May. Although lower
production levels of motor vehicles and aircraft were
important contributors to the weakness, the recent
declines in manufacturing were broad based.11 Nevertheless, the economic expansion continues to be
abetted by steady job gains, increases in household
wealth, expansionary fiscal policy, and stillsupportive domestic financial conditions, including
moderate borrowing costs and easy access to credit
for many households and businesses.
Growth in business fixed investment has
softened after strong gains in 2018

Investment spending by businesses rose rapidly in
2018 but appears to have decelerated sharply this
year. In the first quarter, growth slowed to an annual
rate of 4½ percent, while new orders for nondefense
capital goods, excluding the volatile aircraft category,
have declined modestly, on balance, in recent months.
In addition, forward-looking indicators of business
spending such as capital spending plans have deteriorated amid downbeat business sentiment and profit
expectations from industry analysts, reportedly
reflecting trade tensions and concerns about global
growth.

sumers’ perceptions of homebuying conditions and
housing affordability have improved, which is consistent with the declines in mortgage rates this year and
the slowing in growth of home prices.
Ongoing improvements in the labor market and
gains in wealth continue to support household
income and consumer spending . . .

After increasing at a moderate pace of 2½ percent in
2018 as a whole, real consumer spending slowed considerably in the first quarter. However, incoming data
suggest that consumer spending picked up in recent
months, with PCE in May up at an annual rate of
2½ percent relative to the average level in the fourth
quarter.
Real disposable personal income (DPI), a measure of
households’ after-tax purchasing power, increased at
a solid annual rate of 3 percent in 2018; however, so
far this year, growth in real DPI has been more moderate despite strong gains in wage and salary income.
With consumer spending rising more than disposable
income so far this year, the personal saving rate
moved down from an average of 6½ percent in the
fourth quarter to around 6 percent in May.
Ongoing gains in household wealth have likely continued to support consumer spending. House prices,
which are of particular importance for the balance
sheet positions of a large portion of households, continued to increase through May, although at a more
moderate pace than in recent years. In addition, U.S.
equity prices, which fell sharply at the end of 2018,
have rebounded this year. Buoyed by increases in
home and equity prices, aggregate household net
worth moved up to 6.8 times household income in
the first quarter.
. . . and consumer sentiment remains strong

By contrast, activity in the housing sector had
been declining but recently shows signs of
stabilizing

Residential investment fell in 2018 and declined further in the first quarter. More recently, the pace of
construction activity appears to have stabilized as
housing starts for single-family and multifamily
housing units rose, on average, in April and May.
Existing home sales moved higher as well over the
same period, while new home sales moved down a bit
following a sizable increase in the first quarter. Con11

Recently, a large aircraft manufacturer slowed its production
and temporarily halted deliveries of an aircraft model. This production slowdown lowers manufacturing output and generates a
small drag on real GDP growth in the first half of the year.

Consumers have remained upbeat. Although the
Michigan index of consumer sentiment dipped at the
turn of the year, it has since rallied, and the sentiment measure from the Conference Board survey
also climbed in the second quarter from its firstquarter level. In June, both the Michigan and the
Conference Board indexes of consumer sentiment
were about in the middle of their ranges over the past
few years.
Borrowing conditions for households remain
generally favorable . . .

Despite increases in interest rates for consumer loans
and some reported further tightening in credit card
lending standards, financing conditions for consum-

106th Annual Report | 2019

ers largely remain supportive of growth in household
spending. Consumer credit expanded at a moderate
pace in the first quarter, rising faster than disposable
income. Mortgage credit has continued to be readily
available for households with solid credit profiles but
remains noticeably tighter than before the most
recent recession for borrowers with low credit scores.
Standards for automotive loans have been generally
stable, and overall delinquency rates for these loans
were little changed in the first quarter at a moderate
level. Financing conditions in the student loan market remain firm, with over 90 percent of such credit
being extended by the federal government. After
peaking in 2013, delinquencies on such loans have
been gradually declining, reflecting in part the continued improvements in the labor market.
. . . while corporate financing conditions
tightened somewhat relative to last year but
remained accommodative overall

Aggregate flows of credit to large nonfinancial firms
remained strong in the first quarter, supported in
part by relatively low interest rates and accommodative financing conditions. The gross issuance of corporate bonds, which had fallen substantially in
December, rebounded in the first quarter as market
volatility receded. After increasing notably in late
2018, spreads on both investment- and speculativegrade corporate bonds over comparable-maturity
Treasury securities have both declined, on net, this
year as investors’ risk appetite seems to have recovered. In April, respondents to the Senior Loan Officer Opinion Survey on Bank Lending Practices, or
SLOOS, reported that demand for commercial and
industrial loans weakened in the first quarter even as
lending standards remained unchanged and terms for
such loans eased.12 However, banks reported tightening lending standards on all categories of commercial
real estate loans. Meanwhile, financing conditions for
small businesses have remained generally accommodative, but credit growth has been subdued.
Net exports supported GDP growth in the first
quarter

After being a small drag on U.S. real GDP growth
last year, net exports, which can have sizable swings
from quarter to quarter, added about 1 percentage
point to the rate of growth in the first quarter. Real
U.S. exports increased at an annual rate of about
5½ percent, as exports of agricultural products and
automobiles expanded robustly. Real imports fell
12

The SLOOS is available on the Board’s website at https://www
.federalreserve.gov/data/sloos/sloos.htm.

2 percent following solid increases in 2018. Nominal
goods trade data through May suggest that exports
edged down in the second quarter, while imports
were about flat. The available data suggest that the
trade deficit and the current account in the first half
of the year were little changed as a percent of GDP
from 2018.
Federal fiscal policy actions boosted economic
growth in 2018 but had a smaller effect on
first-quarter real GDP because of the partial
government shutdown . . .

Fiscal policy at the federal level boosted GDP growth
in 2018 because of lower personal and business
income taxes from the Tax Cuts and Jobs Act of
2017 and because of an increase in federal purchases
due to the Bipartisan Budget Act of 2018.13 After
increasing 2¾ percent in 2018, federal government
purchases were flat in the first quarter of 2019,
reflecting the effects of the partial federal government
shutdown. The government shutdown, which was in
effect from December 22 through January 25, held
down GDP growth in the first quarter, largely
because of the lost work of furloughed federal government workers and affected federal contractors.
That said, federal purchases are expected to rebound
in the second quarter.
The federal unified budget deficit widened in fiscal
year 2018 to around 4 percent of nominal GDP from
3½ percent of GDP in 2017 because receipts moved
lower, to 16 percent of GDP. Expenditures are currently around 21 percent of GDP, slightly above the
level that prevailed in the decade before the start of
the 2007–09 recession. The ratio of federal debt held
by the public to nominal GDP rose to around 77 percent in fiscal 2018 and was quite elevated relative to
historical norms. The Congressional Budget Office
projects that this ratio will rise further over the next
several years.
. . . and the fiscal position of most state and local
governments is stable

The fiscal position of most state and local governments is stable, although there is a range of experiences across these governments. The revenue of state
governments has grown moderately in recent quarters, as the economic expansion continues to push up
income and sales tax collections. At the local level,
13

The Joint Committee on Taxation estimated that the Tax Cuts
and Jobs Act would reduce average annual tax revenue by a little
more than 1 percent of GDP starting in 2018 and for several
years thereafter. This revenue estimate does not account for the
potential macroeconomic effects of the legislation.

Monetary Policy and Economic Developments

property tax collections continue to rise, pushed
higher by past house price gains. Real state and local
government purchases grew modestly last year; however, outlays have surged so far this year, driven
largely by a boost in construction spending. State
and local infrastructure spending was weak for many
years, and there appears to be demand for higher
expenditures in this area. State and local government
payrolls expanded slowly last year and over the first
five months of 2019, and employment by these governments remains below its peak before the current
expansion.
Financial Developments
The expected path of the federal funds rate over
the next several years has moved down

The nominal Treasury yield curve has moved
down and continued to flatten

Since the end of 2018, the nominal Treasury yield
curve shifted down and flattened further, with the 2-,
5-, and 10-year nominal Treasury yields all declining
about 70 basis points on net. The decrease in Treasury yields, which is consistent with the revision in
market participants’ expectations for the path of
policy rates, largely reflects FOMC communications
as well as investors’ concerns about the global economic outlook and the escalation of trade disputes.
Option-implied volatility on swap rates—an indicator
of uncertainty about Treasury yields—has increased
notably, on net, since the beginning of the year. In
particular, measures of near-term interest rate uncertainty have reached the levels seen at the end of 2018.

Market-based measures of the expected path for the
federal funds rate over the next several years have
declined substantially since the end of 2018. Various
factors contributed to this shift, including increased
investor concerns about downside risks to the global
economic outlook and rising trade tensions. In addition, investors reportedly interpreted FOMC communications over the first half of 2019 as signaling
the Federal Reserve is likely to lower the target range
for the federal funds rate in light of muted inflation
pressures and uncertainties about the global economic outlook.

Yields on 30-year agency mortgage-backed securities
(MBS)—an important factor influencing mortgage
interest rates—decreased in line with the decline in
the 10-year nominal Treasury yield and remained low
by historical standards. Likewise, yields on both
investment-grade and high-yield corporate debt
declined significantly from the levels in late 2018 and
stayed very low. Despite widening in May, the
spreads on corporate bond yields over comparablematurity Treasury yields have narrowed, on net, over
the first half of 2019 and are close to their historical
medians.

Survey-based measures of the expected path of the
policy rate also shifted down relative to the levels
observed at the end of 2018. According to the results
of the most recent Survey of Primary Dealers and
Survey of Market Participants, both conducted by
the Federal Reserve Bank of New York just before
the June FOMC meeting, the median of respondents’
modal projections implies a declining trajectory for
the target range of the federal funds rate for 2019,
which flattens out in 2020. Relative to the December
survey, the median of these projections moved down
50 basis points for July 2019 and 100 basis points for
December 2019.14 Additionally, market-based measures of uncertainty about the policy rate approximately one to two years ahead increased, on balance,
from their levels at the end of last December.

Broad equity price indexes increased on net

After declining sharply at the end of 2018, broad
U.S. stock market indexes have recovered, on net,
over the first half of 2019. The broad rebound in
stock prices—which included all major economic sectors—was reportedly supported by Federal Reserve
communications that were perceived as more accommodative than previously anticipated. Stocks fluctuated in May and June as downside risks and trade
tensions were offset by further expectations of easier
monetary policy.
Measures of implied and realized stock price volatility for the S&P 500 index declined notably on net.
Following the highs seen at the end of 2018, these
volatility measures declined until late April, with the
VIX—a measure of implied volatility—returning to
near the 10th percentile of its historical distribution
and with realized volatility close to the 30th percentile of its historical range. At the beginning of May,
following the escalation of trade tensions, these volatility measures increased and have remained elevated
since then, but they have stayed well below the high
levels of December and now stand close to their his-

106th Annual Report | 2019

torical medians. Several measures of financial conditions that aggregate large sets of financial data into
summary indexes eased considerably since the end of
2018 but have tightened a bit since the beginning of
May, in line with the decline in stock prices over that
month, and have remained relatively elevated since
then. (For a discussion of financial stability issues,
see the box “Developments Related to Financial Stability” on pages 24–25 of the July 2019 Monetary
Policy Report.)
Markets for Treasury securities,
mortgage-backed securities, and municipal
bonds have functioned well

Available indicators of Treasury market functioning
have generally remained stable since the beginning of
2019, with a variety of measures—including bid-ask
spreads, bid sizes, and estimates of transaction
costs—displaying few signs of liquidity pressures.
Liquidity conditions in the agency MBS market were
also generally stable. Credit conditions in municipal
bond markets remained stable as well, with yield
spreads on 20-year general obligation municipal
bonds over comparable-maturity Treasury securities
declining somewhat on net.
Money market rates were little changed

Rates across money markets were little changed, on
balance, in the first half of 2019. Conditions in
domestic short-term funding markets continued to be
broadly stable since the end of 2018. Overnight
secured and unsecured rates declined in line with the
technical adjustment announced after the May
FOMC meeting, which lowered the interests paid on
required and excess reserve balances by 5 basis
points. Other short-term interest rates, including
those on commercial paper and negotiable certificates of deposit, were also little changed since the
beginning of the year.
Bank credit continued to expand, and bank
profitability remained robust

Credit provided by commercial banks to fund businesses as well as commercial and residential real
estate continued to grow in 2019, albeit at a slower
pace than in the second half of 2018. By contrast,
consumer loan growth accelerated since the beginning of the year. In the first quarter of 2019, the pace
of total bank credit expansion was about in line with
that of nominal GDP, leaving the ratio of total commercial bank credit to current-dollar GDP little
changed relative to last December. Overall, measures
of bank profitability remained solid in the first quar-

ter of 2019, supported by wider net interest margins
and steady loan growth.
International Developments
Advanced foreign economies have been slowly
emerging from the recent soft patch

After a significant slowdown in the second half of
last year, growth picked up in many advanced foreign
economies (AFEs) at the start of 2019, but at a still
restrained pace. Notwithstanding continued weakness in the manufacturing sector and softening external demand, domestic demand in the AFEs generally
improved amid rising employment and wages as well
as easier financial conditions. The pickup in growth
also reflected temporary factors. Economic activity in
the euro area was boosted by the fading effects of car
production disruptions in Germany and protests in
France in 2018. Growth in the United Kingdom
surged as expectations of trade disruptions surrounding the original date of the United Kingdom’s exit
from the European Union, or Brexit, led to stockpiling by households and firms. Economic activity in
Canada, by contrast, remained depressed by oil production cuts, but recent indicators point to a rebound
in growth in the second quarter.
Core inflation remained low in advanced foreign
economies

The rebound in energy prices earlier in the year
pushed up consumer price inflation in many AFEs.
However, despite further improvement in labor market conditions, inflationary pressures remained contained, with core inflation readings notably muted in
the euro area and Japan. In Canada and the United
Kingdom, by contrast, core inflation rates moved
close to 2 percent.
AFE central banks took a more accommodative
policy stance

With activity only slowly picking up and core inflation persistently low, European Central Bank (ECB)
communications took a more accommodative tone.
In March, the ECB indicated that it would keep its
policy rate in negative territory through at least the
middle of next year and rolled out a new round of
loans for euro-area banks to reduce the risk of
renewed funding pressures. In June, ECB President
Mario Draghi added that the ECB would introduce
new stimulus measures if the economic outlook did
not improve. The Bank of Canada and Bank of England signaled more-gradual increases in interest rates,
given a moderation in the pace of global economic
activity. The Reserve Bank of Australia in June and

Monetary Policy and Economic Developments

July cut its policy rate in response to below-target
inflation and weak economic growth.
Central banks’ more accommodative policy
stances supported AFE asset prices

The more accommodative policy stance in major
AFEs contributed to an overall easing of financial
conditions in the first half of the year. Marketimplied paths of policy rates and long-term interest
rates on sovereign bonds have generally fallen
sharply, as in the United States. Broad stock market
indexes across AFEs are up, on net, since January.
However, concerns about global growth and rising
trade tensions weighed on risky asset prices over the
course of May and June. Sovereign bond spreads in
Italy fluctuated amid uncertainty about the country’s
fiscal outlook.
Economic activity in emerging Asia struggled to
gain a solid footing

In China, real GDP growth picked up in the first
quarter, supported in part by fiscal and monetary
policy measures that targeted smaller businesses and
infrastructure spending, as well as by the more favorable financial conditions amid investor optimism on
a U.S.–China trade deal. Recent activity indicators,
however, suggest that the underlying momentum in
the economy remains relatively subdued against the
backdrop of reemerging trade tensions, global weakness in trade and manufacturing, and the Chinese
authorities’ continued caution about providing substantial further credit stimulus. Amid moderating
global trade and activity, real GDP growth in other
Asian economies in the first quarter generally
remained below their 2018 pace, with growth in
Korea turning negative (see the box “The Persistent
Slowdown in Global Trade and Manufacturing” on
pages 30–31 of the July 2019 Monetary Policy
Report).
Latin American economies continued to
underperform

In Mexico, real GDP contracted in the first quarter
following generally weak performance in the past two
years. Tighter fiscal policy and disruptions from
labor unrest weighed on activity amid a backdrop of
softening U.S. manufacturing demand and persistent
declines in petroleum production. Recent indicators
suggest some improvement in the second quarter,
although uncertainty regarding trade relations with
the United States appears to have increased. In Brazil, real GDP also contracted in the first quarter, as a
mining disaster and ongoing weakness in the Argentine economy weighed on Brazilian economic activ-

ity. Investment continued to decline, held down by
uncertainty over whether Brazil’s government would
enact major fiscal and other economic reforms.
Financial conditions in many emerging market
economies improved, on net, despite the
reemergence of trade tensions

Financial conditions in many emerging market
economies (EMEs) eased earlier in the year in
response to the more accommodative policy stance of
the Federal Reserve and major AFE central banks.
However, in recent months, political uncertainties in
some EMEs and renewed trade tensions between the
United States and major trading partners have
weighed on EME asset prices. On net, broad measures of EME sovereign bond spreads over U.S. Treasury rates are down a little, while benchmark EME
equity indexes are a bit higher since the beginning of
the year. Flows to dedicated EME mutual funds
increased earlier in the year but turned negative in
the second quarter. While deteriorations in asset
prices and capital flows have been sizable for some
economies, particularly Turkey and Argentina, broad
indicators of financial stress in EMEs are below
those seen during other periods of significant stress
in recent years.
The dollar depreciated a little

Over the first half of the year, the foreign exchange
value of the U.S. dollar fluctuated but was, on net, a
little lower. Increased investor optimism about prospects for trade negotiations early this year as well as
downward-revised expectations for U.S. interest rates
led to a depreciation of the dollar. But the more
accommodative tone of communications from major
foreign central banks and safe-haven flows—in part
in response to trade tensions and concerns about
global growth—helped push the dollar up. In addition, the Chinese renminbi has come under some
downward pressure since trade tensions escalated in
recent months.

Part 2: Monetary Policy
The FOMC maintained its target range for the
federal funds rate

From late 2015 through the end of 2018, the Federal
Open Market Committee (FOMC) gradually
increased its target range for the federal funds rate as
the economy continued to make progress toward the
Committee’s congressionally mandated objectives of
maximum employment and price stability. In its
meetings over the first half of 2019, the Committee
judged that the stance of monetary policy was appro-

106th Annual Report | 2019

priate to achieve its dual mandate, and it decided to
maintain the target range for the federal funds rate at
2¼ to 2½ percent. These decisions reflected incoming
information showing the solid fundamentals of the
U.S. economy supporting continued growth and
strong employment.

mum employment and symmetric 2 percent inflation.
This assessment will take into account a wide range
of information, including measures of labor market
conditions, indicators of inflation pressures and
inflation expectations, and readings on financial and
international developments.

Looking ahead, the FOMC will act as appropriate
to sustain the expansion, with a strong labor
market and inflation near its 2 percent objective

In addition to weighing a wide range of economic
and financial data and information received from
business contacts and other informed parties around
the country, policymakers regularly consult prescriptions for the interest rate arising from various monetary policy rules. These rule prescriptions can serve
as useful guidelines to the FOMC in the course of
arriving at its policy decisions. Nonetheless, numerous practical considerations make clear that the
FOMC cannot mechanically set the policy rate by
following the prescriptions of any specific rule. The
FOMC’s framework for conducting monetary policy
involves a systematic approach in keeping with key
principles of good monetary policy but allows for
more flexibility than is implied by simple policy rules
(see the box “Monetary Policy Rules and Their
Interactions with the Economy” on pages 37–41 of
the July 2019 Monetary Policy Report).

At its meetings since the beginning of the year, the
Committee stated that it continued to view a sustained expansion of economic activity, strong labor
market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely
outcomes.
At the June meeting, however, the Committee noted
that uncertainties about the outlook had increased.15
Since the beginning of May, the tenor of incoming
information on economic activity, on balance, has
become somewhat more downbeat, and uncertainties
about the economic outlook have increased. Growth
indicators from around the world have disappointed,
on net, raising concerns about the strength of the
global economy. Meanwhile, contacts in business and
agriculture have reported heightened concerns over
trade developments. In light of these uncertainties
and muted inflation pressures, the Committee indicated that it will act as appropriate to sustain the
expansion, with a strong labor market and inflation
near its objective. The Committee is firmly committed to its symmetric 2 percent inflation objective. In
the Committee’s economic projections released after
the June meeting, participants generally revised down
their individual assessments of the appropriate path
for the policy rate from their assessments at the time
of the March meeting (see Part 3 of the July 2019
Monetary Policy Report for more details).
Future changes in the federal funds rate will
depend on the economic outlook and risks to the
outlook as informed by incoming data

See the FOMC statement issued after the June meeting, which is
available on the Monetary Policy portion of the Board’s website
at https://www.federalreserve.gov/monetarypolicy.htm.

Since the beginning of the year, the FOMC has
issued two statements regarding monetary policy
implementation and balance sheet normalization

At its January meeting, the Committee indicated that
it intends to continue to implement monetary policy
in a regime in which the provision of an ample supply of reserves ensures that control over the level of
the federal funds rate and other short-term interest
rates is exercised primarily through the setting of the
Federal Reserve’s administered rates, and in which
active management of the supply of reserves is not
required.16 After the March FOMC meeting, the
Committee issued a statement indicating that it plans
to conclude the reduction of the Federal Reserve’s
securities holdings at the end of September.17 (The
box “Framework for Monetary Policy Implementation
and Normalization of the Federal Reserve’s Balance
Sheet” on pages 42–43 of the July 2019 Monetary
Policy Report details the recent decision about policy
implementation and balance sheet normalization.)

See the Statement Regarding Monetary Policy Implementation
and Balance Sheet Normalization, which is available on the
Board’s website at https://www.federalreserve.gov/
monetarypolicy/policy-normalization.htm.
See the Balance Sheet Normalization Principles and Plans,
which can be found on the Board’s website at https://www
.federalreserve.gov/monetarypolicy/policy-normalization.htm.

Monetary Policy and Economic Developments

The Committee is prepared to adjust the details for
completing balance sheet normalization in light of
economic and financial developments, consistent
with its congressionally mandated objectives of
maximum employment and price stability.
The Federal Reserve’s total assets have continued to
decline from about $4.1 trillion last December to
about $3.8 trillion at present, with holdings of Treasury securities at approximately $2.1 trillion and holdings of agency debt and agency mortgage-backed
securities at approximately $1.5 trillion.
As the Federal Reserve has continued to gradually
reduce its securities holdings, the level of reserve balances in the banking system has declined. In particular, the level of reserve balances has decreased by
about $150 billion since the end of last year and by
about $1.3 trillion since its peak in 2014.18
Meanwhile, interest income on the Federal Reserve’s
securities holdings has continued to result in sizable
remittances to the U.S. Treasury. Preliminary data
indicate that the Federal Reserve remitted about
$27 billion in the first half of 2019.
The Federal Reserve’s implementation of
monetary policy has continued smoothly

Since the middle of March, the effective federal funds
rate has traded slightly above the interest rate paid on
reserve balances. At the May meeting, the Committee
made a third small technical adjustment to lower the
setting of the interest rate on excess reserves by
18

Since the start of the normalization program, reserve balances
have dropped by approximately $700 billion.

5 basis points to a level 15 basis points below the top
of the target range for the federal funds rate; this
adjustment successfully fostered trading in the federal
funds market at rates well within the FOMC’s target
range. Overall, rates across money markets were
broadly stable since the beginning of 2019, and the
usage of the overnight reverse repurchase agreement
facility has remained low.
The Federal Reserve has started the review of its
strategic framework for monetary policy

With labor market conditions close to maximum
employment and inflation near the Committee’s
2 percent objective, the FOMC judged it an appropriate time for the Federal Reserve to conduct a public
review of its strategic framework for monetary
policy—including the policy strategy, tools, and communication practices. The goal of this assessment is
to identify possible ways to improve the Committee’s
current policy framework in order to ensure that the
Federal Reserve is best positioned going forward to
achieve its statutory mandate of maximum employment and price stability.
The review includes outreach to and consultation
with a broad range of people and groups interested
in the U.S. economy. The Federal Reserve System is
currently conducting a series of Fed Listens events
around the country, typically with a town hall format,
to hear perspectives from representatives of business
and industry, labor leaders, community and economic development officials, academics, nonprofit
organization executives, and others. Policymakers
plan to report their findings to the public during the
first half of 2020.

Financial Stability

A stable financial system promotes economic welfare
through many channels: It facilitates household savings to purchase a home, finance a college education,
and smooth consumption in response to job loss and
other adverse developments; it promotes responsible
risk-taking and economic growth by channeling savings to firms to start new businesses and expand
existing businesses; and it spreads risk across investors.
A financial system is considered stable when financial
institutions—banks, savings and loan associations,
and other financial product and service providers—
and financial markets are able to provide households,
communities, and businesses with the resources, services, and products they need to invest, grow, and
participate in a well-functioning economy. Disruptions to these activities of the financial system have
arisen during, and contributed to, stressed macroeconomic environments. Accordingly, the Federal
Reserve’s objective to promote financial stability
strongly complements the goals of price stability and
full employment. In pursuit of continued financial
stability, the Federal Reserve monitors the potential
buildup of risks to financial stability; uses such analyses to inform Federal Reserve responses, including the
design of stress-test scenarios and decisions regarding
other policy tools such as the countercyclical capital
buffer; works with other domestic agencies directly
and through the Financial Stability Oversight Council (FSOC); and engages with the global community
in monitoring, supervision, and regulation that mitigate the risks and consequences of financial instability domestically and abroad.
Moreover, the Federal Reserve promotes financial
stability through its supervision and regulation of
financial institutions. A central tenet of the Federal
Reserve’s efforts in promoting financial stability is the
adoption of an approach to supervision and regulation that, in addition to a traditional approach
focused on the safety and soundness of individual
institutions, accounts for the stability of the financial
system as a whole. In particular, a supervisory
approach accounting for financial stability concerns

informs the supervision of systemically important
financial institutions (SIFIs), including large bank
holding companies, the U.S. operations of certain
foreign banking organizations, and financial market
utilities (FMUs). In addition, the Federal Reserve
serves as a “consolidated supervisor” of nonbank
financial companies designated by the FSOC as institutions whose distress or failure could pose a threat
to the stability of the U.S. financial system as a whole
(see “Financial Stability Oversight Council Activities” later in this section). Enhanced standards for the
largest, most systemic firms promote the safety of the
overall system and minimize the regulatory burden on
smaller, less systemic institutions.
This section discusses key financial stability activities
undertaken by the Federal Reserve over 2019, which
include monitoring risks to financial stability; promoting a perspective on the supervision and regulation of large, complex financial institutions that
accounts for the potential spillovers from distress at
such institutions to the financial system and broader
economy; and engaging in domestic and international
cooperation and coordination.
Some of these activities are also discussed elsewhere
in this annual report. A broader set of economic and
financial developments are discussed in section 2,
“Monetary Policy and Economic Developments,”
with the discussion that follows concerning surveillance of economic and financial developments
focused on financial stability. The full range of activities associated with supervision of SIFIs, designated
nonbank companies, and designated FMUs is discussed in section 4, “Supervision and Regulation.”

Monitoring Risks to Financial
Stability
Financial institutions are linked together through a
complex set of relationships, and their condition
depends on the economic condition of the nonfinan-

106th Annual Report | 2019

cial sector. In turn, the condition of the nonfinancial
sector hinges on the strength of financial institutions’
balance sheets, as the nonfinancial sector obtains
funding through the financial sector. Monitoring
risks to financial stability is aimed at better understanding these complex linkages and has been an
important part of Federal Reserve efforts in pursuit
of overall economic stability.
A stable financial system, when hit by adverse events,
or “shocks,” is able to continue meeting demands for
financial services from households and businesses,
such as credit provision and payment services. By
contrast, in an unstable system, these same shocks
are likely to have much larger effects, disrupting the
flow of credit and leading to declines in employment
and economic activity.
Consistent with this view of financial stability, the
Federal Reserve Board’s monitoring framework distinguishes between shocks to and vulnerabilities of
the financial system. Shocks, such as sudden changes
to financial or economic conditions, are inherently
hard to predict. Vulnerabilities tend to build up over
time and are the aspects of the financial system that
are most expected to cause widespread problems in
times of stress. Accordingly, the Federal Reserve
maintains a flexible, forward-looking financial stability monitoring program focused on assessing the
financial system’s vulnerabilities to a wide range of
potential adverse shocks.
Each quarter, Federal Reserve Board staff assess a set
of vulnerabilities relevant for financial stability,
including but not limited to asset valuation pressures,
borrowing by businesses and households, leverage in
the financial sector, and funding risk. These monitoring efforts inform discussions concerning policies to
promote financial stability, such as supervision and
regulatory policies as well as monetary policy. They
also inform Federal Reserve interactions with
broader monitoring efforts, such as those by the
FSOC and the Financial Stability Board (FSB).
The Federal Reserve Board published two Financial
Stability Reports in 2019.1 The report, which is published on a semiannual basis, summarizes the Board’s
1

See Board of Governors of the Federal Reserve System (2019),
Financial Stability Report (Washington: Board of Governors,
May), https://www.federalreserve.gov/publications/files/
financial-stability-report-201905.pdf; and Board of Governors
of the Federal Reserve System (2019), Financial Stability Report
(Washington: Board of Governors, November), https://www
.federalreserve.gov/publications/files/financial-stability-report20191115.pdf.

framework for assessing the resilience of the U.S.
financial system and presents the Board’s current
assessment of financial system vulnerabilities. It aims
to promote public understanding about Federal
Reserve views on this topic and thereby increase transparency and accountability. The report complements
the annual report of the FSOC, which is chaired by the
Secretary of the Treasury and includes the Federal
Reserve Chair and other financial regulators.

Asset Valuation Pressures
Overvalued assets are a fundamental source of vulnerability because the unwinding of high prices can
be destabilizing, especially if the assets are widely
held and the values are supported by excessive leverage, maturity transformation, or risk opacity. Moreover, stretched asset valuations are likely to be an
indicator of a broader buildup in risk-taking. Nonetheless, it is very difficult to judge whether an asset
price is overvalued relative to fundamentals. As a
result, the Federal Reserve’s analysis of asset valuation pressures typically includes a broad range of
possible valuation metrics and tracks developments
in areas in which asset prices are rising particularly
rapidly, into which investor flows have been considerable, or where volatility has been at unusually low or
high levels.
Across markets, asset valuations were notable in the
first half of 2019 and then increased to somewhat
elevated levels through December 2019. These developments were supported by the continuing economic
expansion and an apparent increase in investors’
appetite for risk. Among several large asset categories, spreads, risk premiums, and implied volatility
declined and, at the end of 2019, stood at the low
ends of their historical distributions.
Equity prices increased substantially toward the end
of the year, driven primarily by the decline in Treasury yields, positive trade developments, and strong
labor market data. The forward price-to-earnings
ratio of S&P 500 firms increased since midsummer of
2019 and stood quite high relative to its historical distribution (figure 1). Measures of realized and implied
volatility of stock prices moved down since December 2018, lying at the lower ends of their historical
distributions (figure 2). Investor appetite for
corporate bonds was quite strong, with spreads
remaining low despite high levels of corporate leverage. Investment- and speculative-grade spreads narrowed notably and, at the end of 2019, stood in the
lower range of their historical distributions (figure 3).

Financial Stability

Figure 1. Forward price-to-earnings ratio of S&P 500 firms,
1988–2019
29

Monthly

26
23
Dec. 20

Median

1989

1994

1999

2004

2009

2019

2014

Figure 3. Corporate bond spreads, 1997–2019
8

Ratio

Percentage points
Monthly

Percentage points

10-year triple-B
(left scale)
10-year high-yield
(right scale)

6
5

12
10
8

6
Dec.

1998 2001 2004 2007 2010 2013 2016 2019

Note: The data, based on expected earnings for 12 months ahead, extend through
December 2019 and consist of the aggregate forward price-to-earnings ratio of
S&P 500 firms. The shaded bars with top caps indicate periods of business recession as defined by the National Bureau of Economic Research: July 1990–
March 1991, March 2001–November 2001, and December 2007–June 2009.

Note: The data extend through December 2019. The 10-year triple-B reflects the
eﬀective yield of the ICE BofAML 7-to-10-year triple-B U.S. Corporate Index
(C4A4), and the 10-year high-yield reflects the eﬀective yield of the ICE BofAML
7-to-10-year U.S. Cash Pay High Yield Index (J4A0). Treasury yields from
smoothed yield curve estimated from oﬀ-the-run securities.

Source: Federal Reserve Board staff calculations using Refinitiv (formerly Thomson Reuters), IBES Estimates.

Source: ICE Data Indices, LLC, used with permission; Department of the Treasury.

Valuation pressures in the commercial real estate
(CRE) sector were elevated. CRE prices increased
substantially over the past seven years (figure 4).
That said, price-to-rent ratios are moving toward
their long-run trend, and price growth decelerated
toward the end of 2019. Home prices grew moderately, consistent with rents. Farmland prices continued falling from recent historical highs but stayed in
the elevated region.

crises. Highly indebted households and nonfinancial
businesses may be vulnerable to negative shocks to
incomes or asset values and may be forced to curtail
spending, which could amplify the effects of financial
shocks. In turn, losses among households and businesses can lead to mounting losses at financial institutions, creating an adverse feedback loop in which
weaknesses among households, nonfinancial businesses, and financial institutions cause further
declines in income and accelerate financial losses,

Borrowing by Households and Businesses
Excessive borrowing by households and businesses
has been an important contributor to past financial

Figure 4. Commercial real estate price index, 1998−2019
Jan. 2001 = 100

200

Monthly
Equal-weighted
Value-weighted

Figure 2. S&P 500 volatility, 2000–19
Percent

Monthly average

S&P implied volatility (VIX)
Realized volatility

Dec. 30

2004

2007

2010

2013

2016

2019

20
10
0

Note: The data extend through December 2019. Realized volatility is estimated
from five-minute returns using an exponentially weighted moving average with
75 percent of the weight distributed over the past 20 days.
Source: Bloomberg Finance LP.

Dec. 160

140

100
90
80
70
60
50
40

2001

180

120
100
80
60
1998

2001

2004

2007

2010

2013

2016

2019

Note: The data extend through December 2019. The value-weighted series
reflects larger asset sales most common in core markets, while the equalweighted series reflects the more numerous but lower-priced property sales of
secondary and tertiary markets. Both series are deflated using the consumer price
index for all urban consumers less food and energy and are seasonally adjusted
by Board staﬀ. The shaded bars with top caps indicate periods of business recession as defined by the National Bureau of Economic Research: March 2001–
November 2001 and December 2007–June 2009.
Source: CoStar Group, Inc., CoStar Commercial Repeat Sale Indices; Bureau of
Labor Statistics, consumer price index, via Haver Analytics.

106th Annual Report | 2019

potentially leading to financial instability and a sharp
contraction in economic activity.
Vulnerabilities associated with household and business
borrowing remained moderate overall in 2019. However, business debt and household debt, which started
to diverge following the 2007–09 recession, have continued to trend in opposite directions (figure 5). Business
credit continued to grow faster than nominal gross
domestic product (GDP), bringing the businesssector credit-to-GDP ratio to historical highs.
Gross leverage of public firms remained at historically high levels. Leverage is especially high for public
firms with positive debt balances that have a
speculative-grade credit rating or are unrated. Such
firms account for about one-third of nonfinancial
business debt. The overall increase in investor risk
appetite, associated with elevated asset valuations,
did not translate into an acceleration of demand for
risky debt. Net issuance of risky debt at the end of
2019 was below the high levels in previous years—albeit still solid by historical standards (figure 6). Commonly used measures of underwriting standards on
leveraged loans remained weak, as shown by the high
share of deals with debt-to-EBITDA (earnings before
interest, taxes, depreciation, and amortization) ratios
above 6 (figure 7).
Nonetheless, the strong economy and low interest
rates helped sustain a solid credit performance of

Household (left scale)
Quarterly

Billions of dollars

Quarterly

100
80
60
40

20
0
Total
Institutional leveraged loans
High-yield and unrated bonds

2005

2007

2009

2011

2013

2015

2017

2019

-20
-40

Note: The data, which extend through 2019:Q4, are four-quarter moving averages.
Total net issuance of risky debt is the sum of the net issuance of speculativegrade and unrated bonds as well as leveraged loans.
Source: Mergent, Fixed Income Securities Database (FISD); S&P Global, Leveraged
Commentary & Data.

leveraged loans in 2019, with the default rate on such
loans near the low end of its historical range. At the
same time, the favorable credit performance of the
corporate sector was due at least in part to the
strength of overall economic activity, and high leverage could leave some parts of the corporate sector
vulnerable to difficulties should adverse shocks materialize. For instance, in an economic downturn, wide-

Figure 7. Distribution of large institutional leveraged loan
volumes, by debt-to-EBITDA ratio, 2001−19

Figure 5. Credit-to-GDP ratio, 1980−2019
1.1 Ratio

Figure 6. Total net issuance of risky debt, 2005−19

Nonfinancial business (right scale)
Ratio 0.80

1.0

Percent

Annual
Debt multiples ≥ 6x
Debt multiples 5x–5.99x
Debt multiples 4x–4.99x
Debt multiples < 4x

0.75

0.9
Q4

0.8

0.70

160
140
120

0.65

100

0.60

0.55

0.50

0.7
0.6
0.5
0.4
0.3

1983

1989

1995

2001

2007

2013

2019

0.45

Note: The data extend through 2019:Q4. The shaded bars with top caps indicate
periods of business recession as defined by the National Bureau of Economic
Research: January 1980−July 1980, July 1981−November 1982, July 1990−
March 1991, March 2001−November 2001, and December 2007−June 2009.
GDP is gross domestic product.
Source: Federal Reserve Board staﬀ calculations based on Bureau of Economic
Analysis, national income and product accounts, gross domestic product
(table 1.1.5), via Haver Analytics; and on Federal Reserve Board, Statistical
Release Z.1, “Financial Accounts of the United States.”

20
2001

2004

2007

2010

2013

2016

2019

Note: The data, which extend through 2019, are quarterly for that year. Volumes
are for large corporations with earnings before interest, taxes, depreciation, and
amortization (EBITDA) greater than $50 million and exclude existing tranches of
add-ons and amendments as well as restatements with no new money. Key
identifies bar segments in order from top to bottom.
Source: S&P Global, Leveraged Commentary & Data.

Financial Stability

Figure 8. Consumer credit balances, 1999−2019

Figure 9. Common equity Tier 1 ratio, 2001−19

Billions of dollars (real)
Quarterly

1800

Quarterly

Percent of risk-weighted assets

1400

Student loans
Q4

1200
G-SIBs
Large non–G-SIBs
Other BHCs

800
Auto loans

600

2007

2011

2015

2019

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

200

Source: FRBNY Consumer Credit Panel/Equifax; Bureau of Labor Statistics, consumer price index, via Haver Analytics.

In contrast to the business sector, household debt
growth continued to be modest over the past year.
Aggregate borrowing relative to income in the household sector has declined significantly from its 2007
peak, with growth skewed mostly toward households
with strong credit histories.
The composition of household debt has experienced
significant changes over the past 10 years (figure 8).
Credit card debt decreased significantly between 2009
and 2011, and its level in 2019 (in real terms) remains
well below its 2008 peak. By contrast, student and
auto loans have maintained a strong upward trend
during the past 10 years.

Leverage in the Financial System
Vulnerabilities related to financial-sector leverage
appear low, in part because of regulatory reforms
enacted since the financial crisis. Core financial intermediaries, including large banks, insurance companies, and broker-dealers, appear well positioned to
weather economic stress.
2

The box “Vulnerabilities Associated with Elevated Business
Debt” in the May 2019 Financial Stability Report thoroughly
discusses the risks associated with credit rating downgrades. See
the report, pp. 22–25, in note 1.

Note: The data extend through 2019:Q4 and are seasonally adjusted by Board
staff. Before 2014:Q1, the numerator of the common equity Tier 1 ratio is Tier 1
common capital for advanced-approaches bank holding companies (BHCs)
and intermediate holding companies (IHCs) (before 2015:Q1, for non-advancedapproaches BHCs). Afterward, the numerator is common equity Tier 1 capital. For
purposes of this figure, G-SIBs comprise the eight global systemically important
banks that are headquartered in the United States. Large non–G-SIBs comprise
U.S. banking organizations--both BHCs and IHCs—with assets greater than
$100 billion. The denominator is risk-weighted assets. The shaded bars with top
caps indicate periods of business recession as defined by the National Bureau of
Economic Research: March 2001−November 2001 and December 2007−
June 2009.

Note: The data extend through 2019:Q4 and are converted to constant 2019 dollars using the consumer price index; the series for student loans starts in 2005.

spread downgrades of bonds to speculative-grade
ratings could lead investors to sell the downgraded
bonds rapidly, increasing market illiquidity and
downward price pressures in a segment of the corporate bond market known already to exhibit relatively
low liquidity.2

400
2003

10
8

1000
Credit cards

14
12

1600

1999

Source: Federal Reserve Board, Form FR Y-9C, Consolidated Financial Statements
for Holding Companies.

Regulatory capital remained at historically high
levels for large domestic banks. In 2019, the ratio of
common equity Tier 1 capital to risk-weighted assets
stayed around 12 percent, on average, for the eight
U.S. headquartered G-SIBs (global systemically
important banks) and around 10 percent for large
non–G-SIBs—that is, bank holding companies and
intermediate holding companies that have total assets
greater than $100 billion but are not considered
G-SIBs (figure 9). Moreover, the leverage ratio,
which looks at common equity relative to total assets
without adjusting for risk, also remained at levels
substantially above pre-crisis norms. Finally, all 18
firms participating in the Federal Reserve’s supervisory stress tests for 2019 were able to maintain capital
ratios above required minimums to absorb losses
from a severe macroeconomic shock.3
Overall, broker-dealer leverage remained low. Leverage for bank-affiliated dealers fell slightly in the latter
part of the year and stayed at the relatively low levels
reached in the post-crisis period. Measures of hedge
fund leverage remained elevated compared with their
post-crisis levels. The increased use of leverage by
hedge funds exposes their counterparties to risk and
3

The 2019 supervisory stress-test methodology and results are
available on the Board’s website at https://www.federalreserve
.gov/publications/june-2019-executive-summary.htm.

106th Annual Report | 2019

raises the possibility that adverse shocks would result
in forced asset sales that could exacerbate price
declines. That said, hedge funds do not play the same
central role in the financial system as banks or other
institutions.
Leverage among property and casualty insurance
companies is low, while leverage among life insurance
companies is moderate.

Figure 10. Liquid assets held by banks, 2001−19
Percent of assets

Quarterly
G-SIBs
Large non–G-SIBs
Other BHCs

25
20
15
10

Funding Risk

Vulnerabilities associated with funding risk continued to be modest in 2019, in part because of the
post-crisis implementation of liquidity regulations
for banks and the 2016 money market reforms.4 The
stress that emerged in short-term funding markets in
mid-September highlighted the potential for shocks
that can adversely affect the smooth functioning of
these large and systemically important markets.
These developments led to a higher assessment of
vulnerabilities stemming from liquidity and maturity
transformation toward the end of the year, raising
the level of vulnerability from low to moderate.
Banks, securities dealers, money market mutual funds
(also referred to as money market funds, or MMFs),
and other financial market participants lend to and
borrow from each other for short periods, typically
ranging from overnight to two weeks, against highquality collateral. These short-term secured loans are
known as repurchase agreements (repos). The repo
market allows securities dealers to finance their own
inventories of Treasury securities or to finance purchases of Treasury securities by levered investors,
such as hedge funds. Interest rates on these and other
short-term loans among financial institutions spiked
in mid-September, and some rates remained relatively
elevated through early October. The pressures in repo
markets in this particular episode appeared to be
driven by short-lived changes to demand and supply
that occurred against a backdrop of increasing Treasury securities outstanding and declining reserves in
the banking system. The Federal Reserve conducted
a number of operations to keep the federal funds rate
within the target range, relieving pressures in shortterm funding markets.5 That said, these develop4

See Securities and Exchange Commission (2014), “SEC Adopts
Money Market Fund Reform Rules,” press release, July 23,
https://www.sec.gov/news/press-release/2014-143.
These measures included, among others, a repo operation conducted on September 17, a 5 basis point technical adjustment to
the administered interest rates on September 19, and a new
schedule of term and overnight repo operations until the end of

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

Note: Liquid assets are calculated as cash and reserves plus estimates of
securities that qualify as high-quality liquid assets as defined by the Liquidity
Coverage Ratio requirement. Accordingly, Level 1 assets and discounts and
restrictions on Level 2 assets are incorporated into the estimate. For purposes of
this figure, G-SIBs comprise the eight global systemically important banks that are
headquartered in the United States. Large non–G-SIBs comprise U.S. banking
organizations—both bank holding companies (BHCs) and intermediate holding
companies—with assets greater than $100 billion.
Source: Federal Reserve Board, Form FR Y-9C, Consolidated Financial Statements
for Holding Companies.

ments underscored frictions in the intermediation of
credit in short-term money markets, warranting further careful monitoring of vulnerabilities in this segment going forward.
At the same time, many vulnerabilities related to
maturity and liquidity transformation remain
subdued. In total, liquid assets in the banking system
have increased substantially since the financial crisis.
Large banks and G-SIBs, in particular, hold substantial amounts of liquid assets, far exceeding pre-crisis
levels and well above regulatory requirements
(figure 10). Large bank reliance on short-term wholesale funding is low. From this perspective, bank funding was less susceptible to runs at the end of 2019
than in the period leading up to the financial crisis—
further reducing vulnerabilities from liquidity
transformation.
Assets in “prime” MMFs and some alternative shortterm investment vehicles remain low. The same
observation holds true for aggregate measures of
runnable liabilities. MMF reforms implemented in
the quarter on September 20. Furthermore, on October 11, the
Fed announced purchases of Treasury bills through the second
quarter of 2020 and extended its overnight and term repo
operations through at least January 2020; see Board of Governors of the Federal Reserve System (2019), “Statement Regarding Monetary Policy Implementation,” press release, October 11, https://www.federalreserve.gov/newsevents/pressreleases/
monetary20191011a.htm.

Financial Stability

2016 have reduced run risk in the financial system.
The reforms required prime MMFs, which have
proved vulnerable to runs in the past, to use floating
net asset values that adjust with the market prices of
the assets they hold, which resulted in a shift by
investors into government MMFs. A shift in investments toward short-term vehicles that provide alternatives to MMFs and could also be vulnerable to
runs or run-like dynamics would increase risk, but
assets in these alternatives have increased only modestly compared with the drop in prime MMF assets.

Domestic and International
Cooperation and Coordination
The Federal Reserve cooperated and coordinated
with both domestic and international institutions in
2019 to promote financial stability.

Financial Stability Oversight Council
Activities
As mandated by the Dodd-Frank Wall Street Reform
and Consumer Protection Act, the FSOC was created in 2010 and, as noted earlier, is chaired by the
Treasury Secretary and includes the Federal Reserve
Chair as a member (see box 1). It established an institutional framework for identifying and responding to
the sources of systemic risk. Through collaborative
participation in the FSOC, U.S. financial regulators
monitor not only institutions, but also the financial
system as a whole. The Federal Reserve, in conjunction with other participants, assists in monitoring
financial risks, analyzes the implications of those
risks for financial stability, and identifies steps that
can be taken to mitigate those risks. In addition,
when an institution is designated by the FSOC as
systemically important, the Federal Reserve assumes
responsibility for supervising that institution.
In 2019, the Federal Reserve worked, in conjunction
with other FSOC participants, on the following
major initiative:
Nonbank designations guidance. On December 4,
2019, members of the FSOC voted to approve the
final interpretive guidance on nonbank financial
company determinations.6 The guidance describes
the approach that the council intends to take in using
6

See U.S. Department of the Treasury (2019), “Financial Stability Oversight Council Issues Final Guidance on Nonbank Designations,” press release, December 4, https://home.treasury.gov/
news/press-releases/sm844.

Box 1. Regular Reporting on
Financial Stability Oversight Council
Activities
The Federal Reserve cooperated and coordinated
with domestic agencies in 2019 to promote financial stability, including through the activities of the
Financial Stability Oversight Council (FSOC).
Meeting minutes. In 2019, the FSOC met five
times, including at least once a quarter. The minutes for each meeting are available on the U.S.
Treasury website (https://www.treasury.gov/
initiatives/fsoc/council-meetings/Pages/meetingminutes.aspx).
FSOC annual report. On December 4, 2019,
the FSOC released its ninth annual report
(https://home.treasury.gov/system/files/261/
FSOC2019AnnualReport.pdf), which includes a
review of key developments in 2019 and a set of
recommended actions that could be taken to
ensure financial stability and to mitigate systemic
risks that affect the economy.
For more on the FSOC, see https://home.treasury
.gov/policy-issues/financial-markets-financialinstitutions-and-fiscal-service/fsoc.

an activities-based strategy. The key focus of the
guidance is on the council working with relevant
financial regulators to identify products, activities, or
practices that could raise potential risks to financial
stability and to address those risks, leveraging the
expertise of primary financial regulatory agencies.

Financial Stability Board Activities
In light of the interconnected global financial system
and the global activities of large U.S. financial institutions, the Federal Reserve participates in international bodies, such as the FSB. The FSB monitors the
global financial system and promotes financial stability through the development of sound policies that
can be implemented across countries. The Federal
Reserve is a member of the FSB, along with the
Securities and Exchange Commission and the
U.S. Treasury.
In the past year, the FSB has examined several issues,
including monitoring of nonbank financial intermediation, challenges in correspondent banking, the
emergence of so-called global stablecoins, transitioning away from the use of LIBOR (London interbank
offered rate), asset management, fintech (emerging
financial technologies), evaluating the effects of
reforms, and development of effective resolution
regimes for large financial institutions.

Supervision and Regulation

The Federal Reserve promotes a safe, sound, and efficient banking and financial system that supports the
growth and stability of the U.S. economy. The Federal Reserve carries out its supervisory and regulatory
responsibilities and supporting functions primarily by
• supervising the activities of financial institutions to
ensure their safety and soundness;
• developing regulatory policy (rulemakings, supervision and regulation letters, policy statements, and
guidance) and acting on applications filed by banking organizations; and
• monitoring trends in the banking sector by collecting and analyzing data.1

Supervised and Regulated Institutions
For supervisory purposes, the Federal Reserve categorizes institutions it supervises and regulates into
the groups described in table 1. For additional information on the Federal Reserve’s supervisory and
regulatory activities, see box 1.

State Member Banks
At the end of 2019, a total of 1,540 banks (excluding
non-depository trust companies and private banks)
were members of the Federal Reserve System, of
which 754 were state chartered. Federal Reserve
System member banks operated 51,263 branches, and
accounted for 33 percent of all commercial banks in
the United States and 68 percent of all commercial
banking offices. State-chartered commercial banks
that are members of the Federal Reserve, commonly
referred to as state member banks, represented
approximately 16 percent of all insured U.S. commercial banks and held approximately 17 percent of all
insured commercial bank assets in the United States.

Along with the other federal financial regulatory agencies.

Box 1. Banking Sector Conditions
For more information on banking sector conditions,
see the Supervision and Regulation Report, which is
submitted semiannually to the Senate Committee
on Banking, Housing, and Urban Affairs and to the
House Committee on Financial Services. The
reports are available on the Board’s website at
https://www.federalreserve.gov/publications/
supervision-and-regulation-report.htm, and are
delivered concurrently with testimony from the
Federal Reserve Board Vice Chair for Supervision.

Bank Holding Companies
At year-end 2019, a total of 4,124 U.S. bank holding
companies (BHCs) were in operation, of which 3,725
were top-tier BHCs. These organizations controlled
3,827 insured commercial banks and held approximately 94 percent of all insured commercial bank
assets in the United States.
BHCs that meet certain capital, managerial, and
other requirements may elect to become financial
holding companies (FHCs). FHCs can generally
engage in a broader range of financial activities than
other BHCs. As of year-end 2019, a total of
487 domestic BHCs and 44 foreign banking organizations had FHC status. Of the domestic FHCs,
21 had consolidated assets of $100 billion or more;
46 between $10 billion and $100 billion; 156 between
$1 billion and $10 billion; and 264 less than
$1 billion.

Savings and Loan Holding Companies
At year-end 2019, a total of 358 SLHCs were in
operation, of which 187 were top-tier SLHCs. These
SLHCs control 195 depository institutions. Approximately 92 percent of SLHCs engage primarily in
depository activities. These firms hold approximately
19 percent ($346 billion) of the total combined assets
of all SLHCs. The Office of the Comptroller of the
Currency (OCC) is the primary regulator for most of
the subsidiary savings associations of the firms

106th Annual Report | 2019

Table 1. Summary of organizations supervised by the Federal Reserve
Portfolio
Large Institution Supervision
Coordinating Committee (LISCC)

Definition

Number of institutions

Total assets ($ trillions)

Eight U.S. global systemically important banking organizations: Bank of
America, Bank of New York Mellon, Citigroup, Goldman Sachs, JPMorgan
Chase, Morgan Stanley, State Street, and Wells Fargo; four foreign banking
organizations (FBOs) with large and complex U.S. operations: Barclays, Credit
Suisse, Deutsche Bank, and UBS

12.4

SMBs within LISCC organizations

0.8

Non-LISCC firms with total assets $100 billion or more and non-LISCC FBOs

173

8.2

Large banking organizations

Non-LISCC U.S. firms with total assets $100 billion or more

3.6

Large foreign banking
organizations

Non-LISCC FBOs with combined U.S. assets $100 billion or more

3.4

Less complex foreign banking
organizations

FBOs with combined U.S. assets less than $100 billion

143

1.1

State member banks

SMBs within LFBO organizations

0.6

Total assets between $10 billion and $100 billion

2.2

SMBs within RBOs

0.7

3,815*

2.4

702

0.5

8 insurance
4 commercial

1.1

State member banks (SMBs)
Large and foreign banking
organizations (LFBO)

Regional banking organizations
(RBOs)
State member banks
Community banking organizations
(CBO)
State member banks
Insurance and commercial
savings and loan holding
companies (SLHCs)

Total assets less than $10 billion
SMBs within CBOs
SLHCs primarily engaged in insurance or commercial activities

* Includes 3,754 holding companies and 61 state member banks that do not have holding companies.
Source: Call Report, FFIEC 002, FR 2320, FR Y-7Q, FR Y-9C, FR Y-9SP, and S&P Global Market Intelligence.

engaged primarily in depository activities. Fifteen
SLHCs are engaged primarily in nonbanking activities, such as insurance underwriting (8 SLHCs), securities brokerage (3 SLHCs), and commercial activities
(4 SLHCs). The 25 largest SLHCs accounted for
more than $1.7 trillion of total combined assets.

During 2019, the Federal Reserve established the
Insurance Policy Advisory Committee (IPAC), as
required by the Economic Growth, Regulatory
Relief, and Consumer Protection Act of 2018
(EGRRCPA), and held the IPAC inaugural meeting.

Savings and loan holding companies significantly
engaged in insurance activities. At year-end 2019, the
Federal Reserve supervised eight insurance SLHCs
(ISLHCs), with $1.1 trillion in estimated total combined assets, and $166 billion in insured depository
assets. Four of these firms have total assets greater
than $100 billion and for seven of the eight, insured
depository assets represent less than half of total
assets.

Financial Market Utilities

As the consolidated supervisor of ISLHCs, the Federal Reserve evaluates the organization’s riskmanagement practices, the financial condition of the
overall organization, and the impact of the nonbank
activities on the depository institution. The Federal
Reserve relies to the fullest extent possible on the
work of the primary functional regulators, including
the OCC and the state insurance regulators, as part
of the overall supervisory assessment of ISLHCs.

FMUs manage or operate multilateral systems for
the purpose of transferring, clearing, or settling payments, securities, or other financial transactions
among financial institutions or between financial
institutions and the FMU. Under the Federal
Reserve Act, the Federal Reserve supervises FMUs
that are chartered as member banks or Edge Act corporations and coordinates with other federal banking
supervisors to supervise FMUs considered bank service providers under the Bank Service Company Act
(BSCA).
In July 2012, the Financial Stability Oversight Council voted to designate eight FMUs as systemically
important under title VIII of the Dodd-Frank Wall
Street Reform and Consumer Protection Act (DoddFrank Act).

Supervision and Regulation

As a result of these designations, the Board assumed
an expanded set of responsibilities related to these
designated FMUs that includes promoting uniform
risk-management standards, playing an enhanced
role in the supervision of designated FMUs, reducing
systemic risk, and supporting the stability of the
broader financial system. For certain designated
FMUs, the Board established risk-management standards and expectations that are articulated in the
Board’s Regulation HH.
In addition to setting minimum risk-management
standards, Regulation HH establishes requirements
for the advance notice of proposed material changes
to the rules, procedures, or operations of a designated FMU for which the Board is the supervisory
agency under title VIII. Finally, Regulation HH also
establishes minimum conditions and requirements for
a Federal Reserve Bank to establish and maintain an
account for, and provide services to, a designated
FMU.2 Where the Board is not the title VIII Supervisory Agency, the Federal Reserve works closely with
the Securities and Exchange Commission and the
Commodities Futures Trading Commission to promote robust FMU risk management and monitor
systemic risks across the designated FMUs.

International Activities
Foreign operations of U.S. banking organizations. At
the end of 2019, a total of 33 banks were operating
328 branches in foreign countries and overseas areas
of the United States. Fifteen national banks were
operating 266 of these branches, 13 state member
banks were operating 49 of these branches, and 5
nonmember banks were operating the remaining 13.
Edge Act and agreement corporations. At year-end
2019, out of 35 banking organizations chartered as
Edge Act or agreement corporations, 3 operated 6
Edge Act and agreement branches. These corporations are examined annually.
U.S. activities of foreign banks. As of year-end 2019,
a total of 136 foreign banks from 47 countries operated 147 state-licensed branches and agencies, of
which 6 were insured by the Federal Deposit Insurance Corporation (FDIC), and 53 OCC-licensed
branches and agencies, of which 4 were insured by
the FDIC. These foreign banks also owned eight
Edge Act and agreement corporations. In addition,
2

The Federal Reserve Banks maintain accounts for and provide
services to several designated FMUs.

they held a controlling interest in 36 U.S. commercial
banks. Altogether, the U.S. offices of these foreign
banks controlled approximately 19.6 percent of U.S.
commercial banking assets. These 136 foreign banks
also operated 66 representative offices; an additional
36 foreign banks operated in the United States
through a representative office.
The Federal Reserve conducted or participated with
state and federal regulatory authorities in 616 examinations of foreign banks in 2019.

Supervisory Developments
Supervisory and Regulatory Initiatives
The Federal Reserve’s supervision activities include
examinations and inspections to ensure that financial
institutions operate in a safe and sound manner and
comply with laws and regulations. These include
an assessment of a financial institution’s riskmanagement systems, financial conditions, and compliance. For the largest financial institutions, the Federal Reserve maintains a continuous supervisory
presence with dedicated teams of examiners. Smaller
firms are examined periodically. In 2019, the Federal
Reserve conducted 327 examinations of state member banks, 2,794 inspections of bank holding companies, and 154 inspections at savings and loan holding
companies. Tables 2 and 3 provide information on
examinations and inspections conducted by the Federal Reserve during the past five years.
Specialized Examinations
The Federal Reserve conducts specialized examinations of supervised financial institutions in the areas
of capital planning and stress testing; information
technology; fiduciary activities; transfer agent activities; government and municipal securities dealing and
brokering, and cybersecurity and critical infrastructure. The Federal Reserve also conducts specialized
examinations of certain nonbank entities that extend
credit subject to the Board’s margin regulations.
Capital Planning and Stress Testing

Since the 2007–09 financial crisis, the Board has led a
series of initiatives to strengthen the capital planning
practices and positions of the largest banking organizations. The Federal Reserve’s annual Comprehensive
Capital Analysis and Review (CCAR) assesses the
capital adequacy of large banking organizations.
CCAR includes the supervisory and company-run
stress tests that are conducted as a part of the Fed-

106th Annual Report | 2019

Table 2. State member banks and bank holding companies, 2015–19
Entity/item
State member banks
Total number
Total assets (billions of dollars)
Number of examinations
By Federal Reserve System
By state banking agency
Top-tier bank holding companies
Large (assets of more than $1 billion)
Total number
Total assets (billions of dollars)
Number of inspections
By Federal Reserve System1
On site
Off site
By state banking agency
Small (assets of $1 billion or less)
Total number
Total assets (billions of dollars)
Number of inspections
By Federal Reserve System
On site
Off site
By state banking agency
Financial holding companies
Domestic
Foreign
1

2019

2018

2017

2016

2015

754
2,642
554
327
227

794
2,851
563
321
242

815
2,729
643
354
289

829
2,577
663
406
257

839
2,356
698
392
306

631
20,037
805
761
466
295
44

604
19,233
549
533
325
208
16

583
18,762
597
574
394
180
23

569
17,593
659
646
438
208
13

547
16,961
709
669
458
211
40

3,094
870
2,122
2,033
71
1,962
89

3,273
893
2,216
2,132
81
2,051
84

3,448
931
2,318
2,252
101
2,151
66

3,682
914
2,597
2,525
126
2,399
72

3,719
938
2,783
2,709
123
2,586
74

487
44

490
44

492
42

473
42

442
40

For large bank holding companies subject to continuous, risk-focused supervision, includes multiple targeted reviews.

eral Reserve’s Dodd-Frank Act stress tests and a
qualitative assessment of firms’ capital plans.
In 2019, CCAR evaluated the capital planning processes and capital positions of 18 of the largest banking firms, including the capital actions, such as dividend payments and share repurchases, those firms
planned to make over the subsequent year. The
supervisory stress test results showed that the
nation’s largest and most complex banks had capital
levels that would allow them to stay well above their
minimum requirements after being tested against a
severe hypothetical recession. In addition, a majority
of firms are now meeting the Federal Reserve’s capital planning expectations.
More details on the 2019 supervisory stress test
results are available at https://www.federalreserve.gov/
publications/files/2019-dfast-results-20190621.pdf.
More details on the 2019 CCAR results are available
at https://www.federalreserve.gov/publications/
files/2019-ccar-assessment-framework-results20190627.pdf.

Information Technology Activities

During 2019, the Federal Reserve conducted examinations of information technology activities (inclusive of cyber) at financial institutions. Additionally,
under the authority of the BSCA, the Federal
Reserve, FDIC, and OCC (the federal banking agencies) examine and assign Uniform Rating System for
Information Technology rating to technology service
providers that provide services for specific regulated
financial institutions.
In 2019, the Federal Financial Institutions Examination Council (FFIEC), of which the Federal Reserve
is a member, issued guidance for the examination of
financial institutions and their service providers.3

The FFIEC is an interagency body of financial regulatory agencies established to prescribe uniform principles, standards, and
report forms and to promote uniformity in the supervision of
financial institutions. The council has six voting members: the
Board of Governors of the Federal Reserve System, the FDIC,
the National Credit Union Administration, the OCC, the Consumer Financial Protection Bureau, and the chair of the State
Liaison Committee.

Supervision and Regulation

Table 3. Savings and loan holding companies, 2015–19
Entity/item
Top-tier savings and loan holding companies
Large (assets of more than $1 billion)
Total number
Total assets (billions of dollars)
Number of inspections
By Federal Reserve System
On site
Off site
Small (assets of $1 billion or less)
Total number
Total assets (billions of dollars)
Number of inspections
By Federal Reserve System
On site
Off site

2019

2018

2017

2016

2015

53
1,822
52
52
30
22

55
1,615
40
40
20
20

59
1,696
52
52
31
21

67
1,664
54
54
34
20

67
1,525
58
57
31
26

134
39
102
102
3
99

139
38
107
107
1
106

164
47
165
165
9
156

171
50
181
181
9
172

194
55
187
187
13
174

The Federal Reserve participated in the FFIEC’s IT
Subcommittee of the Task Force on Supervision, the
primary interagency group responsible for coordination across member agencies on information technology policy. The Federal Reserve contributed to the
development and publication of the Business Continuity Management component of the IT Examination Handbook to help examiners determine whether
management of banks, other regulated entities, and
their service providers have prepared their operations
to avoid disruptions and to recover services.
Fiduciary Activities

In 2019, Federal Reserve examiners conducted
119 fiduciary examinations of state member banks
and non-depository trust companies.
Transfer Agents

During 2019, the Federal Reserve conducted transfer
agent examinations at five state member banks and
three BHCs that were registered as transfer agents.
Government and Municipal Securities
Dealers and Brokers

The Federal Reserve is responsible for examining
state member banks and foreign banks for compliance with the Government Securities Act of 1986
and with Treasury regulations governing dealing and
brokering in government securities. There are
22 banking organizations that have government
securities dealers or brokers for which the Federal
Reserve is the appropriate regulatory authority. During 2019, the Federal Reserve conducted six examinations of government securities activities at these
organizations.

The Federal Reserve is also responsible for ensuring
that state member banks and BHCs that act as
municipal securities dealers comply with the Securities Act Amendments of 1975. Municipal securities
dealers are examined, pursuant to the Municipal
Securities Rulemaking Board’s rule G-16, at least
once every two calendar years. During 2019, the Federal Reserve examined three entities that dealt in
municipal securities.
Securities Credit Lenders

Under the Securities Exchange Act of 1934, the
Board is responsible for regulating credit in certain
transactions involving the purchasing or carrying of
securities. As part of its general examination program, the Federal Reserve examines the banks under
its jurisdiction for compliance with the Board’s
Regulation U. In addition, the Federal Reserve maintains a registry of persons other than banks, brokers,
and dealers who extend credit subject to Regulation U. The Federal Reserve may conduct specialized
examinations of these lenders if they are not already
subject to supervision by the Farm Credit Administration or the National Credit Union Administration
(NCUA).
Cybersecurity and Critical Infrastructure

The Federal Reserve collaborated with other financial regulators, the U.S. Treasury, private industry,
and international partners to promote effective safeguards against cyber threats to the financial services
sector and to bolster the sector’s cyber resiliency.
Throughout the year, Federal Reserve examiners conducted targeted cybersecurity assessments of the
largest and most systemically important financial

106th Annual Report | 2019

institutions, FMUs, and service providers. The Federal Reserve worked closely with the OCC and FDIC
to implement improved examination procedures for
the cybersecurity assessments of service providers.
Federal Reserve examiners also continued to conduct
tailored cybersecurity assessments at community and
regional banking organizations.
In August 2019, the Federal Reserve and the other
FFIEC members issued a statement emphasizing the
benefits of using a standardized approach to assess
and improve cybersecurity preparedness at financial
institutions.
The Federal Reserve actively participated in other
interagency groups, such as the Financial and Banking Information Infrastructure Committee (FBIIC),
to share information and collaborate on cybersecurity and critical infrastructure issues affecting the
financial sector. In coordination with FBIIC members, the Federal Reserve collaborated with government and industry stakeholders to plan and execute
sectorwide and regional tabletop exercises focused on
identifying areas where sector resiliency, information
sharing, and public-private collaboration can be
enhanced with respect to potential cybersecurity
incidents.
In addition, the Federal Reserve was actively involved
in international policy coordination to address cyberrelated risks and efforts to bolster cyber resiliency.
The Federal Reserve participated in the development
of the Cyber Incident Response and Recovery Survey
of Industry Practices issued by the Financial Stability
Board. As part of the G-7 Cyber Expert Group, the
Federal Reserve participated in an exercise to test
G-7 members’ preparedness to address the impact of
a cross-border cyber incident.
Oversight Activities
The Board’s Division of Supervision and Regulation
conducts oversight of safety and soundness supervision, specifically Reserve Bank supervision programs
and the Large Institution Supervision Coordinating
Committee program.
For more information on the Federal Reserve’s oversight activities, see box 2.
Enforcement Actions
The Federal Reserve has enforcement authority over
the financial institutions it supervises and their affiliated parties. Enforcement actions may be taken to
address unsafe and unsound practices or violations
of any law or regulation. Formal enforcement actions

include cease and desist orders, written agreements,
prompt corrective action directives, removal and prohibition orders, and civil money penalties.
In 2019, the Federal Reserve completed 67 formal
enforcement actions. Civil money penalties totaling
$324,075,700 were assessed. As directed by statute, all
civil money penalties are remitted to either the Treasury or the Federal Emergency Management Agency.
The Reserve Banks completed 79 informal enforcement actions. Informal enforcement actions include
memoranda of understanding, commitment letters,
and board of directors’ resolutions.
Enforcement orders and prompt corrective action
directives, which are issued by the Board, and written
agreements, which are executed by the Reserve
Banks, are made public and are posted on the
Board’s website (https://www.federalreserve.gov/apps/
enforcementactions/search.aspx).
Other Laws and Regulation Enforcement
Activity/Actions
The Federal Reserve’s enforcement responsibilities
also extend to the disclosure of financial information
by state member banks and the use of credit to purchase and carry securities.
Financial Disclosures by State Member Banks

Under the Securities Exchange Act of 1934 and the
Federal Reserve’s Regulation H, certain state member banks are required to make financial disclosures
to the Federal Reserve using the same reporting
forms that are normally used by publicly held entities
to submit information to the Securities and Exchange
Commission (SEC).4
In 2019, only two state member banks were required
to submit data to the Federal Reserve. The information submitted by these two small state member
banks is available to the public upon request and is
primarily used for disclosure to the bank’s shareholders and public investors.

Under section 12(g) of the Securities Exchange Act, certain
companies that have issued securities are subject to SEC registration and filing requirements that are similar to those imposed
on public companies. Per section 12(i) of the Securities
Exchange Act, the powers of the SEC over banking entities that
fall under section 12(g) are vested with the appropriate banking
regulator. Specifically, state member banks with 2,000 or more
shareholders and more than $10 million in total assets are
required to register with, and submit data to, the Federal
Reserve.

Supervision and Regulation

Box 2. Oversight Activities
Reserve Bank Oversight. The Board is responsible
for assessing how Reserve Banks execute the supervisory authority delegated to them under the Federal
Reserve Act. The Board provides each Reserve Bank
president with an annual written assessment of the
Bank’s performance.
The Board assesses Reserve Bank safety and soundness supervision programs as well as associated
national programs and support offices administered
at Reserve Banks. Given the changing regulatory
environment, the Board recently reevaluated its oversight approach and made revisions to improve efficiency and effectiveness. The Board’s oversight work
focuses on evaluating the Reserve Banks’ supervisory judgment and decisionmaking primarily through
independent, focused reviews and ongoing monitoring of supervisory activities. The Board also leverages the results of Reserve Banks’ internal audit
and/or quality assurance areas, as appropriate, under
the new program.
In 2019, Board staff completed four oversight reviews
across Reserve Banks and one national program
review. The year-end annual performance assessment, provided to each Reserve Bank president,
incorporated the results of these oversight reviews
and ongoing monitoring activities.
LISCC Oversight. In 2018, the Division of Supervision and Regulation (S&R) established a framework
for oversight of the Large Institution Supervision
Coordinating Committee (LISCC) supervisory program. This framework provides for the evaluation of

Securities Credit

Under the Securities Exchange Act of 1934, the
Board is responsible for regulating credit in certain
transactions involving the purchasing or carrying of
securities. The Board’s Regulation T limits the
amount of credit that may be provided by securities
brokers and dealers when the credit is used to purchase debt and equity securities. The Board’s Regulation U limits the amount of credit that may be provided by lenders other than brokers and dealers when
the credit is used to purchase or carry publicly held
equity securities if the loan is secured by those or
other publicly held equity securities. The Board’s
Regulation X applies these credit limitations, or margin requirements, to certain borrowers and to certain
credit extensions, such as credit obtained from foreign lenders by U.S. citizens.
Several regulatory agencies enforce the Board’s securities credit regulations. The SEC, the Financial
Industry Regulatory Authority, and the Chicago
Board Options Exchange examine brokers and deal-

the LISCC governance structure, program management, and program execution, and establishes operating standards for the LISCC supervisory program.
Implementation of the framework is the responsibility
of Board staff who annually conduct an independent
assessment of LISCC supervision performance
through a combination of point-in-time reviews and
continuous monitoring. This work ensures that the
LISCC supervisory program exercises sound supervisory judgment and operates in accordance with Federal Reserve System and LISCC program guidance.
LISCC oversight is risk-focused, based on an annual
LISCC supervisory program risk assessment. An
oversight plan delineates the work scheduled for
each annual review cycle. LISCC oversight provides
S&R and LISCC management with program performance updates primarily through review-specific
reports and an annual performance assessment
report. The annual report summarizes the results of
the reviews and monitoring conducted throughout
the year.
In 2019, Board staff conducted four reviews of the
LISCC supervisory program. Board staff communicated the results of these reviews to S&R and LISCC
senior management in individual review reports,
aggregating the results in the annual performance
assessment report. In addition to conducting
reviews, Board staff implemented key internal operational controls, including LISCC oversight program
operating procedures, project and issues tracking,
and internal program management reporting.

ers for compliance with Regulation T. With respect to
compliance with Regulation U, the federal banking
agencies examine banks under their respective jurisdictions; the Farm Credit Administration and the
NCUA examine lenders under their respective jurisdictions; and the Federal Reserve examines other
Regulation U lenders.
Assessments for Supervision and Regulation
On May 24, 2018, EGRRCPA amended provisions in
the Dodd-Frank Act as well as other statutes administered by the Board. One amendment made by
EGRRCPA raises the minimum asset threshold for
assessing BHCs and SLHCs for the cost of
supervision.
Starting with 2018 assessments, BHCs and SLHCs
with total consolidated assets between $50 billion
and $100 billion are no longer subject to assessments.
As a collecting entity, the Board does not recognize
the supervision and regulation assessments as revenue nor does the Board use the collections to fund

106th Annual Report | 2019

Board expenses; the funds are transferred to the U.S.
Treasury. The Board collected and transferred
$585,880,463 in 2019 for the 2018 supervision and
regulation assessment.
Training and Technical Assistance
The Federal Reserve provides training and technical
assistance to foreign supervisors and minority-owned
depository institutions, and engages in industry outreach in connection with supervisory objectives.
Current Expected Credit Losses Implementation

The Financial Accounting Standards Board issued
an accounting standard in 2016 that overhauls the
accounting for credit losses with a new impairment
model based on the CECL methodology. CECL’s
implementation will affect a broad range of supervisory activities, including regulatory reports, examinations, and examiner training.
During 2019, Board staff developed and provided
industry outreach materials and examiner training
materials, and updated examiner work programs for
CECL. Separately, in October 2019, the Board along
with the OCC, FDIC, and NCUA issued for public
comment a proposed interagency policy statement
on allowances for credit losses.
International Training and Technical Assistance

In 2019, the Federal Reserve continued to provide
training and technical assistance on supervisory matters to foreign central banks and supervisory authorities. Technical assistance involves visits by Federal
Reserve staff members to foreign authorities as well
as consultations with foreign supervisors who visit
the Board of Governors or the Reserve Banks. In
2019, the Federal Reserve offered a number of training programs for the benefit of foreign supervisory
authorities, which were held in the United States and
in foreign jurisdictions.
Federal Reserve staff took part in technical assistance and training assignments led by the International Monetary Fund (IMF), the World Bank, and
the Financial Stability Institute. The Federal Reserve
also contributed to regional capacity development
efforts through partnerships with the Asia-Pacific
Economic Cooperation Financial Regulators Training Initiative, South East Asian Central Banks
Research and Training Centre, Caribbean Group of
Banking Supervisors, and the Association of Bank
Supervisors of the Americas.

Efforts to Support Minority-Owned Depository
Institutions

The Federal Reserve System implements its responsibilities under section 367 of the Dodd-Frank Act primarily through its Partnership for Progress (PFP)
program. Established in 2008, this program promotes
the viability of minority depository institutions
(MDIs) by facilitating activities designed to
strengthen their business strategies, maximize their
resources, and increase their awareness and understanding of supervisory expectations.
In addition, the Federal Reserve continues to maintain the PFP website, which supports MDIs by providing them with technical information and links to
useful resources (https://www.fedpartnership.gov).
Representatives from each of the 12 Federal Reserve
Districts, along with staff from the Divisions of
Supervision & Regulation and Consumer & Community Affairs at the Board of Governors, continue to
offer technical assistance tailored to MDIs by providing targeted supervisory guidance, identifying additional resources, and fostering mutually beneficial
partnerships between MDIs and community organizations. As of year-end 2019, the Federal Reserve’s
MDI portfolio consisted of 15 state member banks.
Throughout 2019, the System supported MDIs and
conducted a number of programs, initiatives, and
conferences specific to MDIs, including the
following:
• In June, the PFP co-hosted an Interagency MDI
and Community Development Financial Institution (CDFI) conference, “Focus on the Future:
Prospering in a Changing Industry.” Representatives from the PFP, the FDIC, and OCC addressed
a wide range of issues regarding the challenges
MDIs and CDFIs face in ensuring their long-term
success and viability.
• In September, the Federal Reserve Bank of Kansas
City, in partnership with the Board and several
other Reserve Banks, hosted the fourth annual
forum designed to provide minority bankers with
industry knowledge and development to enhance
their careers and grow their professional networks.
The forum featured insights from leaders across the
System and the financial services industry on topics
including cybersecurity, leadership development,
and cultural intelligence. Forum sessions included
discussions on banking trends, effective leadership,
and the economic outlook for banks nationwide.

Supervision and Regulation

PFP led two sessions to discuss the Federal
Reserve’s support for MDIs. All MDI banks were
encouraged to attend and several sent representatives to the conference.
• In October, Board and Reserve Bank staff represented PFP at the annual National Bankers Association (NBA) conference in Washington, D.C.
The annual conference attracts dozens of MDI
leaders, and this year the PFP presented on permissibility of fund investments by banks and hosted
an exhibition table. The NBA is a trade organization for minority- and women-owned financial
institutions that serves as an advocate for the
nation’s MDIs on legislative and regulatory matters concerning and affecting its members and the
communities they serve. The NBA also offers a
number of services, including lobbying services,
vendor financing, cash management services, and
corporate trust accounts, among others.
• During 2019, the PFP coordinators at each of the
Reserve Banks maintained regular contact with
supervised MDIs and provided technical assistance.
A team led by the district coordinator from the
Federal Reserve Bank of San Francisco provided
technical expertise on the Bank Secrecy Act (BSA)
to an MDI that requested technical assistance after
they learned about the outreach options available
through the Federal Reserve’s PFP program.
• In 2019, the Board commissioned two external
researchers to do original research on MDIs. Two
papers were finished and delivered in June, one that
focused on the Community Reinvestment Act
(CRA) for Native American banks,5 and the other
that looked at the governance structures of MDIs
in Los Angeles.6
• In November, the Federal Reserve partnered with
the FDIC to host an MDI roundtable in Chicago,
which brought together regional MDIs and large
banks. The purpose was to connect the two types
of institutions to discuss potential mutually beneficial partnerships that would help the MDIs and
provide CRA credit to the larger banks. Ten large
regional banks and 11 MDIs attended the event.

Research paper is available at https://fedpartnership.gov/-/
media/federal-reserve-resources/research/buckley_kashian_
craforindiancoutry_final_073119.pdf ?la=en.
Research paper is available at https://fedpartnership.gov/-/
media/federal-reserve-resources/mdis-evolving-financialtechnologies-and-the-challenge-of-governance.pdf ?la=en.

International Coordination on Supervisory
Policies
As a member of several international financial
standard-setting bodies, the Federal Reserve actively
participates in efforts to advance sound supervisory
policies for internationally active financial organizations and to enhance the strength and stability of the
international financial system.
Basel Committee on Banking Supervision

During 2019, the Federal Reserve contributed to
supervisory policy recommendations, reports, and
papers issued for consultative purposes or finalized
by the BCBS that are designed to improve the supervision of banking organizations’ practices and to
address specific issues that emerged during the
2007–09 financial crisis.7
Some examples of final BCBS documents issued in
2019 include
• Minimum capital requirements for market risk
(issued in January, revised in February, and available at https://www.bis.org/bcbs/publ/d457.pdf).
• Revisions to leverage ratio disclosure requirements
(issued in June and available at https://www.bis.org/
bcbs/publ/d468.pdf).
• Leverage ratio treatment of client cleared derivatives
(issued in June and available at https://www.bis.org/
bcbs/publ/d467.pdf).
• Margin requirements for non-centrally cleared
derivatives (issued in July and available at https://
www.bis.org/bcbs/publ/d475.pdf).
• Revisions to market risk disclosure requirements
(issued in November and available at https://www
.bis.org/bcbs/publ/d484.pdf).
Some examples of consultative BCBS documents
issued in 2019 include
• Consolidated Basel Framework (issued in April and
available at https://www.bis.org/bcbs/publ/d462.pdf).
• Credit Valuation Adjustment risk – targeted revisions (issued in November and available at https://
www.bis.org/bcbs/publ/d488.pdf).
• Introduction of guidelines on interaction and cooperation between prudential and AML/CFT supervi-

The BCBS provides a forum for regular cooperation on banking
supervisory matters. Its 45 members comprise central banks and
bank supervisors from 28 jurisdictions.

106th Annual Report | 2019

sion (issued in November 2019 at https://www.bis
.org/bcbs/publ/d483.htm).
A comprehensive list of BCBS publications is available at https://www.bis.org/bcbs/publications.htm.
Financial Stability Board

In 2019, the Federal Reserve continued its participation in a variety of activities of the FSB, an international group that helps coordinate the work of
national financial authorities and international
standard-setting bodies, and develops and promotes
the implementation of financial sector policies in the
interest of financial stability.
Some examples of FSB publications issued in 2019
include
• FinTech and market structure in financial services:
Market developments and potential financial stability implications (issued in February and available at
https://www.fsb.org/wp-content/uploads/
P140219.pdf).
• Cyber Incident Response and Recovery: Progress
Report to the G20 Finance Ministers and Central
Bank Governors (issued in May and available at
https://www.fsb.org/wp-content/uploads/
P280519-1.pdf).
• Crypto-assets: Work underway, regulatory
approaches and potential gaps (issued in May and
available at https://www.fsb.org/wp-content/
uploads/P310519.pdf).
• FSB Report on Market Fragmentation (issued in
June and available at https://www.fsb.org/wpcontent/uploads/P040619-2.pdf).
• Evaluation of the effects of financial regulatory
reforms on small and medium-sized enterprise
(SME) financing (issued in November and available at https://www.fsb.org/wp-content/uploads/
P291119-1.pdf).
• Vulnerabilities associated with leveraged loans and
collateralized loan obligations (issued in December
and available at https://www.fsb.org/wp-content/
uploads/P191219.pdf).
A comprehensive list of FSB publications is available
at https://www.fsb.org/publications.
Committee on Payments and Market
Infrastructures

In 2019, the Federal Reserve continued its active participation in the activities of the CPMI, a forum in

which central banks promote the safety and efficiency of payment, clearing and settlement activities,
and related arrangements.
In conducting its work on financial market infrastructure and market-related reforms, the CPMI
often coordinated with the International Organization of Securities Commissions (IOSCO). Over the
course of 2019, CPMI-IOSCO continued to monitor
implementation of the Principles for Financial Market Infrastructures (PFMI), including by conducting
an assessment of consistency with the PFMI of the
legal, regulatory, and oversight frameworks in the
United States for payment systems, central securities
depositories, and securities settlement systems.
Additionally, CPMI-IOSCO published a discussion
paper on central counterparty default management
auctions, a compilation of authorities’ experience
with cooperation, and a report on governance
arrangements for critical over-the-counter derivatives
data elements. The CPMI also issued a report on
wholesale digital tokens, released a toolkit to aid in
the operationalization of its 2018 strategy on
addressing the risk of wholesale payments fraud
related to endpoint security, and, jointly with the G-7
and IMF, prepared a report on global stablecoins.
Additional information is available at https://www.bis
.org/.
International Association of Insurance Supervisors

The Federal Reserve continued its participation in
2019 in the development of international supervisory
standards. The Federal Reserve participates actively
in standard-setting at the IAIS in consultation and
collaboration with state insurance regulators, the
National Association of Insurance Commissioners,
and the Federal Insurance Office. The Federal
Reserve’s participation focuses on those aspects most
relevant to financial stability and consolidated
supervision.
In 2019, the IAIS finalized a comprehensive review
and update of its Insurance Core Principles (ICPs),
adopted the Common Framework for the Supervision of Internationally Active Insurance Groups
(ComFrame),8 and adopted the Holistic Framework
for the assessment and mitigation of systemic risk in
the insurance sector. The IAIS also agreed to a fiveyear monitoring period for its Insurance Capital
8

Additional information on ICPs and ComFrame are available at
https://www.iaisweb.org/page/supervisory-material/insurancecore-principles-and-comframe.

Supervision and Regulation

Standard,9 beginning in 2020. In addition, the IAIS
issued several final and consultative reports in 2019.
Papers and reports:
• Explanatory Note on ComFrame (issued in November and available at https://www.iaisweb.org/page/
supervisory-material/insurance-core-principlesand-comframe).
• IAIS ICPs and ComFrame (adopted in November 2019 and available at https://www.iaisweb.org/
page/supervisory-material/insurance-coreprinciples-and-comframe).
• Explanatory Note on Holistic Framework for systemic risk (issued in November and available at
https://www.iaisweb.org/page/supervisory-material/
financial-stability).
• Application Paper on Recovery Planning (issued in
November and available at https://www.iaisweb
.org/page/supervisory-material/application-papers/
file/87519/application-paper-on-recoveryplanning).
• Application Paper on Proactive Supervision of Corporate Governance (issued in February and available at https://www.iaisweb.org/page/supervisorymaterial/application-papers/file/80572/applicationpaper-on-proactive-supervision-of-corporategovernance).
Consultative papers:
• Draft Issues Paper on the Implementation of TCFD
Recommendation (issued in December and available
at https://www.iaisweb.org/page/consultations/
closed-consultations/2019/draft-issues-paper-onthe-implementation-of-the-tcfd-recommendations).
• Draft Application Paper on Liquidity Risk Management (issued in November and available at https://
www.iaisweb.org/page/consultations/closedconsultations/2019/draft-application-paper-onliquidity-risk-management).
• Draft Issues Paper on Use of BDA in Insurance
(issued in September and available at https://www
.iaisweb.org/page/consultations/closedconsultations/2019/draft-issues-paper-on-use-ofbda-in-insurance).

Additional information is available at https://www.iaisweb.org/
page/supervisory-material/insurance-capital-standard.

Shared National Credit Program
The SNC Program is an interagency review and
assessment of risk in the largest and most complex
credits shared by multiple regulated financial institutions. The SNC Program is governed by an interagency agreement among the Board, the FDIC, and
the OCC. SNC reviews are completed in the first and
third quarters of the calendar year. Large agent
banks receive two reviews each year while most other
agent banks receive a single review each year.
For information on the 2019 Shared National Credit
review, visit the Board’s website at https://www
.federalreserve.gov/newsevents/pressreleases/
bcreg20200131a.htm.
Bank Secrecy Act and Anti-Money-Laundering
Compliance
The Federal Reserve is responsible for examining
institutions for compliance with the BSA and applicable AML laws and regulations and conducts such
examinations in accordance with the FFIEC’s Bank
Secrecy Act/Anti-Money-Laundering Examination
Manual.
The Federal Reserve is currently participating in an
ongoing interagency effort to update this manual.
Many of the revisions are designed to emphasize and
enhance the risk-focused approach to BSA/AML
supervision and to continue to provide transparency
into the BSA/AML examination process.
International Coordination on Sanctions,
Anti-Money-Laundering, and CounterTerrorism Financing
The Federal Reserve participates in a number of
international coordination initiatives related to sanctions, money laundering, and terrorism financing.
The Federal Reserve has a long-standing role in the
U.S. delegation to the intergovernmental Financial
Action Task Force (FATF) and its working groups,
contributing a banking supervisory perspective to the
formulation of international standards. The Federal
Reserve participated in the FATF Supervisors’
Forum on improving the effectiveness of supervision
in November 2019.
The Federal Reserve also continues to participate in
committees and subcommittees through the Bank for
International Settlements. Specifically, the Federal
Reserve actively participates in the AML Experts
Group under the BCBS that focuses on AML and
countering financing of terrorism (CFT) issues and
assisted in developing the consultative document

106th Annual Report | 2019

issued in November 2019 on the cooperation between
prudential and AML/CFT supervision. In addition,
the Federal Reserve participated in meetings during
the year to discuss BSA/AML issues with foreign delegations from Mexico and the United Kingdom.
These dialogues are designed to promote information
sharing and understanding of BSA/AML issues
between U.S. and country-specific financial sectors.
Incentive Compensation
The Federal Reserve believes that supervision of
incentive compensation programs at financial institutions can play an important role in helping safeguard
financial institutions against practices that threaten
safety and soundness, provide for excessive compensation, or could lead to material financial loss.
The Federal Reserve along with the other federal
banking agencies adopted interagency guidance oriented to the risk-taking incentives created by incentive compensation arrangements in June 2010. The
guidance is based on the principles that incentive
compensation arrangements at a banking organization should provide employees incentives that appropriately balance risk and reward; be compatible with
effective controls and risk management; and be supported by strong corporate governance.
Role of Supervisory Guidance
In September 2018, the Federal Reserve—along with
other federal financial agencies—issued a statement
confirming the proper role of supervisory guidance.10
The statement explained that unlike a law or regulation, supervisory guidance does not have the force
and effect of law. Accordingly, the statement also
clarified that examiners will not cite a financial institution for a “violation” of supervisory guidance as
they would for a violation of a law or regulation.
To ensure that supervisory guidance is properly
applied, the Federal Reserve has taken several steps
since issuance of the statement, including conducting
several internal training sessions, providing internal
examination materials, more closely reviewing draft
supervisory communications to institutions, and
coordinating with other federal banking agencies.
The Federal Reserve remains committed to ensuring
the proper role of guidance in the supervisory
process.

Regulatory Reports
The Federal Reserve, along with the other member
FFIEC agencies, requires banking organizations to
periodically submit reports that provide information
about their financial condition and structure.
Federal Reserve Regulatory Reports
The Federal Reserve requires that U.S. holding companies periodically submit reports that provide information about their financial condition and structure.11 This information is essential to formulating
and conducting financial institution regulation and
supervision. It is also used to respond to information
requests by Congress and the public about holding
companies and their nonbank subsidiaries. Foreign
banking organizations also are required to periodically submit reports to the Federal Reserve. For more
information on the various reporting forms, see
https://www.federalreserve.gov/apps/reportforms/
default.aspx.
Effective during 2019, the following regulatory
reporting forms had substantive revisions:
• FR Y-9C—(1) reduced reporting burden for holding companies with total assets less than $5 billion
by adding new reporting thresholds, revising existing reporting thresholds, reducing reporting frequencies and combining certain data items;
(2) revised instructions pertaining to the riskweighting of high volatility commercial real estate
exposures and the treatment of reciprocal deposits
as required under EGRRCPA; and (3) implemented reporting methodology and capital transition for CECL.
Other regulatory reporting forms implementing
CECL include the following:
• FR 2314 and FR 2314S
• FR 2320
• FR 2886b
• FR Y-7N and FR Y-7NS
• FR Y-8
• FR Y-9LP
• FR Y-9SP
• FR Y-11 and FR Y-11S

SR letter 18-5 is available at https://www.federalreserve.gov/
supervisionreg/srletters/sr1805.htm.

Holding companies are defined as BHCs, intermediate holding
companies (IHCs), SLHCs, and securities holding companies.

Supervision and Regulation

• FR Y-14—implemented changes to address the
revised accounting standards for the adoption of
the CECL methodology. Also, to align the FR Y-14
with other regulatory reports, incorporated revised
rules and non-CECL accounting principles as well
as made other revisions and clarifications.

ing supervision and regulation and for the ongoing
assessment of the overall soundness of the nation’s
financial system. During 2019, the following FFIEC
reporting forms had substantive revisions:
• FFIEC 031, 041, 051 and 101—implemented
reporting methodology and capital transition for
CECL.

• FR Y-15—added a separate line item for equity
securities with readily determinable fair values not
held for trading; added line items for foreign
derivative claims, total cross-jurisdictional claims,
foreign derivative liabilities, other foreign liabilities,
and total cross-jurisdictional liabilities; and added
a requirement that respondents keep a record of
the data submitted.

Other FFIEC reporting forms implementing CECL
include the following:
• FFIEC 002 and FFIEC 002S
• FFIEC 030 and FFIEC 030S
• FFIEC 051—implemented reduced reporting
requirements for institutions with less than $5 billion in total consolidated assets and meeting certain other conditions by increasing the reporting
threshold from $1 billion to $5 billion for filing the
shorter FFIEC 051 report relative to the FFIEC
041 report, and reduced frequency of reporting
from quarterly to semiannual for approximately
one-third of existing FFIEC 051 items as required
under EGRRCPA.

• FR 2052a—implemented certain revisions in
response to the enactment of EGRRCPA and corresponding changes to the treatment of certain
municipal obligations that are liquid and readily
marketable as high-quality liquid assets under the
Liquidity Coverage Ratio rule.
• FR 2510—created a new form collecting more
granular data regarding common or correlated
exposures and funding dependencies than is currently collected by existing reports by providing
more information about U.S. global systemically
important banks’ consolidated exposures and
funding positions to different countries according
to instrument, counterparty sector, currency and
remaining maturity.

Staff Development Programs
The Federal Reserve’s staff development program
supports the ongoing development of nearly 3,300
professional supervisory staff, ensuring that they have
the requisite skills necessary to meet their evolving
supervisory responsibilities. The Federal Reserve also
provides course offerings to staff at state banking
agencies. Training activities in 2019 are summarized
in table 4.

FFIEC Regulatory Reports
The Federal Reserve, along with the other member
FFIEC agencies, requires financial institutions to
submit various uniform regulatory reports.12 This
information is essential to formulating and conduct12

Examiner Commissioning Program
An overview of the Federal Reserve System’s Examiner Commissioning Program is provided in SR letter

The law establishing the FFIEC and defining its functions
requires the FFIEC to develop uniform reporting systems for
federally supervised financial institutions.

Table 4. Training for supervision and regulation, 2019
Number of enrollments
Course sponsor or type

Federal Reserve System
FFIEC
Rapid Response2
1
2

Federal Reserve
personnel

State and federal
banking agency
personnel

1,710
793
8,218

10
480
963

Instructional time
(approximate training
days)1

Number of course
offerings

615
376
4

123
94
37

Training days are approximate. System courses were calculated using five days as an average, with FFIEC courses calculated using four days as an average.
Rapid Response is a virtual program created by the Federal Reserve System as a means of providing information on emerging topics to Federal Reserve and state bank
examiners.

106th Annual Report | 2019

17-6, “Overview of the Federal Reserve’s Supervisory
Education Programs.”
The Federal Reserve has three examiner commissioning programs: (1) community bank, (2) consumer
compliance, and (3) large financial institutions. Individuals in these programs progress through a combination of in-person and virtual instruction, aligned
with on-the-job training over a period of about three
years. Commissioning of an examiner is contingent
upon approval from the Supervision and Regulation
function at the Board of Governors as well as an
individual passing a professionally validated proficiency examination.

Rulemakings and Guidance
The Federal Reserve issues new regulations or revises
existing regulations in response to laws enacted by
Congress or because of evolving conditions in the
financial marketplace. Over 2019, the Federal
Reserve made significant progress to implement provisions of the EGRRCPA. The Federal Reserve,
working with the other federal banking agencies, has
implemented all of the major provisions of
EGRRCPA. The Federal Reserve issued the following rules and statements in 2019 (see table 5).

Banking Applications
In 2019, 63 examiners were commissioned (40 in
safety and soundness and 23 in consumer compliance). The large financial institutions program was
fully implemented in 2019.
Continuing Professional Development
In addition to the examiner commissioning programs, the Federal Reserve System offers a number
of continuing professional development programs,
and partners with the FFIEC and the Conference of
State Bank Supervisors to provide specialized supervisory training to commissioned examiners.
In 2019, continuing professional development training was developed for several supervision initiatives,
including CECL, financial technology, and large and
regional financial institution training for consumer
compliance staff.

The Federal Reserve reviews applications submitted
by bank holding companies, state member banks,
savings and loan holding companies, foreign banking
organizations, and other entities for approval to
undertake various transactions and to engage in new
activities. In 2019, the Federal Reserve acted on 1,099
applications filed under the six relevant statutes.
The Federal Reserve published the Semiannual
Report on Banking Applications Activity, which provides aggregate information on proposals filed by
banking organizations and reviewed by the Federal
Reserve. The current report as well as historical
reports are available at https://www.federalreserve
.gov/publications/semiannual-report-on-bankingapplications-activity.htm.

Regulatory Developments

Public Notice of Federal Reserve
Decisions and Filings Received

The Federal Reserve carries out its regulatory
responsibilities by developing regulatory policy
(rulemakings, supervision and regulation letters,
policy statements, and guidance) and reviewing and
acting on a variety of applications filed by banking
organizations.

The Board’s website provides information on orders
and announcements (https://www.federalreserve.gov/
newsevents/pressreleases.htm) as well as a guide for
U.S. and foreign banking organizations that wish to
submit applications (https://www.federalreserve.gov/
bankinforeg/afi/afi.htm).

Supervision and Regulation

Table 5. Federal Reserve or interagency rulemakings/statements (proposed and final), 2019
Date
issued
1/8/2019
2/5/2019
3/6/2019
3/15/2019
4/2/2019
4/8/2019
4/16/2019
4/18/2019
4/23/2019
5/3/2019
5/9/2019
5/30/2019
6/17/2019
6/21/2019
6/27/2019
7/9/2019
7/12/2019
7/17/2019
7/22/2019

Rule/guidance
Board invites public comment on proposal that would modify company-run stress testing requirements to conform with EGRRCPA.
Board press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20190108a.htm
Board finalizes set of changes that will increase the transparency of its stress testing program for nation’s largest and most complex banks.
Board press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20190205a.htm
Board announces it will limit the use of the “qualitative objection” in its Comprehensive Capital Analysis and Review (CCAR) exercise,
effective for the 2019 cycle.
Board press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20190306b.htm
Agencies adopt interim final rule to facilitate transfers of legacy swaps.
Interagency press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20190315a.htm
Agencies invite public comment on a proposed rule to limit the interconnectedness of large banks and reduce the impact from failure of the
largest banks.
Interagency press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20190402a.htm
Board invites public comment on changes to the regulatory framework that would more closely match rules for foreign banks with the risks
they pose to U.S. financial system.
Board press release and visuals: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20190408a.htm
Agencies invite comment on modifications to resolution plan requirements as part of EGRRCPA. The proposal keeps existing requirements
for largest firms and reduces requirements for firms with less risk.
Interagency press release and visuals: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20190416a.htm
Agencies invite public comment on revisions to the supplementary leverage ratio as required by EGRRCPA.
Interagency press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20190418a.htm
Board invites public comment on proposal to simplify and increase the transparency of rules for determining control of a banking
organization.
Board press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20190423a.htm
Board invites public comment on a proposal to apply netting protections to a broader range of financial institutions.
Board press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20190503a.htm
Board approves final rule to repeal regulations that incorporated the Secure and Fair Enforcement for Mortgage Licensing Act. Banking
institutions that were subject to the Board’s rules are now subject to rules from the Consumer Financial Protection Bureau.
Board press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20190509a.htm
Agencies issue final rule regarding the treatment of certain municipal obligations as high-quality liquid assets as part of EGRRCPA.
Interagency press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20190530a.htm
Agencies issue final rule to streamline regulatory reporting requirements and commit to further review of reporting burdens for small
institutions as part of EGRRCPA.
Interagency press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20190617a.htm
Board releases results of 2019 Dodd-Frank Act stress tests. The banks tested had strong capital levels that would allow them to stay well
above their minimum requirements after being tested against a severe hypothetical recession.
Board press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20190621a.htm
Board releases results of its 2019 Comprehensive Capital Analysis and Review stress test. The banks tested had strong capital levels and
virtually all are now meeting the Board’s supervisory expectations.
Board press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20190627a.htm
Agencies issue final rule to simplify regulatory capital rules.
Interagency press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20190709a.htm
Agencies invite public comment on a proposed rule on the capital treatment of land development loans as part of EGRRCPA.
Interagency press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20190712a.htm
Agencies announce coordination of reviews for certain foreign funds under the Volcker rule.
Interagency press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20190717a.htm
Agencies and FinCEN improve transparency of risk-focused BSA/AML supervision.
Interagency press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20190722a.htm

(continued on next page)

106th Annual Report | 2019

Table 5.—continued
Date
issued
7/26/2019
9/6/2019
9/27/2019
10/2/2019
10/8/2019
10/10/2019

10/17/2019
10/18/2019
10/28/2019
10/28/2019
10/29/2019
11/8/2019
11/19/2019
11/19/2019
11/19/2019
12/3/2019
12/13/2019
12/17/2019
12/20/2019
12/20/2019

Rule/guidance
Agencies release public sections of resolution plans for eight large banks. Agencies complete resolution plan evaluations and extend
deadline for certain firms.
Interagency press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20190726a.htm
Board invites public comment on proposal to establish capital requirements for certain insurance companies supervised by the Board.
Board press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20190906a.htm
Agencies issue final rule to exempt residential real estate transactions of $400,000 or less from appraisal requirements as part of EGRRCPA.
Interagency press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20190927a.htm
Agencies issue final rule to update rules restricting the ability of a director or other management official to serve at more than one
depository institution, known as management interlock rules.
Interagency press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20191002a.htm
Agencies finalize changes to simplify the Volcker rule.
Interagency press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20191008a.htm
Board finalizes rules that tailor its regulations for domestic and foreign banks to more closely match their risk profiles as part of EGRRCPA.
The rules reduce compliance requirements for firms with less risk while maintaining the most stringent requirements for the largest and
most complex banks.
Board press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20191010a.htm
Agencies seek comment on proposed interagency policy statement on allowances for credit losses and proposed interagency guidance on
credit risk review systems.
Interagency press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20191017a.htm
Agencies request information on use and impact of CAMELS ratings.
Interagency press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20191018a.htm
Agencies finalize changes to resolution plan requirements as part of EGRRCPA. The rules maintain requirements for the largest firms and
reduce requirements for smaller firms.
Interagency press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20191028b.htm
Agencies invite comment on proposal to amend swap margin rules.
Interagency press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20191028a.htm
Agencies issue final rule to simplify capital calculation for community banks (community bank leverage ratio).
Interagency press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20191029a.htm
Board invites public comment on proposal to extend by 18 months initial compliance dates for foreign banks subject to its
single-counterparty credit limit rule.
Board press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20191108a.htm
Agencies finalize changes to supplementary leverage ratio as required by EGRRCPA.
Interagency press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20191119a.htm
Agencies issue final rule on treatment of high-volatility commercial real estate.
Interagency press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20191119b.htm
Agencies finalize rule to update calculation of counterparty credit risk for derivative contracts.
Interagency press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20191119c.htm
Agencies clarify requirements for providing financial services to hemp-related businesses.
Interagency press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20191203a.htm
Federal Reserve Board announces it will extend until January 22, 2020, comment period for its proposal to establish risk-based capital
requirements for certain insurance companies supervised by the Board.
Board press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20191213a.htm
Agencies find no deficiencies in resolution plans from the largest banks; find shortcomings for several firms.
Interagency press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20191217a.htm
Agencies extend comment period for proposed rule to amend swap margin rules.
Board press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20191220b.htm
Agencies extend deadline on request for information on CAMELS rating system.
Board press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20191220a.htm

Payment System and
Reserve Bank Oversight

The Federal Reserve performs several key functions
to maintain the integrity of the U.S. payment and
settlement system. These functions help keep cash,
check, and electronic transactions moving reliably
through the U.S. economy on behalf of consumers,
businesses, and others participating in the economy.
The Federal Reserve Banks, in particular, provide
payment services to depository and certain other
institutions, distribute the nation’s currency and coin
to depository institutions, and serve as fiscal agents
and depositories for the U.S. government and other
entities.
The Federal Reserve serves as a catalyst for payment
system improvements and conducts Reserve Bank
oversight to ensure effective internal controls, operations, and management.

Payment Services to Depository and
Other Institutions
Reserve Banks provide a range of payment and
related services to depository and certain other institutions; these “priced services” include collecting
checks, operating an automated clearinghouse
(ACH) service, transferring funds and securities, and
providing a multilateral settlement service.1

Commercial Check-Collection Service
The commercial check-collection service provides a
suite of electronic and paper processing options for
forward and return collections.
1

Depository institutions are defined as commercial banks, thrifts,
and credit unions. Besides playing an important role in the
broader economy by providing transaction accounts, such as
checking accounts, to consumers, households, and businesses,
these institutions play an important role in the Federal Reserve
System’s payment and settlement system function.
The ACH enables depository institutions and their customers to
process large volumes of payments through electronic batch
processes.

Box 1. FedNow Service
The Federal Reserve announced on August 5, 2019,
its plans to develop a nationwide faster payment
settlement service, named the FedNow Service.
The FedNow Service will help enable financial institutions to deliver end-to-end faster payment services to their customers, and users will be able to
send and receive payments any time, any day, and
have full access to those funds within seconds. See
“Evolutions and Improvements to the System” for
more information on the FedNow Service and other
Federal Reserve efforts in 2019.

In 2019, the Reserve Banks recovered 104.0 percent
of the total costs of their commercial checkcollection service, including the related private-sector
adjustment factor (PSAF). Revenue from operations
totaled $128.1 million, resulting in net income of
$6.3 million. The Reserve Banks’ operating expenses
and imputed costs totaled $121.9 million. Reserve
Banks handled 4.4 billion checks in 2019, a decrease
of 7.4 percent from 2018 (see table 1). The average
daily value of checks collected by the Reserve Banks
in 2019 was approximately $33.1 billion, a decrease
of 2 percent from the previous year.

Commercial Automated Clearinghouse
Service
The commercial ACH service provides domestic and
cross-border batched payment options for same-day
and next-day settlement.
In 2019, the Reserve Banks recovered 97.6 percent of
the total costs of their commercial ACH services,
including the related PSAF. Revenue from operations
totaled $152.9 million, resulting in a net loss of
$1.7 million. The Reserve Banks’ operating expenses
and imputed costs totaled $154.8 million. The Reserve
Banks processed 15.6 billion commercial ACH transactions in 2019, an increase of 6.1 percent from 2018
(see table 1). The average daily value of FedACH
transfers in 2019 was approximately $112 billion, an
increase of 8.6 percent from the previous year.

106th Annual Report | 2019

Fedwire Funds and National Settlement
Services

ing expenses and imputed costs totaled $137.7 million in 2019.

In 2019, the Reserve Banks recovered 97.3 percent of
the costs of their Fedwire Funds and National Settlement Services, including the related PSAF. Revenue
from operations totaled $135.5 million, resulting in a
net loss of $2.1 million. The Reserve Banks’ operat-

Fedwire Funds Service
The Fedwire Funds Service allows its participants to
send or receive domestic time-critical payments using
their balances at Reserve Banks to transfer funds in
real time.

Box 2. Cost Recovery Requirements
The Federal Reserve must (under the Monetary Control Act of 1980) establish fees for “priced services”
to recover, over the long run, all the direct and indirect costs associated with its payment and settlement system service. Costs include those actually
incurred as well as the imputed costs that would
have been incurred—including financing costs, taxes,
and certain other expenses—and the return on equity
(profit) that would have been earned if a private business firm had provided the services.1 The imputed
costs and imputed profit are collectively referred to
as the private-sector adjustment factor (PSAF).
1

According to the Accounting Standards Codification (ASC) Topic
715 (ASC 715), Compensation-Retirement Benefits, the Reserve
Banks recognized a $618.7 million reduction in equity related to
the priced services’ benefit plans through 2019. Including this
reduction in equity, which represents a decline in economic value,
results in cost recovery of 100.7 percent for the 10-year period.
For details on how implementing ASC 715 affected the pro forma
financial statements, refer to note 3 to the pro forma financial
statements at the end of this section.

From 2010 through 2019, the Reserve Banks recovered 103.9 percent of the total priced services costs,
including the PSAF (see table A).1 In 2019, Reserve
Banks recovered 99.4 percent of the total priced services costs, including the PSAF.1 The Reserve Banks’
operating expenses and imputed costs totaled
$441.2 million. Revenue from operations totaled
$444.0 million, resulting in net income from priced
services of $2.9 million. The commercial checkcollection service and the Fedwire Security Service
achieved full cost recovery. The FedACH and Fedwire
Funds and National Settlement Services, however,
did not achieve full cost recovery, FedACH because
of investment costs associated with the multiyear
technology initiative to modernize its processing platform, and Fedwire Funds and National Settlement
Services because of investment costs associated
with initiatives to promote operational resiliency and
message enhancements.

Table A. Priced services cost recovery, 2010–19
Millions of dollars, except as noted
Year
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2010–19

Revenue from services1

Operating expenses and
imputed costs2

Targeted return on equity3

Total costs

Cost recovery (percent)4

574.7
478.6
449.8
441.3
433.1
429.1
434.1
441.6
442.5
444.0
4,569.0

532.8
444.4
423.0
409.3
418.7
397.8
410.5
419.4
428.1
441.2
4,325.2

13.1
16.8
8.9
4.2
5.5
5.6
4.1
4.6
5.2
5.4
73.4

545.9
461.2
432.0
413.5
424.1
403.4
414.7
424.0
433.3
446.5
4,398.7

105.3
103.8
104.1
106.7
102.1
106.4
104.7
104.1
102.1
99.4
103.9

Note: Here and elsewhere in this section, components may not sum to totals or yield percentages shown because of rounding. Excludes amounts related to
development of the FedNow Service.
1
For the 10-year period, includes revenue from services of $4,558.6 million and other income and expense (net) of $10.4 million.
2
For the 10-year period, includes operating expenses of $4,171.5 million, imputed costs of $49.0 million, and imputed income taxes of $104.8 million.
3
From 2010 to 2012, the PSAF was adjusted to reflect the actual clearing balance levels maintained; previously, the PSAF had been calculated based on a projection
of clearing balance levels.
4
Revenue from services divided by total costs. For the 10-year period, cost recovery is 100.7 percent, including the effect of accumulated other comprehensive
income (AOCI) reported by the priced services under ASC 715. For details on changes to the estimation of priced services AOCI and their effect on the pro forma
financial statements, refer to note 3 to the “Pro Forma Financial Statements for Federal Reserve Priced Services” at the end of this section.

Payment System and Reserve Bank Oversight

Table 1. Activity in Federal Reserve priced services, 2017–19
Thousands of items, except as noted
Percent change
Service

Commercial check
Commercial ACH
Fedwire funds transfer
National settlement
Fedwire securities

2019

4,389,011
15,583,792
172,435
502
3,246

2018

4,739,534
14,691,615
162,980
521
3,510

2017

5,152,521
13,749,249
156,788
517
3,465

2018–19

2017–18

-7.4
6.1
5.8
-3.8
-7.5

-8.0
6.9
3.9
0.8
1.3

Note: Activity in commercial check is the total number of commercial checks collected, including processed and fine-sort items; in commercial ACH, the total number of
commercial items processed; in Fedwire funds transfer and securities transfer, the number of transactions originated online and offline; and in national settlement, the number
of settlement entries processed.

From 2018 to 2019, the number of Fedwire funds
transfers originated by depository institutions
increased 5.8 percent, to approximately 172.4 million
(see table 1). The average daily value of Fedwire
funds transfers in 2019 was $2.8 trillion, a decrease of
2.8 percent from the previous year.
National Settlement Service
The National Settlement Service is a multilateral
settlement system that allows participants in privatesector clearing arrangements to settle transactions
using their balances at Reserve Banks.
In 2019, the service processed settlement files for 12
local and national private-sector arrangements. The
Reserve Banks processed 9,675 files that contained
about 502,000 settlement entries for these arrangements in 2019 (see table 1). Settlement file activity in
2019 was roughly the same as in 2018, and settlement
entries decreased 3.8 percent.

Fedwire Securities Service
The Fedwire Securities Service allows its participants
to transfer electronically to other service participants
certain securities issued by the U.S. Department of
the Treasury, federal government agencies,
government-sponsored enterprises, and certain international organizations.2
In 2019, the Reserve Banks recovered 100.3 percent
of the costs of their Fedwire Securities Service,
including the related PSAF. Revenue from operations
2

The expenses, revenues, volumes, and fees reported here are for
transfers of securities issued by federal government agencies,
government-sponsored enterprises, and certain international
organizations. Reserve Banks provide Treasury securities services in their role as Treasury’s fiscal agent. These services are
not considered priced services. For details, see “Financing and
Securities Services” later in this section.

totaled $27.1 million, resulting in a net income of
$0.4 million. The Reserve Banks’ operating expenses
and imputed costs totaled $26.7 million in 2019. In
2019, the number of non-Treasury securities transfers
processed via the service decreased 7.5 percent from
2018, to approximately 3.2 million (see table 1). The
average daily value of Fedwire Securities transfers in
2019 was approximately $1.4 trillion, an increase of
approximately 16.7 percent from the previous year.

FedLine Solutions: Access to Reserve
Bank Services
The Reserve Banks’ FedLine Solutions provide
depository institutions with a variety of connections
for accessing the Banks’ payment and information
services.
For priced services, the Reserve Banks charge fees for
these connections and allocate the associated costs
and revenue to the various services. There are currently six FedLine Solutions through which customers can access the Reserve Banks’ priced services:
FedMail, FedLine Exchange, FedLine Web, FedLine
Advantage, FedLine Command, and FedLine Direct.
These FedLine Solutions are designed to meet the
individual connectivity, security, and contingency
requirements of depository institution customers.
Between 2008 and 2019, Reserve Bank priced
FedLine connections decreased nearly 25 percent,
while the number of depository institutions in the
United States declined 35 percent.
The Reserve Banks continue to focus on increased
resiliency and availability of the FedLine Solutions.
Additionally, the Reserve Banks are advancing the
safety and security of the FedLine Solutions through
key infrastructure upgrades, network modernization,

106th Annual Report | 2019

proactive monitoring of an evolving threat environment, and strengthening of endpoint security policies.

Figure 1. Aggregate daylight overdrafts, 2007–19
Billions of dollars

Federal Reserve Intraday Credit
The Federal Reserve Board governs the use of Federal Reserve Bank intraday credit, also known as daylight overdrafts.3 A daylight overdraft occurs when
an institution’s account activity creates a negative
balance in the institution’s Federal Reserve account
at any time in the operating day. Daylight overdrafts
enable an institution to send payments more freely
throughout the day than if it were limited strictly by
its available intraday funds balance, increasing efficiency and reducing payment system risk.

200

150

100

Institutions currently hold historically high levels of
overnight balances at the Federal Reserve Banks,
while daylight overdrafts remained historically low,
as shown in figure 1.4
Fees collected for daylight overdrafts are also at historically low levels. In 2019, institutions paid about
$111,428 in daylight overdraft fees; in contrast, fees
totaled more than $50 million in 2008. The decrease
in fees is largely attributable to the elevated level of
reserve balances that began to accumulate in late
2008 and to the 2011 policy revision that eliminated
fees for daylight overdrafts that are collateralized.

Currency and Coin
The Federal Reserve Board issues the nation’s currency (in the form of Federal Reserve notes) to 28
Federal Reserve Bank offices. The Reserve Banks, in
turn, distribute Federal Reserve notes to depository
3

See Payment System Risk policy, https://www.federalreserve.gov/
paymentsystems/psr_about.htm. The Payment System Risk
policy recognizes explicitly the role of the central bank in providing intraday balances and credit to healthy institutions; under
the policy, the Reserve Banks provide collateralized intraday
credit at no cost.
Before the 2007–09 financial crisis, overnight balances were
much lower and daylight overdrafts significantly higher than
levels observed since late 2008. The use of daylight overdrafts
spiked amid the market turmoil near the end of 2008 but
dropped sharply as various liquidity programs initiated by the
Federal Reserve, all since terminated, took effect. During this
period, the Federal Reserve also began paying interest on balances held at the Reserve Banks, increased its lending under the
Term Auction Facility, and began purchasing governmentsponsored enterprise mortgage-backed securities. These measures tended to increase balances institutions held at the Banks,
which decreased the demand for intraday credit. In 2007, for
example, institutions held, on average, less than $20 billion in
overnight balances, and total average daylight overdrafts were
around $60 billion.

Peak daylight overdrafts
Average daylight overdrafts

0
2007

2009

2011

2013

2015

2017

2019

institutions in response to public demand. Together,
the Board and Reserve Banks work to maintain the
integrity of and confidence in Federal Reserve notes.
In 2019, the Board paid $795.9 million to the Treasury’s Bureau of Engraving and Printing (BEP) for
costs associated with the production of 5.7 billion
Federal Reserve notes. The volume of Federal
Reserve notes issued and outstanding at year-end
2019 totaled 44.9 billion pieces, a 3.5 percent increase
from 2018. More than half of this growth was attributable to growth in demand for $100 notes, and an
additional 27.3 percent was attributable to growth in
demand for $1 and $20 notes. In 2019, the Reserve
Banks distributed 35.4 billion Federal Reserve notes
into circulation, a 3.7 percent decrease from 2018,
and received 33.9 billion Federal Reserve notes from
circulation, a 3.3 percent decrease from 2018.
The value of Federal Reserve notes issued and outstanding at year-end 2019 totaled $1,759.5 billion, a
5.3 percent increase from 2018. The year-over-year
increase is attributable largely to increased demand
for $100 notes. The Board estimates that at least onehalf of the value of Federal Reserve notes in circulation is held abroad, mainly as a store of value.
The Reserve Banks also distribute coin to depository
institutions on behalf of the U.S. Mint.5 In 2019,
Reserve Banks distributed 68.3 billion coins into cir5

The Federal Reserve Board is the issuing authority for Federal
Reserve notes, while the U.S. Mint, a bureau of the U.S. Treasury, is the issuing authority for coin.

Payment System and Reserve Bank Oversight

culation, a 2.2 percent decrease from 2018, and
received 56.1 billion coins from circulation, which is
unchanged from 2018.

Payment Services

Fiscal Agency and Government
Depository Services

The Reserve Banks support the Treasury by developing, operating, and maintaining electronic systems
that allow the public to receive payments from and
authorize payments to federal agencies, as well as by
providing operational and customer support.

The Federal Reserve Banks, upon the direction of the
Secretary of the Treasury, act as fiscal agents of the
U.S. government.6 The Reserve Banks, in their role as
fiscal agents, provide services such as payment services, financing and securities services, and financial
accounting and reporting services, as well as maintain the Treasury’s operating cash account.

The Reserve Banks process payments, such as federal
payroll, Social Security benefits, and veterans’ benefits, from the Treasury’s account at the Federal
Reserve and process payments made to the Treasury’s account at the Federal Reserve, which include
collections such as fees and debts owed to the federal
government.

To support further the Treasury’s mission, the
Reserve Banks develop, operate, and maintain a
number of automated systems and provide associated technology infrastructure services. The Reserve
Banks also provide certain fiscal agency and depository services to other entities.

Reserve Bank expenses for payment services were
$292.1 million in 2019, a decrease of $7.5 million, or
2.5 percent. The programs that contributed most to
Reserve Bank expenses in 2019 were the Stored Value
Card program, the Pay.gov program, and the U.S.
Treasury Electronic Payment Solution Center, which
are discussed in more detail below.

In 2019, Reserve Bank expenses for providing fiscal
agency and depository services totaled $729.0 million, an increase of $23.0 million, or 3.3 percent (see
table 2). The Treasury and other entities reimburse
fully the Reserve Banks for the expense of providing
fiscal agency and depository services. Support for
Treasury programs accounted for 94.4 percent of
expenses, and support for other entities accounted
for the remaining 5.6 percent.
6

In accordance with section 15 of the Federal Reserve Act. See
https://www.federalreserve.gov/aboutthefed/section15.htm.

The Reserve Banks work with the Treasury to support the Stored Value Card program, which comprises three military cash-management services:
EagleCash, EZPay, and Navy Cash. These programs
provide electronic payment methods for goods and
services on military bases and Navy ships. Stored
Value Cards are in use on more than 80 military
bases and installations in 19 countries (including the
U.S.) and on board more than 135 ships. In 2019, the
Reserve Banks continued to provide operations and
customer support, replaced legacy equipment, and

Table 2. Expenses of the Federal Reserve Banks for fiscal agency and depository services, 2017–19
Thousands of dollars1
Agency and service
Department of the Treasury
Payment services
Financing and Treasury securities services
Fiscal accounting and reporting services
Technology infrastructure services2
Total, Treasury
Other entities
Total reimbursable expenses
1
2

2019

2018

2017

292,078
191,614
65,105
139,703
688,500
40,471
728,971

299,619
168,387
62,985
135,660
666,651
39,344
705,995

290,541
169,044
63,091
137,720
660,396
37,875
698,271

Service costs include reimbursable pension costs, where applicable. Previous versions of the Annual Report provided a separate line item for pension expenses.
These costs include the development and support costs of Treasury technology infrastructure.

106th Annual Report | 2019

developed new functionality and capability for the
Stored Value Card.
The Reserve Banks also work with the Treasury to
expand electronic payment services to the Treasury’s
account at the Federal Reserve. The Reserve Banks
operate and maintain Pay.gov, an application that
allows the public to use the internet to initiate and
authorize payments to the federal government using
a U.S.-held bank account (through ACH Debit), a
credit or debit card, or a digital wallet through services such as PayPal or Amazon Pay. In 2019,
Pay.gov processed 221 million online payments valued at $212.0 billion. In addition, the Reserve Banks
worked with the Treasury to support the movement
of $85.0 billion in commercial deposits to the Treasury’s account at the Federal Reserve and processed
and settled 288 million electronic payment transactions valued at $695.0 billion. The Reserve Banks are
also supporting the Treasury’s efforts to modernize
its electronic tax collection system.
Additionally, the Reserve Banks support the Treasury’s efforts to expand electronic disbursements—
which include Social Security, Supplemental Security
Income, and veterans’ payments—and federal government invoicing for goods and services. The
Reserve Banks support the Treasury’s initiatives
aimed at eliminating paper check payments and
increasing electronic payments to beneficiaries
through the operation of the U.S. Treasury Electronic Payment Solution Center, which processes
requests from the public to convert federal benefit
payments, from paper check to electronic delivery. In
2019, the center completed its 10 millionth enrollment. The program, which started in 2005, has
allowed the Treasury to achieve $1.2 billion in savings
from administration and postal expenses. The
Reserve Banks also work with the Treasury to support outreach, implementation, development, operations, and maintenance of the invoice processing
platform, which accepts, processes, and presents
transaction data between government agencies and
vendor systems to facilitate electronic order-topayment processing. In 2019, the invoice processing
platform began a multiyear modernization initiative.

Financing and Securities Services
The Reserve Banks work closely with the Treasury in
support of the financing needed to operate the federal government, which includes forecasting, scheduling, auctioning, issuing, settling, maintaining, and
redeeming marketable Treasury securities (for

example, bills, notes, and bonds). The Reserve Banks
also support the Treasury’s efforts to encourage savings by issuing, maintaining, and redeeming U.S. savings bonds, as well as providing fulfillment services.
And the Reserve Banks provide customer service and
operate the automated systems that support marketable Treasury securities and U.S. savings bonds.
Reserve Bank expenses for financing and securities
services were $191.6 million in 2019, an increase of
$23.2 million, or 13.8 percent, primarily attributable
to development efforts to modernize the applications
that support the issuance, maintenance, and redemption of marketable Treasury securities and U.S. savings bonds. Increased expenses also reflect a full year
of operations support associated with the Treasury’s
introduction of the eight-week bill.
In 2019, the Reserve Banks, in partnership with the
Treasury, conducted 325 auctions that resulted in the
Treasury’s awarding $11.7 trillion in wholesale Treasury marketable securities to investors and supported
the issuance and servicing of $104.7 billion in savings
and marketable securities, which are held in the
TreasuryDirect system.

Accounting and Reporting Services
The Reserve Banks support the Treasury’s accounting and reporting functions by forecasting, monitoring, and managing the government’s overall cash
requirements, cash flow, and government-wide
accounting services. The Reserve Banks also support
the Treasury’s publication of the daily and monthly
Treasury statements; the Combined Statement of
Receipts, Outlays, and Balances of the United States
Government; and the Financial Report of the United
States Government.7
Reserve Bank expenses for financial accounting and
reporting services were $65.1 million in 2019, an
increase of $2.1 million, or 3.4 percent. The pro7

The Daily Treasury Statement summarizes the U.S. Treasury’s
cash and debt operations for the federal government on a modified cash basis and can be accessed at https://fiscal.treasury.gov/
reports-statements/dts/. The Monthly Treasury Statement summarizes the financial activities of the federal government and
off-budget federal entities and can be accessed at https://www
.fiscal.treasury.gov/reports-statements/mts/. The Combined
Statement of Receipts, Outlays, and Balances of the United
States Government is recognized as the official publication of
the government’s receipts and outlays and can be accessed at
https://fiscal.treasury.gov/reports-statements/combinedstatement/. The Financial Report of the United States Government provides the President, Congress, and the American people
with a comprehensive view of the federal government's finances
and can be accessed at https://fiscal.treasury.gov/reportsstatements/financial-report/.

Payment System and Reserve Bank Oversight

grams that contributed most to Reserve Bank
expenses in 2019 were the Central Accounting
Reporting System (CARS) and G-Invoicing, which
are discussed in more detail below.
The Reserve Banks operate and maintain CARS,
which handles accounting and reporting for all federal agencies and is the electronic system of record
for the government’s financial data. In 2019, the
Treasury, with the support of the Reserve Banks and
data from the CARS application and other sources,
unveiled “Your Guide to America’s Finances,” which
was developed to make the government’s financial
information accessible and presented in plain language with visualizations.8 The guide helps Americans understand the core financial concepts of revenue, spending, deficit, and debt and the part these
concepts play in the overall financial picture of the
United States. The Reserve Banks conducted market
research, completed data analysis, developed the user
interface, and helped develop a strategy to promote
the guide to the public. In addition, the Reserve
Banks operate and maintain the G-Invoicing application, which is a front-end application used by federal
agencies to originate buy/sell intragovernmental
transactions; manage the receipt and acceptance of
general terms and conditions agreements, orders, and
invoices; and initiate funds settlement. In 2019, the
Reserve Banks worked with the Treasury to enhance
the G-Invoicing application to improve the quality,
usability, and auditability of federal government
financial data.

Infrastructure and Technology Services
The Reserve Banks design, build, and maintain the
technology infrastructure and environments that host
the majority of applications that the Reserve Banks
develop, operate, or maintain on behalf of the
Treasury.
In 2019, the Reserve Banks continued to operate the
infrastructure and modernize systems, increased
automation, strengthened operational resiliency
through enhanced technical failover capabilities,
improved operational reporting and communications,
and strengthened the Treasury’s systems against everevolving cybersecurity threats.
Reserve Bank expenses for infrastructure and technology services were $139.7 million in 2019, an
increase of $4.0 million, or 3.0 percent.
8

“Your Guide to America’s Finances” can be accessed at https://
datalab.usaspending.gov/americas-finance-guide/index.html.

Services Provided to Other Entities
The Reserve Banks, when permitted by federal statute or when required by the Secretary of the Treasury, also provide other domestic and international
entities with U.S.-dollar denominated banking services, which include funds, securities, and gold safekeeping; securities clearing, settlement, and investment; and correspondent banking.
The Reserve Banks also issue and maintain, in electronic form, many federal government agency,
government-sponsored enterprise, and certain international organizations securities. The majority of
securities services are performed for the Federal
Home Loan Mortgage Association (Freddie Mac),
the Federal National Mortgage Association (Fannie
Mae), and the Government National Mortgage
Association (Ginnie Mae).
Reserve Bank expenses for services provided to other
entities were $40.5 million in 2019, an increase of
$1.1 million, or 2.9 percent.

Evolutions and Improvements to the
System
The Federal Reserve performs many functions in the
payment system, including
• payment system operator,
• supervisor and regulator of financial institutions
and systemically important financial market utilities (see box 3),
• researcher, and
• catalyst for system improvements.

FedNow Service
The development of the FedNow Service will be a
focus of the Federal Reserve for the foreseeable
future. The Federal Reserve anticipates that the
FedNow Service will be available sometime in 2023
or 2024. As the Federal Reserve finalizes the service
implementation timeline, information for depository
institutions will be available through existing Federal
Reserve Bank communication channels.
The Federal Reserve announced its plans on
August 5, 2019, to develop the FedNow Service, a
new real-time gross settlement service, to support
nationwide access to faster payments. The Federal

106th Annual Report | 2019

Box 3. Payment System Regulatory Activity in 2019
Congress has assigned to the Board responsibility for
implementing the Federal Reserve Act and certain
other laws pertaining to a wide range of banking and
financial activities, including those related to the payment and settlement system. The Board implements
those laws in part through its regulations. See the
Board’s website at https://www.federalreserve.gov/
supervisionreg/reglisting.htm.
• Regulation CC (January 2019). The Board published a final rule that amends subpart C to
address situations where there is a dispute as to
whether a check has been altered or was issued
with an unauthorized signature, and the original
paper check is not available for inspection. https://
www.govinfo.gov/content/pkg/FR-2018-12-10/
html/2018-25746.htm
• Regulation J (January 2019). The Board published final amendments that clarify and simplify
certain provisions of Regulation J, remove obsolete provisions, and align the rights and obligations

Reserve’s provision of the FedNow Service will provide core infrastructure to promote ubiquitous, safe,
and efficient faster payments in the United States.
As part of the process for developing the FedNow
Service, the Federal Reserve Board requested public
comment on the service’s desired features and functionality. The comment period, which closed on
November 7, 2019, yielded approximately 182 comment letters from more than 353 industry stakeholders. Commenters represented a wide array of faster
payments stakeholders, including banks of all sizes,
core processors, trade organizations, consumer organizations, financial technology firms, and service providers, among others. The Federal Reserve is in the
process of considering this industry feedback on the
FedNow Service’s features and functionality and
plans to publish a Federal Register notice with a
finalized the FedNow Service description.

Other Improvements and Efforts
The Reserve Banks have been engaged in a number
of multiyear technology initiatives that will modernize their priced-services processing platforms. These
investments are expected to enhance efficiency, the
overall quality of operations, and the Reserve Banks’
ability to offer additional services, consistent with the
longstanding principles of fostering efficiency and
safety, to depository institutions. The Reserve Banks
continued to enhance the resiliency and information

of sending banks, paying banks, and Federal
Reserve Banks with the Board’s recent amendments to Regulation CC to reflect the virtually allelectronic check collection and return environment. https://www.govinfo.gov/content/pkg/
FR-2018-11-30/html/2018-25267.htm
• Regulation CC (September 2019). The Board and
the Consumer Financial Protection Bureau jointly
issued regulations that implement a statu-tory
requirement in the Electronic Funds Availabil-ity
(EFA) Act to adjust the dollar amounts under the
EFA Act for inflation. The agencies also amended
Regulation CC to incorporate the Eco-nomic
Growth, Regulatory Relief, and Consumer
Protection Act amendments to the EFA Act, which
include extending coverage to American Samoa,
the Commonwealth of the Northern Mariana
Islands, and Guam and making certain other technical amendments. https://www.govinfo.gov/
content/pkg/FR-2019-07-03/html/2019-13668.htm

security posture of the Fedwire Funds, National
Settlement Service, and Fedwire Securities Service
through the Fedwire Resiliency Program, a multiyear
initiative to respond to environmental threats and
cyberthreats. The Reserve Banks are also developing
and planning to implement a new FedACHprocessing platform to improve the efficiency and
reliability of their current FedACH operations.
During 2019, the Federal Reserve continued developmental work to replace the aging high-speed currency
processing equipment and sensors at all Reserve
Banks by 2026. Through a competitive process, the
Federal Reserve selected two vendors to build prototype machines for delivery in 2020. Following the
prototype assessments, the Reserve Banks will select
one vendor to develop new production machines. In
addition to new machine development, the Federal
Reserve awarded a contract in 2019 and expects to
award additional contracts in 2020 to replace sensors
within the replacement high-speed currency processing equipment.
The improvement of the efficiency, effectiveness, and
security of information technology (IT) services and
operations continued to be a central focus of the Federal Reserve Banks. Led by the Federal Reserve’s
National IT organization, the 2019–2022 IT System
IT Strategic Plan sets priorities, aligns IT direction
and resources, and ensures IT leaders and team members are working towards a common set of goals. The

Payment System and Reserve Bank Oversight

goals of the plan are security, simplicity, and productivity with priorities in cybersecurity, cloud-enabled
technologies, and end-user capabilities. National IT
continues to guide the plan’s implementation and
track progress toward the goals.

Box 4. Payment System Research
and Analysis
The Federal Reserve conducts research on a wide
range of topics related to the design and activities of
payment, clearing, and settlement (PCS) systems
and financial market infrastructures, as well as the
role of these systems in the commercial activities of
consumers, businesses, and governments.

The Reserve Banks remained vigilant about their
cybersecurity posture, investing in risk-mitigation initiatives and programs and continuously monitoring
and assessing cybersecurity risks to operations and
protecting systems and data. The Federal Reserve
implemented several cybersecurity initiatives that
enhanced identity and access management capabilities; enhanced the ability to respond to evolving
cybersecurity threats with agility, decisiveness, and
speed by streamlining decisionmaking during a
cybersecurity incident; and continued to improve
continuous monitoring capabilities of critical assets.

In 2019, topics examined in Federal Reserve
research included the following:
•• measurement and analysis of long-run trends and
short-run developments in the use of established
payment methods1
• drivers and potential effects of innovations in the
payment system, particularly those related to new
and emerging technologies, such as digital
currencies
• design, oversight, and regulation of financial market infrastructures

Several Reserve Banks took action in 2019 to maintain and renovate their facilities. Major multiyear
facility programs at several Reserve Bank offices continued, focused on updating obsolescent building systems to ensure infrastructure resiliency and continuity of operations. The Philadelphia Reserve Bank initiated construction activities for its multiyear
program to replace its entire mechanical and electrical infrastructure. Other programs addressed the
need to update office and operations areas in support
of efficiency and working environment.
For more information on the acquisition costs and
net book value of the Reserve Banks and Branches,
see table 14 in Appendix G (“Statistical Tables”) of
this annual report.

Oversight of Federal Reserve Banks
The combined financial statements of the Reserve
Banks and the financial statements of each of the
12 Reserve Banks are audited annually by an independent public accounting firm retained by the
Board of Governors.9 In addition, the Reserve Banks
are subject to oversight by the Board of Governors,
which performs its own reviews (see box 3).
The Reserve Banks use the 2013 framework established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) to assess
9

See “Federal Reserve Banks Combined Financial Statements” at
https://www.federalreserve.gov/aboutthefed/audited-annualfinancial-statements.htm.

• developments related to payments fraud
For more information, see the Board’s Payment
Research website at https://www.federalreserve.gov/
paymentsystems/payres_about.htm; see also Federal
Reserve Bank Payments Groups at https://www
.federalreserve.gov/paymentsystems/payres_
fedgroups.htm.
1

In particular, see information about recent releases by the Federal
Reserve Payments Study, available at https://
www.federalreserve .gov/paymentsystems/fr-paymentsstudy.htm.

their internal controls over financial reporting,
including the safeguarding of assets. The management of each Reserve Bank annually provides an
assertion letter to its board of directors that confirms
adherence to COSO standards.
The Federal Reserve Board engaged KPMG LLP
(KPMG) to audit the 2019 combined and individual
financial statements of the Reserve Banks.10 In 2019,
KPMG also conducted audits of the internal controls associated with financial reporting for each of
the Reserve Banks. Fees for KPMG’s services totaled
$7.2 million. To ensure auditor independence, the
Board requires that KPMG be independent in all
matters relating to the audits. Specifically, KPMG
10

In addition, KPMG audited the Office of Employee Benefits of
the Federal Reserve System (OEB), the Retirement Plan for
Employees of the Federal Reserve System (System Plan), and
the Thrift Plan for Employees of the Federal Reserve System
(Thrift Plan). The System Plan and the Thrift Plan provide
retirement benefits to employees of the Board, the Federal
Reserve Banks, the OEB, and the Consumer Financial Protection Bureau.

106th Annual Report | 2019

may not perform services for the Reserve Banks or
affiliates that would place it in a position of auditing
its own work, making management decisions on
behalf of the Reserve Banks, or in any other way
impairing its audit independence. In 2019, the
Reserve Banks did not engage KPMG for significant
non-audit services.
The Board’s reviews of the Reserve Banks include a
wide range of oversight activities, conducted primarily by its Division of Reserve Bank Operations and
Payment Systems. Division personnel monitor, on an
ongoing basis, the activities of each Reserve Bank,
National IT, and the System’s Office of Employee
Benefits (OEB). The oversight program identifies the
most strategically important Reserve Bank current
and emerging risks and defines specific approaches to
achieve a comprehensive evaluation of the Reserve
Banks’ controls, operations, and management
effectiveness.
The comprehensive reviews include an assessment of
the internal audit function’s effectiveness and its conformance to the Institute of Internal Auditors’ (IIA)
International Standards for the Professional Practice
of Internal Auditing, applicable policies and guidance, and the IIA’s code of ethics.

Income and Expenses
Annually, the Board releases the Combined Reserve
Banks financial statements with financial information as of December 31 and includes the accounts
and results of operations of each of the 12 Reserve Banks.
In 2019, income was $103.2 billion, compared with
$112.7 billion in 2018; expenses totaled $47.7 billion,
compared with $49.4 billion in 2018; and net income
before remittances to Treasury totaled $55.5 billion in
2019, compared with $63.1 billion in 2018.
Table 3 summarizes the income, expenses, and distributions of net earnings of the Reserve Banks for
2019 and 2018. Appendix G of this report, “Statistical Tables,” provides more detailed information on
the Reserve Banks.11 Additionally, appendix G summarizes the Reserve Banks’ 2019 budget performance
and 2020 budgets, budgeting processes, and trends in
expenses and employment.

SOMA Holdings

• determine whether the New York Reserve Bank,
while conducting the related transactions and associated controls, complies with the policies established by the Federal Open Market Committee
(FOMC); and

The FOMC has authorized and directed the Federal
Reserve Bank of New York execute open market
transactions to the extent necessary to carry out the
domestic policy directive adopted by the FOMC. The
Federal Reserve Bank of New York, on behalf of the
Reserve Banks, holds in the SOMA the resulting
securities, which include U.S. Treasuries, federal
agency and government-sponsored enterprise debt
securities, federal agency and government-sponsored
enterprise mortgage-backed securities, investments
denominated in foreign currencies, and commitments
to buy or sell related securities.

• assess SOMA-related IT project management and
application development, vendor management, and
system resiliency and contingency plans.

Table 4 summarizes the average daily assets (liabilities), current income (expenses), and average interest
rate of SOMA holdings for 2019 and 2018.

The Board also reviews System Open Market
Account (SOMA) and foreign currency holdings
annually to

In addition, KPMG audits the year-end schedule of
SOMA participated asset and liability accounts and
the related schedule of participated income accounts.
The FOMC is provided with the external audit
reports and a report on the Board review.

Table 9A is a statement of condition for each Reserve Bank;
table 10 details the income and expenses of each Reserve Bank
for 2019; table 11 shows a condensed statement for each Reserve
Bank for the years 1914 through 2019; and table 13 gives the
number and annual salaries of officers and employees for each
Reserve Bank.

Payment System and Reserve Bank Oversight

Table 3. Income, expenses, and distribution of net earnings of the Federal Reserve Banks, 2019 and 2018
Millions of dollars
Item
Current income
Loan interest income
SOMA interest income
Other current income1
Net expenses
Operating expenses
Reimbursements
System pension service cost
Interest paid on depository institutions deposits and others
Interest expense on securities sold under agreements to repurchase
Other expenses
Current net income
Net (deductions from) additions to current net income
Treasury securities gains, net
Federal agency and government-sponsored enterprise mortgage-backed securities (losses) gains, net
Foreign currency translation losses, net
Other deductions or additions
Assessments by the Board of Governors3
For Board expenditures
For currency costs
For Consumer Financial Protection Bureau costs4
Net income before providing for remittances to the Treasury
Earnings remittances to the Treasury
Net income after providing for remittances to the Treasury
Other comprehensive gain
Comprehensive (loss) income
Total distribution of net income
Dividends on capital stock
Transfer to surplus and change in accumulated other comprehensive income
Earnings remittances to the Treasury5
1
2
3

4
5

2019
103,220
1
102,737
482
45,423
4,690
-729
510
34,939
6,012
1
57,797
-169
0
9
-168
-10
2,170
814
837
519
55,458
54,893
565
149
714
55,607
714
0
54,893

2018
112,727
3
112,257
4672
47,329
4,4092
-706
5772
38,486
4,559
4
65,398
-273
5
-3
-390
1152
2,024
838
849
337
63,101
65,319
-2,218
42
-2,176
63,143
999
-3,175
65,319

Includes income from priced services and securities lending fees.
Income and expenses from 2018 have been reclassified in accordance with accounting standard updates.
A detailed account of the assessments and expenditures of the Board of Governors appears in the Board of Governors Financial Statements (see https://www.federalreserve
.gov/aboutthefed/audited-annual-financial-statements.htm).
The Board of Governors assesses the Reserve Banks to fund the operations of the Consumer Financial Protection Bureau.
Earnings remittances to the Treasury in 2018 included two lump sum payments totaling a $3.175 billion as required by the Bipartisan Budget Act of 2018 and the Economic
Growth, Regulatory Relief, and Consumer Protection Act.

106th Annual Report | 2019

Table 4. System Open Market Account (SOMA) holdings and Loans of the Federal Reserve Banks, 2019 and 2018
Millions of dollars, except as noted
Average daily assets (+)/liabilities (–)
Item

SOMA Holdings
Securities purchased under agreements to
resell
U.S. Treasury securities1
Government-sponsored enterprise debt (GSE)
securities1
Federal agency and GSE mortgage-backed
securities2
Foreign currency denominated investments3
Central bank liquidity swaps4
Other SOMA assets5
Total SOMA assets
Securities sold under agreements to
repurchase: primary dealers and expanded
counterparties
Securities sold under agreements to
repurchase: foreign official and international
accounts
Total securities sold under agreements to
repurchase
Other SOMA liabilities6
Total SOMA liabilities
Total SOMA holdings
1

Current income (+)/expense (–)

Average interest rate (percent)

2019

2018

Year-over-year
change

2019

2018

Year-over-year
change

2019

2018

56,971
2,233,384

*
2,442,075

256
-208,691

971
58,532

*
62,807

971
-4,275

1.70
2.62

n/a
2.57

2,682

3,638

-956

137

175

-38

5.10

4.81

1,574,798
20,744
273
4
3,888,856

1,769,026
21,335
677
7
4,236,758

-194,228
-591
-404
-3
-347,902

43,124
-33
6
*
102,737

49,289
-29
15
*
112,257

-6,165
-4
-9
*
-9,520

2.74
-0.16
2.43
1.85
2.64

2.79
-0.14
2.23
1.50
2.65

-4,981

-12,552

7,571

-102

-186

2.04

1.48

-269,399

-236,818

-32,581

-5,910

-4,373

-1,537

2.19

1.85

-274,380
-97
-274,477
3,614,379

-249,370
-302
-249,672
3,987,086

-25,010
205
-24,805
-372,707

-6,012
n/a
-6,012
96,726

-4,559
n/a
-4,559
107,698

-1,453
n/a
-1,453
-10,972

2.19
n/a
2.19
2.68

1.83
n/a
1.83
2.70

Face value, net of unamortized premiums and discounts.
Face value, which is the remaining principal balance of the securities, net of unamortized premiums and discounts. Does not include unsettled transactions.
3
Foreign currency denominated assets are revalued daily at market exchange rates.
4
Dollar value of foreign currency held under these agreements valued at the exchange rate to be used when the foreign currency is returned to the foreign central bank. This
exchange rate equals the market exchange rate used when the foreign currency was acquired from the foreign central bank.
5
Cash and short-term investments related to the federal agency and government-sponsored enterprise mortgage-backed securities (GSE MBS) portfolio.
6
Represents the obligation to return cash margin posted by counterparties as collateral under commitments to purchase and sell federal agency and GSE MBS, as well as
obligations that arise from the failure of a seller to deliver securities on the settlement date.
n/a Not applicable.
* Less than $500,000.
2

Payment System and Reserve Bank Oversight

Pro Forma Financial Statements for
Federal Reserve Priced Services
Table 5. Pro forma balance sheet for Federal Reserve priced services, December 31, 2019 and 2018
Millions of dollars
Item
Short-term assets (note 1)
Imputed investments
Receivables
Materials and supplies
Prepaid expenses
Items in process of collection
Total short-term assets
Long-term assets (note 2)
Premises
Furniture and equipment
Leases, leasehold improvements, and long-term prepayments
Deferred tax asset
Total long-term assets
Total assets
Short-term liabilities (note 3)
Deferred-availability items
Short-term debt
Short-term payables
Total short-term liabilities
Long-term liabilities (note 3)
Long-term debt
Accrued benefit costs
Total long-term liabilities
Total liabilities
Equity (including accumulated other comprehensive loss of $618.7 million
and $624.1 million at December 31, 2019 and 2018, respectively)
Total liabilities and equity (note 3)

2019

2018

656.2
39.3
0.6
12.2
80.7

770.1
38.2
0.6
14.4
236.2
789.0

111.5
32.7
91.6
176.1

1,059.5
113.0
37.0
103.8
183.3

411.9
1,200.9
736.9
27.4
24.7

437.1
1,496.6
1,006.2
27.6
25.7

789.0

1,059.5
19.1r
343.2r

10.1
341.8
351.9
1,140.9

362.3
1,421.8

60.0
1,200.9

74.8
1,496.6

Note: Components may not sum to totals because of rounding. The accompanying notes are an integral part of these pro forma priced services financial statements.
r Revised

106th Annual Report | 2019

Table 6. Pro forma income statement for Federal Reserve priced services, 2019 and 2018
Millions of dollars
Item

2019

Revenue from services provided to depository institutions (note 4)
Operating expenses (note 5)
Income from operations
Imputed costs (note 6)
Interest on debt
Interest on float
Sales taxes
Income from operations after imputed costs
Other income and expenses (note 7)
Investment income
Income before income taxes
Imputed income taxes (note 6)
Net income
Memo: Targeted return on equity (note 6)

2018
443.6
440.7
2.9

0.3
-4.8
4.2

442.5
421.6
20.9
3.1
-4.7
3.8

-0.3
3.2

0.5

2.3
18.7

0.0
3.7
0.8
2.9
5.4

18.7
4.2
14.4
5.2

Note: Components may not sum to totals because of rounding. The accompanying notes are an integral part of these pro forma priced services financial statements.

Table 7. Pro forma income statement for Federal Reserve priced services, by service, 2019
Millions of dollars
Item
Revenue from services (note 4)
Operating expenses (note 5)1
Income from operations
Imputed costs (note 6)
Income from operations after imputed costs
Other income and expenses, net (note 7)
Income before income taxes
Imputed income taxes (note 6)
Net income
Memo: Targeted return on equity (note 6)
Cost recovery (percent) (note 8)

Total
443.6
440.7
2.9
(0.3)
3.2
0.5
3.7
0.8
2.9
5.4
99.4%

Commercial check
collection
128.1
118.6
9.5
1.5
8.0
0.1
8.1
1.8
6.3
1.4
104.0%

Commercial ACH
152.9
158.8
(5.9)
(3.5)
(2.4)
0.2
(2.2)
(0.5)
(1.7)
2.0
97.6%

Fedwire funds
135.5
136.9
(1.5)
1.4
(2.9)
0.1
(2.7)
(0.6)
(2.1)
1.6
97.3%

Fedwire securities
27.1
26.3
0.7
0.3
0.5
0.0
0.5
0.1
0.4
0.3
100.3%

Note: Components may not sum to totals because of rounding. Excludes amounts related to development of the FedNow Service. The accompanying notes are an integral part of
these pro forma priced services financial statements.
1
Operating expenses include pension costs, Board expenses, and reimbursements for certain nonpriced services.

Payment System and Reserve Bank Oversight

Notes to Pro Forma Financial Statements for Priced Services
(1) Short-Term Assets
Receivables are composed of fees due the Reserve Banks for providing priced services and the share of suspense- and difference-account balances related to priced
services.
Items in process of collection are gross Federal Reserve cash items in process of
collection (CIPC), stated on a basis comparable to that of a commercial bank.
They reflect adjustments for intra-Reserve Bank items that would otherwise be
double-counted on the combined Federal Reserve balance sheet and adjustments
for items associated with nonpriced items (such as those collected for government
agencies). Among the costs to be recovered under the Monetary Control Act is the
cost of float, or net CIPC during the period (the difference between gross CIPC
and deferred-availability items, which is the portion of gross CIPC that involves a
financing cost), valued at the federal funds rate. Investments of excess financing
derived from credit float are assumed to be invested in federal funds.
(2) Long-Term Assets
Long-term assets consist of long-term assets used solely in priced services and the
priced-service portion of long-term assets shared with nonpriced services, including a deferred tax asset related to the priced services pension and postretirement
benefits obligation. The tax rate associated with the deferred tax asset was
22.2 percent for 2019 and 22.7 percent for 2018.
Long-term assets also consist of an estimate of the assets of the Board of Governors used in the development of priced services.
(3) Liabilities and Equity
Under the matched-book capital structure for assets, short-term assets are
financed with short-term payables and imputed short-term debt, if needed. Longterm assets are financed with long-term liabilities, imputed long-term debt, and
imputed equity, if needed. To meet the Federal Deposit Insurance Corporation
(FDIC) requirements for a well-capitalized institution, in 2019 equity is imputed at
5.0 percent of total assets and 10.4 percent of risk-weighted assets, and 2018
equity is imputed at 5.0 percent of total assets and 11.3 percent of risk-weighted
assets.
The Board’s Payment System Risk policy reflects the international standards for
financial market infrastructures developed by the Committee on Payment and
Settlement Systems and the Technical Committee of the International Organization of Securities Commissions in the Principles for Financial Market Infrastructures. The policy outlines the expectation that the Fedwire Services will meet or
exceed the applicable risk-management standards. Although the Fedwire Funds
Service does not face the risk that a business shock would cause the service to wind
down in a disorderly manner and disrupt the stability of the financial system, in
order to foster competition with private-sector financial market infrastructures, the
Reserve Banks’ priced services will hold six months of the Fedwire Funds Service’s
current operating expenses as liquid net financial assets and equity on the pro
forma balance sheet and, if necessary, impute additional assets and equity to meet
the requirement. The imputed assets held as liquid net financial assets are cash
items in process of collection, which are assumed to be invested in federal funds. In

106th Annual Report | 2019

2019 and 2018, there was sufficient assets and equity such that additional imputed
balances were not required.
In accordance with ASC 715, Compensation–Retirement Benefits, the Reserve
Banks record the funded status of pension and other benefit plans on their balance
sheets. To reflect the funded status of their benefit plans, the Reserve Banks recognize the deferred items related to these plans, which include prior service costs and
actuarial gains or losses, on the balance sheet. This results in an adjustment to the
pension and other benefit plan liabilities related to priced services and the recognition of an associated deferred tax asset with an offsetting adjustment, net of tax,
to accumulated other comprehensive income (AOCI), which is included in equity.
The Reserve Bank priced services recognized a pension asset, which is a component of accrued benefit costs, of $17.0 million in 2019 and a pension asset of
$18.8 million in 2018.12 The change in the funded status of the pension and other
benefit plans resulted in a corresponding decrease in accumulated other comprehensive loss of $9.4 million in 2019.
(4) Revenue
Revenue represents fees charged to depository institutions for priced services and
is realized from each institution through direct charges to an institution’s account.
(5) Operating Expenses
Operating expenses consist of the direct, indirect, and other general administrative
expenses of the Reserve Banks for priced services (that is, Check, ACH, FedWire
Funds, and FedWire Securities) and the expenses of the Board related to the development of priced services. Board expenses were $7.0 million in 2019 and $5.1 million in 2018. Operating expenses exclude amounts related to the development of
the FedNow Service.
In accordance with ASC 715, the Reserve Bank priced services recognized qualified pension-plan operating expenses of $28.8 million in 2019 and $26.5 million in
2018. Operating expenses also include the nonqualified net pension expense of
$9.9 million in 2019 and $5.0 million in 2018. The 2019 pension expense increase
reflects the impact of adopting an update to ASC 715 requiring disaggregation of
other components of net benefit expense from service costs. Reserve Banks prospectively adopted this accounting change in 2019. If other components of net
benefit cost had been disaggregated from service costs during 2018, qualified
pension-plan operating expenses would have increased $8.4 million to $34.8 million. ASC 715 does not change the systematic approach required by generally
accepted accounting principles to recognize the expenses associated with the
Reserve Banks’ benefit plans in the income statement. As a result, these expenses
do not include amounts related to changes in the funded status of the Reserve
Banks’ benefit plans, which are reflected in AOCI.
The income statement by service reflects revenue, operating expenses, imputed
costs, other income and expenses, and cost recovery. The tax rate associated with
imputed taxes was 22.2 percent for 2019 and 22.7 percent for 2018.
(6) Imputed Costs
Imputed costs consist of income taxes, return on equity, interest on debt, sales
taxes, and interest on float. Many imputed costs are derived from the PSAF
12

The prior year pension asset was restated from $19.1 million to $18.8 million because of revisions to
the calculation methodology.

Payment System and Reserve Bank Oversight

model. The 2019 cost of short-term debt imputed in the PSAF model is based on
nonfinancial commercial paper rates; the cost of imputed long-term debt is based
on Merrill Lynch Corporate and High Yield Index returns; and the effective tax
rate is derived from U.S. publicly traded firm data, which serve as the proxy for the
financial data of a representative private-sector firm. The after-tax rate of return
on equity is based on the returns of the equity market as a whole.13
Interest is imputed on the debt assumed necessary to finance priced-service assets.
These imputed costs are allocated among priced services according to the ratio of
operating expenses, less shipping expenses, for each service to the total expenses,
less the total shipping expenses, for all services.
Interest on float is derived from the value of float to be recovered for the check
and ACH services, Fedwire Funds Service, and Fedwire Securities Services through
per-item fees during the period. Float income or cost is based on the actual float
incurred for each priced service.
The following shows the daily average recovery of actual credit float by the
Reserve Banks for 2019 and 2018, in millions of dollars:14

Total float
Float not related to priced services1
Float subject to recovery through per-item fees
1

2019

2018

-225.3
-9.7
-215.6

-254.6
-0.1
-254.5

Float not related to priced services includes float generated by services to government agencies and by other central bank
services.

Float that is created by account adjustments due to transaction errors and the
observance of nonstandard holidays by some depository institutions was recovered from the depository institutions through charging institutions directly. Float
subject to recovery is valued at the federal funds rate. Certain ACH funding
requirements and check products generate credit float; this float has been subtracted from the cost base subject to recovery in 2019 and 2018.
(7) Other Income and Expenses
Other income consists of income on imputed investments. Excess financing resulting from additional equity imputed to meet the FDIC well-capitalized requirements is assumed to be invested and earning interest at the 3-month Treasury bill
rate.
(8) Cost Recovery
Annual cost recovery is the ratio of revenue, including other income, to the sum of
operating expenses, imputed costs, imputed income taxes, and after-tax targeted
return on equity.

See Federal Reserve Bank Services Private-Sector Adjustment Factor, 77 Fed. Reg. 67,007 (November 8, 2012), https://www.gpo.gov/fdsys/pkg/FR-2012-11-08/pdf/2012-26918.pdf, for details regarding
the PSAF methodology change.
Credit float occurs when the Reserve Banks debit the paying bank for checks and other items prior to
providing credit to the depositing bank.

Consumer and Community
Affairs

The Federal Reserve is committed to promoting fair
and transparent financial service markets, protecting
consumers’ rights, and ensuring that Federal Reserve
policies and research take consumer and community
perspectives into account. The Board is charged with
identifying and monitoring consumer and community development issues, and makes sure the voices of
consumers and communities are heard at the Fed.
The Board supports consumer financial inclusion and
community development through targeted work in
supervision, regulatory policy, and research and
analysis.
To fulfill its consumer protection and community
development function, the Federal Reserve performs
several key roles:
• Formulating and carrying out supervision and
examination policy to ensure that financial institutions under its jurisdiction1 comply with consumer
1

The Federal Reserve has examination and enforcement authority for federal consumer financial laws and regulations for
insured depository institutions with assets of $10 billion or less
that are state member banks and not affiliates of covered institutions, as well as for conducting CRA examinations for all state
member banks regardless of size. The Federal Reserve Board
also has examination and enforcement authority for certain federal consumer financial laws and regulations for insured depository institutions that are state member banks with $10 billion or
less in assets, while the Consumer Financial Protection Bureau
has examination and enforcement authority for many federal
consumer financial laws and regulations for insured depository
institutions with over $10 billion in assets and their affiliates
(covered institutions), as mandated by the Dodd-Frank Act. For
data on state member banks and other institutions supervised
by the Federal Reserve (including number and assets of), see section 4, “Supervision and Regulation.”
Agency and branch offices of foreign banking organizations,
Edge Act corporations, and agreement corporations fall under
the Federal Reserve’s purview for consumer compliance activities. An agreement corporation is a type of bank chartered by a
state to engage in international banking. The bank agrees with
the Federal Reserve Board to limit its activities to those allowed
by an Edge Act corporation. An Edge Act corporation is a
banking institution with a special charter from the Federal
Reserve to conduct international banking operations and certain
other forms of business without complying with state-by-state
banking laws. By setting up or investing in Edge Act corporations, U.S. banks are able to gain portfolio exposure to financial
investing operations not available under standard banking laws.

protection laws and regulations and meet requirements of community reinvestment laws and
regulations;
• writing and reviewing regulations that implement
consumer protection and community reinvestment
laws;
• conducting research, analysis, and data collection
to identify and assess emerging consumer and
community development issues to understand
opportunities and risks when making policy decisions; and
• engaging, convening, and informing key stakeholders to identify issues and advance what works in
community reinvestment and consumer protection.

Supervision and Examinations
The Federal Reserve’s consumer protection supervision program includes a review of state member
banks’ performance under the Community Reinvestment Act (CRA) as well as assessment of compliance
with and enforcement of a wide range of consumer
protection laws and regulations, for example, those
related to fair lending, unfair or deceptive acts or
practices (UDAP), and flood insurance.
The Board’s Division of Consumer and Community
Affairs develops policies that govern, and provide
oversight of, the Reserve Banks’ programs for consumer compliance supervision and examination of
state member banks and bank holding companies
(BHCs). In addition, the Board coordinates with the
prudential regulators and the Consumer Financial
Protection Bureau (CFPB) as part of the supervisory
coordination requirements under the Dodd-Frank
Wall Street Reform and Consumer Protection Act
(Dodd-Frank Act), and ensures that consumer
compliance risk is appropriately incorporated into
financial institutions’ consolidated risk-management
programs. The Board also develops and delivers
examiner training; analyzes bank and BHC applica-

106th Annual Report | 2019

tions related to consumer protection, convenience
and needs, and the CRA; and processes consumer
complaints.
Examinations are the Federal Reserve’s primary
method of ensuring compliance with consumer protection laws and assessing the adequacy of consumer
compliance risk-management systems within regulated entities. During 2019, the Reserve Banks completed 238 consumer compliance examinations of
state member banks, 221 CRA examinations of state
member banks, 19 examinations of foreign banking
organizations, 1 examination of Edge Act corporations, and no examinations of agreement
corporations.
In February 2019, the Board revised its ratings
system for large financial institutions that represents
a supervisory evaluation of whether a firm possesses
sufficient financial and operational strength and resilience to maintain safe-and-sound operations and
comply with laws and regulations, including those
related to consumer protection, through a range of
conditions.2 The Board also released a letter to
clarify the supervisory rating system to be applied for
holding companies with less than $100 billion in consolidated assets.3

race, color, religion, sex, handicap, familial status, or
national origin.
The Board supervises all state member banks for
compliance with the FHA. The Board and the CFPB
both have supervisory authority for compliance with
the ECOA. For state member banks with assets of
$10 billion or less, the Board has the authority to
enforce the ECOA. For state member banks with
assets over $10 billion, the CFPB has this authority.
With respect to the Federal Trade Commission Act
(FTC Act), which prohibits unfair or deceptive acts
or practices, the Board has supervisory and enforcement authority over all state member banks, regardless of asset size. The Board is committed to ensuring
that the institutions it supervises comply fully with
the prohibition on unfair or deceptive acts or practices as outlined in the FTC Act. An act or practice
may be found to be unfair if it causes or is likely to
cause substantial injury to consumers that is not reasonably avoidable by consumers and not outweighed
by countervailing benefits to consumers or to competition. A representation, omission, or practice is
deceptive if it is likely to mislead a consumer acting
reasonably under the circumstances and is material,
and thus likely to affect a consumer’s conduct or
decision regarding a product or service.

Supervisory Matters
Enforcement Activities
Fair Lending and UDAP Enforcement

The Board is committed to ensuring that the institutions it supervises comply fully with the federal fair
lending laws—the Equal Credit Opportunity Act
(ECOA) and the Fair Housing Act (FHA). The
ECOA prohibits creditors from discriminating
against any applicant, in any aspect of a credit transaction, on the basis of race, color, religion, national
origin, sex, marital status, or age. In addition, creditors may not discriminate against an applicant
because the applicant receives income from a public
assistance program or has exercised, in good faith,
any right under the Consumer Credit Protection Act.
The FHA prohibits discrimination in residential realestate-related transactions—including the making
and purchasing of mortgage loans—on the basis of
2

See https://www.federalreserve.gov/supervisionreg/srletters/
sr1903.htm.
See https://www.federalreserve.gov/supervisionreg/srletters/
sr1904.htm.

Fair lending and UDAP reviews are conducted regularly within the supervisory cycle. Additionally,
examiners may conduct fair lending and UDAP
reviews outside of the usual supervisory cycle, if warranted by fair lending and UDAP risk. When examiners find evidence of potential discrimination or
potential UDAP violations, they work closely with
the Board’s Fair Lending or UDAP Enforcement
staff, who provide additional legal and statistical
expertise and ensure that fair lending and UDAP
laws are enforced consistently and rigorously
throughout the Federal Reserve System.
With respect to fair lending, pursuant to the ECOA,
if the Board has reason to believe that a creditor has
engaged in a pattern or practice of discrimination in
violation of the ECOA, the matter must be referred
to the Department of Justice (DOJ). The DOJ
reviews the referral and determines whether further
investigation is warranted. A DOJ investigation may
result in a public civil enforcement action. Alternatively, the DOJ may decide to return the matter to the
Board for administrative enforcement. When a matter is returned to the Board, staff ensure that the

Consumer and Community Affairs

institution takes all appropriate corrective action. In
2019, the Board referred one fair lending matter
to DOJ.
If there is a fair lending violation that does not constitute a pattern or practice under the ECOA or a
UDAP violation, the Federal Reserve takes action to
ensure that the violation is remedied by the bank.
The Federal Reserve frequently uses informal supervisory tools (such as memoranda of understanding
between banks’ boards of directors and the Reserve
Banks, or board resolutions) to ensure that violations
are corrected. When necessary, the Board can bring
public enforcement actions.
The Board brought one public enforcement action
for UDAP violations in 2019, issuing a consent order
against a bank for deceptive and unfair practices
related to the bank’s operation and billing of certain
add-on products. The order required the bank to validate that it has provided appropriate restitution to
more than 30,000 customers and to take other corrective actions.4 The bank claimed to have paid $8.8 million in restitution prior to the entry of the consent
order. The bank also reported that it would pay additional restitution to the affected customers pursuant
to the terms of the consent order.
Given the complexity of this area of supervision, the
Federal Reserve seeks to provide transparency on its
perspectives and processes to the industry and the
public. Fair Lending and UDAP Enforcement staff
meet regularly with consumer advocates, supervised
institutions, and industry representatives to discuss
fair lending and UDAP issues and receive feedback.
Through this outreach, the Board is able to address
emerging fair lending and UDAP issues and promote
sound fair lending and UDAP compliance. This
includes staff participation in numerous meetings,
conferences, and trainings sponsored by consumer
advocates, industry representatives, and interagency
groups.
Flood Insurance

The National Flood Insurance Act imposes certain
requirements on loans secured by buildings or mobile
homes located in, or to be located in, areas determined to have special flood hazards. Under the Federal Reserve’s Regulation H, which implements the
act, state member banks are generally prohibited
from making, extending, increasing, or renewing any

such loan unless the building or mobile home, as well
as any personal property securing the loan, are covered by flood insurance for the term of the loan. The
law requires the Board and other federal financial
institution regulatory agencies to impose civil money
penalties when they find a pattern or practice of violations of the regulation.
In 2019, the Federal Reserve issued four formal consent orders and assessed $162,000 in civil money penalties against state member banks to address violations of the flood regulations. These statutorily mandated penalties were forwarded to the National Flood
Mitigation Fund held by the Treasury for the benefit
of the Federal Emergency Management Agency.
Community Reinvestment Act
The CRA requires that the Federal Reserve and other
federal banking regulatory agencies encourage financial institutions to help meet the credit needs of the
local communities where they do business, consistent
with safe-and-sound operations. To carry out this
mandate, the Federal Reserve
• examines state member banks to assess their performance under the CRA;
• considers banks’ CRA performance in context with
other supervisory information when analyzing
applications for mergers and acquisitions; and
• disseminates information about community development practices to bankers and the public
through community development offices at the
Reserve Banks.5
The Federal Reserve assesses and rates the CRA performance of state member banks in the course of
examinations conducted by staff at the 12 Reserve
Banks. During the 2019 reporting period, the Reserve
Banks completed 221 CRA examinations of state
member banks. Of those banks examined, 24 were
rated “Outstanding,” 196 were rated “Satisfactory,”
none were rated “Needs to Improve,” and 1 was rated
“Substantial Non-Compliance.”
The Board is committed to strong, interagency CRA
regulations that help banks meet the credit needs of
the local low- and moderate-income (LMI) communities they serve and align with the ways financial
products and services are delivered. Toward this end,
the Federal Reserve has been actively engaged with
5

For more information, see https://www.federalreserve.gov/
newsevents/pressreleases/files/orders20191119a2.pdf.

For more information on various community development
activities of the Federal Reserve System, see https://www
.fedcommunities.org/.

106th Annual Report | 2019

the Office of the Comptroller of the Currency (OCC)
and the Federal Deposit Insurance Corporation
(FDIC) in working to update the CRA regulations to
better reflect structural and technological changes in
the banking industry and provide clarity in supervisory expectations.
Throughout 2019, the Board’s CRA team focused on
modernizing the CRA. In particular, the Board
worked with the OCC and the FDIC to analyze
potential regulatory approaches in order to develop
interagency standards for performance under the
CRA, with the goals of tailoring regulations to bank
size and business model while accounting for the different credit needs of the local communities—including LMI areas—that are at the heart of the statute.6
Board staff gathered extensive CRA performance
data to inform potential policy opportunities. Governor Lael Brainard shared this detailed analysis in
public remarks in January 2020, and the Board
released datasets that informed its analysis in
March 2020.7 In addition, the Board published a
report on a series of external engagement meetings
that were held in October 2018 through January 2019
with bankers and community members to collect
information to help identify issues and potential solutions that informed its work to revise the regulations.8 The Board also continued to update its website to provide access to information and educational
materials on the CRA (https://www.federalreserve
.gov/consumerscommunities/cra_about.htm).
Mergers and Acquisitions
The Board is required by law to consider specific
factors when evaluating proposed mergers and acquisitions, including competitive considerations, financial condition, managerial resources (including compliance with laws and regulations), convenience and
6

In December, the FDIC and OCC issued a notice of proposed
rulemaking (NPR) to seek public comment on their proposal to
modernize CRA. Although the Board did not join the NPR,
staff will analyze comments submitted in response to the NPR
to inform the Board’s consideration of potential options to
strengthen regulatory and supervisory processes that benefit
low- and moderate-income communities. For the FDIC and
OCC’s NPR, see https://www.federalregister.gov/documents/
2020/01/09/2019-27940/community-reinvestment-actregulations.
For remarks, see https://www.federalreserve.gov/newsevents/
speech/brainard20200108a.htm. For press release and data, see
https://www.federalreserve.gov/newsevents/pressreleases/
bcreg20200306a.htm.
See Perspectives from Main Street: Stakeholder Feedback on
Modernizing the Community Reinvestment Act, at https://www
.federalreserve.gov/publications/stakeholder-feedback-onmodernizing-the-community-reinvestment-act.htm.

needs of the community to be served (including the
record of performance under the CRA), and financial stability. In evaluating bank applications, the
Federal Reserve relies on the banks’ overall compliance record, including recent fair lending examinations. In addition, the Federal Reserve considers the
CRA records of the relevant depository institutions,
assessments of other relevant supervisors, the supervisory views of examiners, and information provided
by the applicant and public commenters. If warranted, the Federal Reserve will also conduct premembership exams for a transaction in which an
insured depository institution will become a state
member bank or in which the surviving entity of a
merger would be a state member bank.9
The Board provides information on its actions associated with these merger and acquisition transactions,
issuing press releases and Board Orders for each.10
The Federal Reserve also publishes semiannual
reports that provide pertinent information on applications and notices filed with the Federal Reserve.11
The reports include statistics on the number of proposals that were approved, denied, and withdrawn as
well as general information about the length of time
taken to process proposals. Additionally, the reports
discuss common reasons that proposals have been
withdrawn from consideration. Furthermore, the
reports compare processing times for merger and
acquisition proposals that received adverse public
comments and those that did not.
In 2019, the Board amended its Rules Regarding Delegation of Authority to delegate to the Federal
Reserve Banks authority to approve certain types of
applications, including applications and notices
regarding mergers and acquisitions that are within
competitive criteria described in the delegation
rules.12 The Board expects that the revised Rules
Regarding Delegation of Authority will improve efficiency and timeliness in the applications process.13
9

In October 2015, the Federal Reserve issued guidance providing
further explanation on its criteria for waiving or conducting
such pre-merger or pre-membership examinations. For more
information, see https://www.federalreserve.gov/supervisionreg/
srletters/SR1511.htm.
To access the Board’s Orders on Banking Applications, see
https://www.federalreserve.gov/newsevents/pressreleases.htm.
For these reports, see https://www.federalreserve.gov/
supervisionreg/semiannual-reports-banking-applications-activity
.htm.
84 Fed. Reg. 31,701 (July 3, 2019), https://www.govinfo.gov/
content/pkg/FR-2019-07-03/pdf/2019-13970.pdf.
For more information, see https://www.federalreserve.gov/
supervisionreg/srletters/SR1910.htm.

Consumer and Community Affairs

Coordination with the Consumer Financial
Protection Bureau
During 2019, staff continued to coordinate on supervisory matters with the CFPB in accordance with the
Interagency Memorandum of Understanding on
Supervision Coordination with the CFPB. The agreement is intended to establish arrangements for coordination and cooperation among the CFPB and the
OCC, the FDIC, the National Credit Union Association (NCUA), and the Board of Governors. The
agreement strives to minimize unnecessary regulatory
burden and to avoid unnecessary duplication of
effort and conflicting supervisory directives amongst
the prudential regulators. The regulators work cooperatively to share exam schedules for covered institutions and covered activities to plan simultaneous
exams, provide final drafts of examination reports for
comment, and share supervisory information.
Coordination with Other Federal Banking
Agencies
The Board regularly coordinates with other federal
banking agencies, including through the development
of interagency guidance, in order to clearly communicate supervisory expectations. The Federal Reserve
also works with the other member agencies of the
Federal Financial Institutions Examination Council
to develop consistent examination principles, standards, procedures, and report formats.14 In addition,
the Federal Reserve participates in the Joint Task
Force on Fair Lending, composed of all of the prudential regulators, the CFPB, the DOJ, and the
Department of Housing and Urban Development
(HUD). In 2019, the banking agencies continued to
work together on various initiatives. In addition,
interagency guidance on reporting mortgage lending
data under the Home Mortgage Disclosure Act was
issued in April.15 In December, the agencies jointly
issued statements that provided guidance to the
industry on consumer compliance matters relating to
the use of alternative data in credit underwriting that
focused on consumer protection implications and
highlighted potential benefits and risks.16

tions. In April, the Board issued examination procedures under Regulations E and Z related to consumer
protections for prepaid accounts, including those
with covered credit features (“hybrid prepaid-credit
cards”), applicable to institutions supervised by the
Federal Reserve with total consolidated assets of
$10 billion or less.17 Also in April, the Board issued
revised examination procedures for use in connection
with HMDA data collected since January 1, 2018,
pursuant to the CFPB’s rules, amendments to Regulation C, and amendments to HMDA in the Economic Growth, Regulatory Relief, and Consumer
Protection Act (EGRRCPA).18 In August, the Board
published examination procedures to reflect a final
interagency rule to address the private flood insurance provisions of the Biggert-Waters Flood Insurance Reform Act of 2012.19
Outreach
The Federal Reserve maintains a comprehensive public outreach program to promote consumer protection, financial inclusion, and community reinvestment. During 2019, the Federal Reserve continued to
enhance its program, offering several Outlook Live
seminars. Outlook Live seminars focused on delivering timely, relevant compliance information to the
banking industry as well as to experienced examiners
and other regulatory personnel.20
The Federal Reserve offered the following Outlook
Live seminars:
• “Regulation E – Error Resolution Examiner
Insights”
• “2019 Fair Lending Interagency Webinar”
• “Interagency Flood Insurance Update on Private
Flood Insurance Rule”
Additionally, in 2019 three issues of Consumer
Compliance Outlook were released, discussing regulatory and supervisory topics of interest to compliance
professionals. This publication is distributed to state
member banks, as well as bank and savings and

Updating Examination Procedures

Throughout 2019, Board staff worked with other
agencies to develop and revise examination procedures related to various consumer compliance regula-

18
14
15

For more information, see https://www.ffiec.gov/.
See https://www.federalreserve.gov/supervisionreg/caletters/
caltr1904.htm.
See https://www.federalreserve.gov/supervisionreg/caletters/
caltr1911.htm.

See https://www.federalreserve.gov/supervisionreg/caletters/
caltr1906.htm and https://www.federalreserve.gov/
supervisionreg/caletters/caltr1907.htm.
See https://www.federalreserve.gov/supervisionreg/caletters/
caltr1905.htm.
See https://www.federalreserve.gov/supervisionreg/caletters/
caltr1910.htm.
For more information and to download the seminars, see https://
consumercomplianceoutlook.org/outlook-live/.

106th Annual Report | 2019

Box 1. Recognizing and Managing Consumer Protection in Fintech Services
The Federal Reserve recognizes the promise of technology and innovation—enabled largely by fintech
and Big Tech—to transform the financial system and
reduce frictions and delays in payments while preserving consumer protections, data privacy and
security, and financial stability. The potential benefits
to consumers, small businesses, and financial institutions of all sizes include enhanced product offerings,
speed, and lower transaction costs that can expand
responsible and socially beneficial access to financial
services.
Although the expansion and pace of innovations in
financial services technology offers the conveniences
of seamless integration and lower costs, it introduces
risks as well. In 2019, the Federal Reserve provided
guidance and publications that discussed techniques
to manage potential consumer protection risks
related to technology when providing financial
services.
• In December 2019, the Board joined four other
agencies in issuing a joint statement on using
alternative data in credit underwriting that
addresses potential risks and benefits from the
use of alternative data in underwriting (https://
www.federalreserve.gov/newsevents/
pressreleases/files/bcreg20191203b1.pdf). The
statement noted that alternative data may expand
access to credit for certain consumers and enable
them to obtain additional loan products or more
favorable pricing or terms. It also explained that a
well-designed compliance management program
provides for a thorough analysis of relevant consumer protection laws and regulations to ensure
that financial institutions understand the

loan holding companies supervised by the Federal
Reserve, among other subscribers.21
In December, the Board published Consumer Compliance Supervision Bulletin, which provides bankers
and others interested in consumer protection with
high-level summaries of pertinent supervisory issues
and practical steps for institutions to consider when
managing consumer compliance risks.
Box 1 highlights supervisory-related outreach activities focused on fintech and use of alternative data.
Examiner Training
The Board’s Examiner Training program supports
the ongoing professional development of consumer
21

For more information and to access the publications, see https://
consumercomplianceoutlook.org/.

opportunities, risks, and compliance requirements
before using alternative data.
• The December 2019 Consumer Compliance Supervision Bulletin (https://www.federalreserve.gov/
publications/2019-december-consumer-compliancesupervision-bulletin.htm) provided high-level summaries of consumer compliance issues associated
with fintech risk to enhance financial institution management’s understanding of common fact patterns
and emerging risks and support appropriate and efficient fintech risk-management practices. This publication helps enhance transparency of the Federal
Reserve’s consumer compliance supervisory activities by (1) sharing information about its examiners’
observations and noteworthy developments related
to consumer protection, and (2) providing practical
steps that institutions may consider when addressing certain consumer compliance risks.
• The third issue 2019 of Consumer Compliance Outlook featured the article “From Catalogs to Clicks:
The Fair Lending Implications of Targeted, Internet
Marketing” (https://www.consumercomplianceoutlook
.org/2019/third-issue/from-catalogs-to-clicks-thefair-lending-implications-of-targeted-internetmarketing/). This article highlighted consumer protection and financial inclusion concerns, including
fair lending risks of steering and redlining, and
focused on the increased use of internet-based marketing practices to target audiences by personal
characteristics, geography, or even hobbies. As discussed in the article, such a practice may explicitly
or implicitly classify users by prohibited characteristics protected under fair lending laws—such as race,
national origin, or sex—and risk making financial
inclusion out of reach for millions of consumers.

compliance supervisory staff, from an initial introduction to the Federal Reserve System through the
development of proficiency in consumer compliance
topics sufficient to earn an examiner’s commission.
The goal of these efforts is to ensure that examiners
have the skills necessary to meet their supervisory
responsibilities now and in the future.
Consumer Compliance Examiner Commissioning
Program

An overview of the Federal Reserve System’s Examiner Commissioning Program for assistant examiners
is set forth in supervision and regulation (SR)/
community affairs (CA) letter SR 17-6/CA 17-1,
“Overview of the Federal Reserve’s Supervisory Education Programs.”22
22

See https://www.federalreserve.gov/supervisionreg/srletters/
sr1706.htm.

Consumer and Community Affairs

The Consumer Compliance Examiner Commissioning Program is designed to provide an examiner with
(1) a foundation for supervision in the Federal
Reserve System and (2) the skills necessary to effectively perform examiner-in-charge responsibilities at
a non-complex community bank. On average, examiners progress through a combination of classroom
offerings, self-paced learning, virtual instruction, and
on-the-job training over a period of two to three
years. Achievement is measured by completing the
required course content, demonstrating adequate
on-the-job knowledge, and passing a professionally
validated proficiency examination. In 2019, 23 examiners passed the Consumer Compliance Proficiency
Examination. The combination of multiple training
delivery channels offers learners and Reserve Banks
an ability to customize learning and meet training
demands more individually and cost effectively.
Continuing Professional Development

In addition to providing core examiner training, the
Examiner Staff Development function emphasizes
the importance of continuing, career-long learning.
Opportunities for continuing professional development include special projects and assignments, selfstudy programs, rotational assignments, instruction
at System schools, mentoring programs, and a consumer compliance examiner forum held every
18 months. Additionally, staff have created a learning
resource for examiners moving into examination
responsibilities at large financial institutions.
In 2019, the System continued to offer Rapid
Response sessions. Introduced in 2008, these sessions
offer examiners webinars and case studies on emerging issues or urgent training needs that result from,
for example, the implementation of new laws or regulations. Three Rapid Response sessions with an exclusive consumer compliance focus were designed, developed, and presented to System staff during 2019.
Additionally, seven Rapid Response sessions were
offered that addressed a broader range of supervisory issues, including consumer compliance issues.
Responding to Consumer Complaints
and Inquiries
The Federal Reserve investigates complaints against
state member banks and selected nonbank subsidiaries of BHCs (Federal Reserve regulated entities), and
forwards complaints against other creditors and businesses to the agency with relevant authority. Each
Reserve Bank investigates complaints against Federal
Reserve regulated entities in its District. The Federal
Reserve also responds to consumer inquiries on a

broad range of banking topics, including consumer
protection questions.
Federal Reserve Consumer Help (FRCH) processes
consumer complaints and inquiries centrally. In 2019,
FRCH processed 33,782 cases. Of these cases, 19,812
were inquiries and the remainder (13,970) were complaints, with most cases received directly from consumers. Approximately 8.83 percent of cases were
referred to the Federal Reserve from other federal
and state agencies.
While consumers can contact FRCH by a variety of
different channels, more than half of the FRCH consumer contacts occurred by telephone (56 percent).
Nevertheless, 44 percent (14,714) of complaint and
inquiry submissions were made electronically (via
email, online submissions, and fax), and the online
form page received 20,778 visits during the year.
Consumer Complaints

Complaints against Federal Reserve regulated entities
totaled 3,574 in 2019. Of the total, 85 percent (3,048)
were investigated. Fifty-nine percent (1,802) of the
investigated complaints involved unregulated practices, and 41 percent (1,246) involved regulated practices. Approximately 2 percent of the total complaints were closed without investigation, pending the
receipt of additional information from consumers or
withdrawn by the consumer. Thirteen percent of the
total complaints were still under investigation in
January 2020. (Table 1 shows the breakdown of complaints about regulated practices by regulation or act;
table 2 shows complaints by product type.)
Complaints about Regulated Practices

The majority of regulated practices complaints concerned credit card accounts (37 percent), checking
accounts (23 percent), and real estate (3 percent).23
The most common credit card complaints related to
inaccurate credit reporting (82 percent), billing error
resolution (4 percent), and forgery/fraud (2 percent).
The most common checking account complaints
related to funds availability not as expected (21 percent), deposit error resolution (16 percent), and disputed withdrawal of funds (14 percent). The most
common real estate complaints related to rates
and/or fees (22 percent) and flood insurance
(18 percent).
23

Real estate loans include adjustable-rate mortgages, residential
construction loans, open-end home equity lines of credit, home
improvement loans, home purchase loans, home refinance/
closed-end loans, and reverse mortgages.

106th Annual Report | 2019

violation; however, it was not related to illegal credit
discrimination.

Table 1. Investigated complaints against state member
banks and selected nonbank subsidiaries of bank holding
companies about regulated practices, by regulation/act,
2019
Regulation/act
Regulation AA (Unfair or Deceptive Acts or Practices)
Regulation B (Equal Credit Opportunity)
Regulation BB (Community Reinvestment)
Regulation C (Home Mortgage Disclosure Act)
Regulation CC (Expedited Funds Availability)
Regulation D (Reserve Requirements)
Regulation DD (Truth in Savings)
Regulation E (Electronic Funds Transfers)
Regulation H (National Flood Insurance Act/Insurance Sales)
Regulation P (Privacy of Consumer Financial Information)
Regulation V (Fair and Accurate Credit Transactions)
Regulation Z (Truth in Lending)
Garnishment Rule
Homeowners Protection Act of 1998
Fair Credit Reporting Act
Fair Debt Collection Practices Act
Fair Housing Act
Real Estate Settlement Procedures Act
Right to Financial Privacy Act
Servicemembers Civil Relief Act (SCRA)
Total

In 69 percent of investigated complaints against Federal Reserve regulated entities, evidence revealed that
institutions correctly handled the situation. Of the
remaining 31 percent of investigated complaints,
8 percent were identified errors that were corrected
by the bank; 5 percent were deemed violations of
law; and the remainder included matters involving
litigation or factual disputes, internally referred complaints, or information was provided to the
consumer.

Number
15
15
7
1
136
1
54
411
10
14
50
78
6
1
425
3
9
6
1
3
1,246

Complaints about Unregulated Practices

The Board continued to monitor complaints about
banking practices not subject to existing regulations.
In 2019, the Board received 1,802 complaints against
Federal Reserve regulated entities that involved these
unregulated practices. The majority of the complaints were related to electronic transactions/prepaid
products (51 percent), checking account activity
(21 percent), and credit cards (11 percent).
Complaint Referrals

In 2019, the Federal Reserve forwarded 10,320 complaints to other regulatory agencies and government
offices for investigation. The Federal Reserve
forwarded 14 complaints to HUD that alleged violations of the FHA and were closed in 2019.24 The
Federal Reserve’s investigation of these complaints
revealed no instances of illegal credit discrimination.

Twenty-one regulated practices complaints alleging
credit discrimination on the basis of prohibited borrower traits or rights were received in 2019. Sixteen
discrimination complaints were related to the race,
color, national origin, or ethnicity of the applicant
or borrower. Five discrimination complaints were
related to either the age, handicap, familial status, or
religion of the applicant or borrower. Of the closed
complaints alleging credit discrimination based on a
prohibited basis in 2019, there was one with a

A memorandum of understanding between HUD and the federal bank regulatory agencies requires that complaints alleging a
violation of the FHA be forwarded to HUD.

Table 2. Investigated complaints against state member banks and selected nonbank subsidiaries of bank holding companies
about regulated practices, by product type, 2019
All complaints

Complaints involving violations

Subject of complaint/product type

Total
Discrimination alleged
Real estate loans
Credit cards
Other
Nondiscrimination complaints
Checking accounts
Real estate loans
Credit cards
Other
Note: Percentages may not sum to 100 due to rounding.

Number

Percent

Number

Percent

1,246

100

13
0
8

1
0
1

0
0
1

0
0
2

286
37
463
439

23
3
37
35

21
5
1
37

32
8
2
57

Consumer and Community Affairs

Consumer Inquiries

The Federal Reserve received 19,812 consumer inquiries in 2019 covering a wide range of topics. Consumers were typically directed to other resources, including other federal agencies or written materials, to
address their inquiries.

Consumer Laws and Regulations
Throughout 2019, the Board continued to administer
its regulatory responsibilities with respect to certain
entities and specific statutory provisions of the consumer financial services and fair lending laws. This
included drafting regulations and issuing compliance
guidance for the industry and the Reserve Banks and
fulfilling its role in consulting with the CFPB on consumer financial services and fair lending regulations
for which the CFPB has rulemaking responsibility.

Private Flood Insurance Rule
In February 2019, the Board, the Farm Credit
Administration, FDIC, NCUA, and OCC issued a
final rule to implement the provisions of the BiggertWaters Flood Insurance Reform Act of 2012. The
rule requires regulated institutions to accept certain
private flood insurance policies. The final rule also
allows institutions to rely on an insurer’s written
assurance that the policy meets the criteria for a private flood insurance policy that must be accepted. At
their discretion, institutions may also accept certain
flood insurance policies issued by private insurers
that do not meet the criteria for private flood insurance policies that must be accepted. The final rule
also allows institutions to accept certain mutual aid
plans, subject to agency approval.25

Annual Indexing of Exempt Consumer
Credit and Lease Transactions
In October 2019, the Board and the CFPB
announced the revised dollar thresholds in Regulation Z (Truth in Lending) and Regulation M (Consumer Leasing) that will apply in 2020 for determining exempt consumer credit and lease transactions.
These thresholds are set pursuant to statutory
changes enacted by the Dodd-Frank Act that require
adjusting these thresholds annually based on the
annual percentage increase in the Consumer Price
Index for Urban Wage Earners and Clerical Workers
25

For more information, see https://www.federalreserve.gov/
newsevents/pressreleases/bcreg20190212a.htm.

(CPI-W). Transactions at or below the thresholds are
subject to the protections of the regulations.26

Annual Indexing of Threshold for
Small Loan Exemption from
Appraisal Requirements for
Higher-Priced Mortgage Loans
In October 2019, the Board, the CFPB, and the OCC
announced that the threshold for exempting loans
from special appraisal requirements for higher-priced
mortgage loans would increase for 2020.27 The
Dodd-Frank Act amended the Truth in Lending Act
to add special appraisal requirements for higherpriced mortgage loans, including a requirement that
creditors obtain a written appraisal based on a physical visit to the home’s interior before making a
higher-priced mortgage loan. The rules implementing
these requirements contain an exemption for loans of
$25,000 or less and also provide that the exemption
threshold will be adjusted annually to reflect
increases in the CPI-W.

Annual Adjustment to CRA Asset-Size
Thresholds for Small and Intermediate
Small Institutions
In addition, in December the Board, the FDIC, and
the OCC announced the annual adjustment to the
asset-size thresholds used to define small bank, small
savings association, intermediate small bank, and
intermediate small savings association under the
CRA regulations.28
Financial institutions are evaluated under different
CRA examination procedures based on their assetsize classification. Those meeting the small and intermediate small institution asset-size thresholds are not
subject to the reporting requirements applicable to
large banks and savings associations unless they
choose to be evaluated as a large institution.
Annual adjustments to these asset-size thresholds are
based on the change in the average of the CPI-W, not
seasonally adjusted, for each 12-month period ending
in November, with rounding to the nearest million.

For more information, see https://www.federalreserve.gov/
newsevents/pressreleases/bcreg20191031b.htm.
For more information, see https://www.federalreserve.gov/
newsevents/pressreleases/bcreg20191031a.htm.
For more information, see https://www.federalreserve.gov/
newsevents/pressreleases/bcreg20191231a.htm.

106th Annual Report | 2019

As a result of the 1.62 percent increase in the CPI-W
for the period ending in November 2019, the definitions of small and intermediate small institutions for
CRA examinations were changed as follows:
• “Small bank” or “small savings association” means
an institution that, as of December 31 of either of
the prior two calendar years, had assets of less than
$1.305 billion.
• “Intermediate small bank” or “intermediate small
savings association” means a small institution with
assets of at least $326 million as of December 31 of
both of the prior two calendar years and less than
$1.305 billion as of December 31 of either of the
prior two calendar years.
These asset-size threshold adjustments took effect on
January 1, 2020.

Recession, with the aim to capture a snapshot of the
financial and economic well-being of U.S. households. In doing so, the SHED collects information on
households that is not readily available from other
sources or is not available in combination with other
variables of interest.
The survey asked respondents about specific aspects
of their financial lives, including the following areas:
• employment and informal work
• income and savings
• economic preparedness
• banking and credit
• housing and living arrangements
• education and human capital
• education debt and student loans

Consumer Research and Analysis of
Emerging Issues and Policy
Throughout 2019, the Board analyzed emerging
issues in consumer financial services policies and
practices in order to understand their implications
for the market-risk surveillance and supervisory policies that are core to the Federal Reserve’s functions.
This research and analysis also provided insight into
consumer financial decisionmaking.

Researching Issues Affecting Consumers
and Communities
In 2019, the Board explored various issues related to
consumers and communities by convening experts,
conducting original research, and fielding surveys.
The information gleaned from these undertakings
provided insights into the factors affecting consumers
and households.
Household Economics and Decisionmaking
In order to better understand consumer decisionmaking in the rapidly evolving financial services sector, the Board periodically conducts internet panel
surveys to gather data on consumers’ experiences and
perspectives on various issues of interest.
Results of the Board’s sixth annual Survey of Household Economics and Decisionmaking (SHED) were
published in the Report on the Economic Well-Being
of U.S. Households in 2018, released in May 2019.
The Board launched the survey to understand better
consumer decisionmaking in the wake of the Great

• retirement
The findings underscored the overall economic recovery and expansion over the six years of the survey.
When asked about their finances, 11,000 adults surveyed in 2018 were largely positive, reflecting substantial gains since the survey began in 2013. When
asked about their overall economic well-being,
75 percent of U.S. adults said they were “doing
okay” or “living comfortably”—up 12 percentage
points from 2013. Despite the improved finances of
many adults, the survey continued to detect areas of
financial distress as well as persistent differences by
race, education level, and, in some cases, geography.
Nearly 8 in 10 whites reported doing at least okay
financially, compared to two-thirds of blacks and
Hispanics.
A new topic in the 2019 report—aimed at understanding the experiences of bank customers—was
difficulty accessing funds in their bank accounts.
Thirteen percent of those with a bank account had at
least one problem accessing funds in their account in
the prior year. Problems with a bank website or
mobile app (7 percent) and delays in when funds were
available to use (6 percent) were the most common
problems cited. Those with volatile income and low
savings were more likely to experience these
problems.
Community Development Research
Conference
Every two years, the Board and the 12 Federal
Reserve Banks collaborate to host the Federal

Consumer and Community Affairs

Reserve System Community Development Research
Conference. These conferences convene researchers,
policymakers, and practitioners across sectors to consider important issues that low- to moderate-income
people and communities face, exploring the latest
research to inform effective strategies to advance
opportunity for economically vulnerable households
and areas.
In 2019, the System hosted its 11th biennial conference, “Renewing the Promise of the Middle Class.”29
Research and presentations focused on
• emerging trends in education, labor practices,
entrepreneurship, housing, credit, wealth, indebtedness, and other developments affecting the middle
class;
• policy innovations and legacies that either encourage or discourage the creation of an inclusive
middle class; and
• actions by individuals and institutions, including
governments, financial institutions, community
groups, businesses, and nonprofits, to create new
and enduring paths to the middle class.
The conference featured keynote remarks by Federal
Reserve Chair Jerome Powell, Federal Reserve Bank
of Chicago President Charles Evans, Federal Reserve
Board Governor Lael Brainard, and City Colleges of
Chicago Chancellor Juan Salgado.
Analysis of Emerging Issues
Board staff analyze data and anticipate trends, monitor legislative activity, form working groups, and
organize expert roundtables to identify emerging consumer risks and inform supervision, research, and
policy. In 2019, the Board analyzed a broad range of
issues in financial services markets that potentially
pose risks to consumers:
• Auto lending: Continued to develop and maintain
tools for monitoring developments in the auto
finance market and their impact on consumers,
especially subprime auto borrowers.
• Consumer risk workshop: Hosted a consumer riskfocused workshop in June for staff from across the
Board, Reserve Banks, and other federal agencies.
Discussion topics included defining consumer risk

For more information, including the agenda and papers, see
https://www.chicagofed.org/region/community-development/
2019-federal-reserve-system-community-development-researchconference.

in a post-crisis environment, identifying stress in
the household balance sheet, and using data in
novel ways to signal consumer risk.
• Housing: Tracked general housing market trends,
with a particular focus on the various factors limiting new housing supply, as well as on state and
local initiatives designed to alleviate area housing
shortages.
• Small business lending: Monitored credit availability for smaller firms that often lack the financing
options and in-house financial expertise of larger
firms.
• Student lending: Continued to analyze the impact
of student loan borrowing on consumers, sharing
insights from this work with the Board, other federal agencies, and the public at external conferences. In addition, staff participated in the Treasury Department’s Financial Literacy and Education Commission’s Postsecondary Education
Committee.
See box 2 for information about related publications
covering topics of student loans, small business’
access to capital, and how online lenders present
information about the costs and features of their
credit products to prospective borrowers.

Community Development
The Federal Reserve System’s Community Development function promotes economic growth and
financial stability for underserved households and
communities by informing research, policy, and
action. Community Development is a decentralized
function within the Federal Reserve System, and the
Community Affairs Officers at each of the 12
Reserve Banks design strategies to respond to the
specific needs in their respective Districts. Board staff
provide oversight for alignment with Board objectives
and coordination of System priorities.

The Economics of Place
In 2019, economic growth and employment were at
record levels. However, some lower-income populations and communities have not fully realized
advancement as others. The Community Development function at the Board and the Reserve Banks
promotes efforts to support new ways to advance the
economic outcomes of people and places where economic challenges remain.

106th Annual Report | 2019

Box 2. Consumer and Community Outreach Highlights and Publications
in 2019
The Board supports consumer financial inclusion
and community development through targeted work
in research and analysis, supervision, and regulatory
policy. It also conducts outreach to provide various
stakeholders with information and resources that
support their roles in consumer protection, financial
inclusion, and community reinvestment. Highlights of
2019 Federal Reserve outreach activities and related
publications are below.
• Throughout 2019, the Federal Reserve System
hosted 14 Fed Listens events, including a research
conference in June 2019 at the Federal Reserve
Bank of Chicago. Reserve Banks planned additional public events around the country to solicit
a wide range of perspectives from diverse stakeholders on issues related to the job market, inflation, and central bank communications to the
broader economy. The events were part of a comprehensive and public review of the Board’s monetary policy strategy, tools, and communications
practices—as a means to understand better how
monetary policy affects consumers’ lives. See
https://www.federalreserve.gov/monetarypolicy/
review-of-monetary-policy-strategy-tools-andcommunications-fed-listens-events.htm.
• In January, the Federal Reserve launched
Consumer & Community Context, an article series
targeting a general audience that features original
analysis about the financial conditions and experiences of consumers and communities, including
traditionally underserved and economically vulnerable households and neighborhoods. Themes
covered during the year included student loans
and small businesses’ access to capital. See
https://www.federalreserve.gov/publications/
consumer-community-context.htm.
• The Federal Reserve System’s 11th biennial
Community Development Research Conference,
“Renewing the Promise of the Middle Class,” took
place in May in Washington, D.C. The conference
featured research on challenges faced by low- and
moderate-income families when moving into the
middle class, as well as threats to the economic
security of middle-class households. See
https://www.chicagofed.org/region/community-

Perspectives from Main Street
Through its work, the Community Development
function also ensures the voices of consumers and
communities inform policy and research and solicits
diverse views on issues affecting the economy and

development/2019-federal-reserve-systemcommunity-development-research-conference.
• Between October 2018 and January 2019, the
Federal Reserve System hosted 29 informationgathering roundtables on the current state of, and
potential revisions to, the Community Reinvestment
Act (CRA). More than 400 participants, including
bankers and community groups, shared views that
will factor into the Board’s consideration of any CRA
modernization proposals. Additionally, representatives from the other federal banking agencies with
CRA responsibility were invited to attend the roundtables. In June 2019, the Board published a summary of feedback received from bankers and community groups in the report Perspectives from Main
Street: Stakeholder Feedback on Modernizing the
Community Reinvestment Act. See https://www
.federalreserve.gov/newsevents/pressreleases/
bcreg20190613a.htm.
• In November, the Board released Perspectives from
Main Street: Bank Branch Access in Rural Communities, a report that examines how rural consumers
and small businesses use bank branches and how
their communities have been affected by branch closures. Of the counties analyzed in the report, more
than half lost bank branches between 2012 and
2017, with some predominantly rural counties experiencing considerable declines. See https://www
.federalreserve.gov/publications/bank-branchaccess-in-rural-communities.htm.
• In December, the Board, in collaboration with the
Federal Reserve Bank of Cleveland, published
Uncertain Terms: What Small Business Borrowers
Find When Browsing Online Lender Websites. The
study was conducted in support of the Federal
Reserve’s ongoing interest in small businesses and
the access to credit they need to succeed and grow.
It found that nonbank online lenders are becoming
more mainstream alternative providers of financing
to small businesses and in 2018, nearly one-third of
small business owners seeking credit had applied
at a nonbank online lender. See https://www
.federalreserve.gov/publications/what-smallbusiness-borrowers-find-when-browsing-onlinelender-websites.htm.

financial markets. These perspectives help improve
research, policies, and transparency.
To that end, the Board released qualitative analysis
based on a series of roundtable discussions and listening sessions in 2019 to inform regulatory and

Consumer and Community Affairs

supervisory approaches to the CRA and on bank
branching trends in rural areas. Box 2 provides more
details about these reports.
Similarly, the Federal Reserve supports access to
credit and financial services for communities of color
by understanding and promoting the viability of
minority depository institutions (MDIs). Most
recently, the Board commissioned research that

explored how the CRA could better leverage investment in Native American-owned banks and how the
evolution of financial technologies and public policy
impact the efforts of MDIs in Los Angeles.30
30

For more information, see https://www.fedpartnership.gov/-/
media/federal-reserve-resources/research/buckley_kashian_
craforindiancoutry_final_073119.pdf and https://www
.fedpartnership.gov/-/media/federal-reserve-resources/mdisevolving-financial-technologies-and-the-challenge-ofgovernance.pdf.

Appendixes

Federal Reserve System
Organization

Congress designed the Federal Reserve System to give it a broad perspective on the economy and on economic
activity in all parts of the nation. As such, the System is composed of a central, governmental agency—the
Board of Governors—in Washington, D.C., and 12 regional Federal Reserve Banks. This section lists key officials across the System, including the Board of Governors, its officers, Federal Open Market Committee members, several System councils, and Federal Reserve Bank and Branch directors and officers for 2019.

BOARD OF GOVERNORS
Members
The Board of Governors of the Federal Reserve System is composed of seven members, who are nominated by
the President and confirmed by the Senate. The Chair and the Vice Chair of the Board are also named by the
President from among the members and are confirmed by the Senate. This section lists Board members who
served in 2019. For a full listing of Board members from 1914 through the present, visit www.federalreserve.gov/
aboutthefed/bios/board/boardmembership.htm.
Jerome H. Powell
Chair

Randal K. Quarles
Vice Chair for Supervision

Michelle W. Bowman
Lael Brainard

Richard H. Clarida
Vice Chair

Divisions and Officers
Fifteen divisions support and carry out the mission of the Board of Governors, which is based in
Washington, D.C.
Office of Board Members
Michelle A. Smith
Assistant to the Board and
Director
Linda L. Robertson
Assistant to the Board
Lucretia M. Boyer
Assistant to the Board

David W. Skidmore
Assistant to the Board
Jennifer C. Gallagher
Special Assistant to the Board for
Congressional Liaison
Jon Faust
Senior Special Adviser to the
Chair

Joshua H. Gallin
Special Adviser to the Chair

106th Annual Report | 2019

Legal Division
Mark E. Van Der Weide
General Counsel
Richard M. Ashton
Deputy General Counsel
Laurie S. Schaffer
Deputy General Counsel
Jean C. Anderson
Associate General Counsel

Stephanie Martin
Associate General Counsel
Katherine H. Wheatley
Associate General Counsel
(through August 1, 2019)
Alison M. Thro
Deputy Associate General Counsel
Cary K. Williams
Deputy Associate General Counsel

Patrick M. Bryan
Assistant General Counsel
Alicia S. Foster
Assistant General Counsel
Benjamin W. McDonough
Assistant General Counsel

Office of the Secretary
Ann Misback
Secretary of the Board
Margaret M. Shanks
Deputy Secretary

Yao-Chin Chao
Assistant Secretary
Michele T. Fennell
Assistant Secretary

Division of International Finance
Steven B. Kamin
Director
Thomas A. Connors
Deputy Director (through May 1,
2019)
Joseph W. Gruber1
Deputy Director
Beth Anne Wilson
Deputy Director
Shaghil Ahmed
Senior Associate Director

Brian M. Doyle2
Senior Associate Director
Sally M. Davies
Associate Director
Carol Bertaut
Deputy Associate Director
James A. Dahl
Deputy Associate Director
Matteo Iacoviello
Deputy Associate Director

Paul Wood
Deputy Associate Director
Ricardo Correa
Assistant Director
Stephanie E. Curcuru
Assistant Director
Robert Vigfusson
Assistant Director and Chief
John H. Rogers
Senior Adviser

Andrea Raffo
Deputy Associate Director

Brett Berger
Adviser

Elizabeth Klee
Associate Director
Luca Guerrieri
Deputy Associate Director
Skander J. Van den Heuvel
Deputy Associate Director
Andrew M. Cohen
Assistant Director

Namirembe Mukasa
Assistant Director and Chief of
Staff

Division of Financial Stability
Andreas W. Lehnert
Director
Michael T. Kiley3
Deputy Director
William F. Bassett
Senior Associate Director
John W. Schindler
Senior Associate Director

1
2
3

Joseph W. Gruber also served as an adviser to Vice Chair Quarles in 2019.
Brian M. Doyle also served as an adviser to Vice Chair Clarida in 2019.
Michael T. Kiley also served as an adviser in the Office of Board Members in 2019.

Chiara Scotti
Assistant Director
Uzma Wahhab
Special Adviser

Federal Reserve System Organization

Division of Monetary Affairs
Thomas Laubach
Director
James A. Clouse
Deputy Director
Rochelle M. Edge
Deputy Director
Trevor A. Reeve
Deputy Director
David H. Bowman
Senior Associate Director
Gretchen C. Weinbach
Senior Associate Director
Margaret G. DeBoer
Associate Director
Mary T. Hoffman
Associate Director
J. David Lopez-Salido
Associate Director
Matthew M. Luecke
Associate Director

Katherine Tom
Associate Director
Min Wei
Associate Director
Eric C. Engstrom
Deputy Associate Director
Christopher J. Gust
Deputy Associate Director
Karen Brooks
Assistant Director
Michiel De Pooter
Assistant Director
Giovanni Favara
Assistant Director
Etienne Gagnon
Assistant Director
Dan Li
Assistant Director
Laura Lipscomb
Assistant Director

Zeynep Senyuz
Assistant Director
Rebecca Zarutskie
Assistant Director
Antulio Bomfim4
Senior Adviser
Jane E. Ihrig
Senior Adviser
Don H. Kim
Senior Adviser
Ellen E. Meade
Senior Adviser
Edward M. Nelson
Senior Adviser
Robert J. Tetlow
Senior Adviser
Egon Zakrajsek
Senior Adviser

Division of Research and Statistics
Stacey Tevlin
Director (as of February 3, 2019)
David W. Wilcox
Director (through February 3,
2019)
Jeffrey C. Campione
Deputy Director
Daniel M. Covitz
Deputy Director
William L. Wascher III
Deputy Director
Eric M. Engen
Senior Associate Director
Joshua H. Gallin
Senior Associate Director
Diana Hancock
Senior Associate Director
David E. Lebow
Senior Associate Director
Michael G. Palumbo
Senior Associate Director
4

Elizabeth K. Kiser
Associate Director

Steven A. Sharpe
Deputy Associate Director

John J. Stevens
Associate Director

Shane M. Sherlund
Deputy Associate Director

Burcu Duygan-Bump
Deputy Associate Director

Lillian Shewmaker
Deputy Associate Director

J. Andrew Figura
Deputy Associate Director

Paul A. Smith
Deputy Associate Director

Glenn R. Follette
Deputy Associate Director

Gianni Amisano
Assistant Director and Chief

Erik A. Heitfield
Deputy Associate Director

Charles Fleischman
Assistant Director and Chief

Patrick E. McCabe
Deputy Associate Director

Li Geng
Assistant Director and Chief

Norman J. Morin
Deputy Associate Director

Paul Lengermann
Assistant Director and Chief

Karen M. Pence
Deputy Associate Director

Byron Lutz
Assistant Director and Chief

John M. Roberts
Deputy Associate Director

Raven Molloy
Assistant Director and Chief

Antulio Bonfim also served as an adviser to Chair Powell in 2019.

106th Annual Report | 2019

Matthias Paustian
Assistant Director and Chief
John E. Sabelhaus
Assistant Director (through
September 1, 2019)

Gustavo Suarez
Assistant Director and Chief
Clara Vega
Assistant Director and Chief
Eric C. Engstrom
Senior Adviser

S. Wayne Passmore
Senior Adviser
Robin A. Prager
Senior Adviser
Jeremy Rudd
Senior Adviser

Division of Supervision and Regulation
Michael S. Gibson
Director
Jennifer Burns
Deputy Director
Arthur W. Lindo
Deputy Director
James Price
Deputy Director (as of July 15,
2019)
Michael Johnson
Acting Deputy Director (through
May 30, 2019)
Mary L. Aiken
Senior Associate Director

Michael Solomon
Associate Director (through
July 31, 2019)
Thomas R. Sullivan
Associate Director
John Beebe
Deputy Associate Director
James Ray Diggs
Deputy Associate Director
Mona Elliot
Deputy Associate Director

Lisa Ryu
Senior Associate Director
Todd Vermilyea
Senior Associate Director
Kevin M. Bertsch
Associate Director

Constance Horsley
Deputy Associate Director
Kathleen Johnson
Deputy Associate Director
Ryan P. Lordos
Deputy Associate Director
Lara Lylozian
Deputy Associate Director/Chief
Accountant
David K. Lynch
Deputy Associate Director
Susan Motyka
Deputy Associate Director

Nida Davis
Associate Director
Christopher Finger
Associate Director

T. Kirk Odegard
Deputy Associate Director
Catherine Piche
Deputy Associate Director

Jeffery Gunther
Associate Director
Anna L. Hewko
Associate Director
Michael J. Hsu
Associate Director

Laurie Priest
Deputy Associate Director
Steven Spurry
Deputy Associate Director
Joanne Wakim
Deputy Associate Director

John Kolb
Associate Director
Molly Mahar
Associate Director
Richard A. Naylor II
Associate Director

Suzanne L. Williams
Deputy Associate Director
Karen Caplan
Assistant Director
Keith Coughlin
Assistant Director

Barbara J. Bouchard
Senior Associate Director
Richard N. Ragan
Senior Associate Director

Christine Graham
Assistant Director
Keith A. Ligon
Assistant Director
Ann McKeehan
Assistant Director
Brent Richards
Assistant Director
Vaishali Sack
Assistant Director
Robert Sarama
Assistant Director
Catherine A. Tilford
Assistant Director
Donna Webb
Assistant Director
Norah M. Barger
Senior Adviser
Steven P. Merriett
Senior Adviser (through June 30,
2019)
Robert T. Ashman
Adviser
Fang Du
Adviser
William F. Treacy
Adviser

Federal Reserve System Organization

Division of Consumer and Community Affairs
Eric S. Belsky
Director
V. Nicole Bynum
Deputy Director
Anna Alvarez Boyd
Senior Associate Director
Suzanne G. Killian
Senior Associate Director

Carol A. Evans
Associate Director
Phyllis L. Harwell
Associate Director
Marisa A. Reid
Associate Director
David E. Buchholz
Deputy Associate Director

Joseph A. Firschein
Deputy Associate Director
Minh-Duc T. Le
Assistant Director
Caterina Petrucco-Littleton
Assistant Director
Allen Fishbein
Senior Adviser

Division of Reserve Bank Operations and Payment Systems
Jennifer K. Liu
Associate Director
Jennifer A. Lucier
Associate Director
David C. Mills
Associate Director
Timothy W. Maas
Deputy Associate Director
Stuart E. Sperry
Deputy Associate Director
Jeffrey Walker
Deputy Associate Director
Casey Clark
Assistant Director and Manager
Sonja Danburg
Assistant Director and Manager

Jason Hinkle
Assistant Director and Manager

Phillip C. Daher
Assistant Director
Jeffrey A. Monica
Assistant Director
Steven Miranda
Program Executive (as of
September 15, 2019)

Michell Clark
Senior Adviser (as of June 9,
2019)

Ricardo Aguilera
Director and Chief Financial
Officer

Christine Fields
Associate Director (through
September 1, 2019)

Kimberly Briggs
Assistant Director

Stephen J. Bernard
Deputy Director

Jeffrey R. Peirce
Deputy Associate Director

Matthew J. Eichner
Director
Jeffrey C. Marquardt
Deputy Director (through
March 31, 2019)
Marta E. Chaffee
Senior Associate Director
Gregory L. Evans
Senior Associate Director
Susan V. Foley
Senior Associate Director
Lawrence E. Mize
Senior Associate Director
Michael J. Lambert
Associate Director

Brian Lawler
Assistant Director
Mark Manuszak
Assistant Director and Chief
Travis D. Nesmith
Assistant Director and Chief
Mark J. Olechowski
Assistant Director
Rebecca L. Royer
Assistant Director
Nick Trotta
Assistant Director and Manager

Office of the Chief Operating Officer
Patrick J. McClanahan
Chief Operating Officer
Michael J. Kraemer
Chief Data Officer
Sheila Clark
Diversity and Inclusion Programs
Director
Division of Financial Management

Karen L. Vassallo
Deputy Associate Director

Andrew Leonard
Senior Adviser

106th Annual Report | 2019

Division of Management
Winona Varnon
Director (as of June 9, 2019)
Michell Clark
Director (through June 9, 2019)
Steven Miranda
Deputy Director (through
September 15, 2019)
Tara Tinsley-Pelitere
Senior Associate Director
Tameika L. Pope
Senior Associate Director
Curtis B. Eldridge
Associate Director and Chief

Kendra Gastright
Associate Director

Tim Ly
Assistant Director

Ann Buckingham
Deputy Associate Director

Jeffrey A. Martin
Assistant Director

Timothy E. Markey
Deputy Associate Director

Stephen E. Pearson
Assistant Director

Reginald V. Roach
Deputy Associate Director

Katherine Perez-Grines
Assistant Director and Assistant
Chief

Keith F. Bates
Assistant Director
Catherine Jack
Assistant Director

Jacqueline Raia
Assistant Director

Division of Information Technology
Sharon L. Mowry
Director
Lisa M. Bell
Deputy Director
Raymond Romero
Deputy Director
Kofi A. Sapong
Deputy Director
Glenn S. Eskow
Senior Associate Director
Sheryl Lynn Warren
Senior Associate Director
Rajasekhar R. Yelisetty
Senior Associate Director

Charles B. Young
Associate Director
William K. Dennison
Deputy Associate Director
Marietta Murphy
Deputy Associate Director
Theresa C. Palya
Deputy Associate Director
Deborah Prespare
Deputy Associate Director
Eric C. Turner
Deputy Associate Director
Brian Lester
Assistant Director

Scott Meyerle
Assistant Director
Can Xuan Nguyen
Assistant Director
Langston Shaw
Assistant Director
Jonathan F. Shrier
Assistant Director
Virginia M. Wall
Assistant Director
Edgar Wang
Assistant Director
Ivan K. Wun
Assistant Director

Gerald Maye
Associate Inspector General
Peter Sheridan
Associate Inspector General
Stephen Carroll
Deputy Associate Inspector
General

Michael VanHuysen
Assistant Inspector General

Office of Inspector General
Mark Bialek
Inspector General
Fred Gibson
Deputy Inspector General
Jacqueline M. Becker
Associate Inspector General

Federal Reserve System Organization

FEDERAL OPEN MARKET COMMITTEE
The Federal Open Market Committee is made up of the seven members of the Board of Governors; the president of the Federal Reserve Bank of New York; and four of the remaining eleven Federal Reserve Bank presidents, who serve one-year terms on a rotating basis. During 2019, the Federal Open Market Committee held
eight regularly scheduled meetings (see appendix B, “Minutes of Federal Open Market Committee Meetings”).
Members
James Bullard
President, Federal Reserve Bank
of St. Louis

Esther L. George
President, Federal Reserve Bank
of Kansas City

Richard H. Clarida
Member, Board of Governors

Randal K. Quarles
Member, Board of Governors

Charles L. Evans
President, Federal Reserve Bank
of Chicago

Eric Rosengren
President, Federal Reserve Bank
of Boston

Patrick Harker
President, Federal Reserve Bank
of Philadelphia

Neel Kashkari
President, Federal Reserve Bank
of Minneapolis

Michael Strine
First Vice President, Federal
Reserve Bank of New York

Robert S. Kaplan
President, Federal Reserve Bank
of Dallas

Loretta J. Mester
President, Federal Reserve Bank
of Cleveland

Jerome H. Powell
Chair, Board of Governors
John C. Williams
Vice Chairman, President, Federal
Reserve Bank of New York
Michelle W. Bowman
Member, Board of Governors
Lael Brainard
Member, Board of Governors

Alternate Members

Officers
James A. Clouse
Secretary

Stacey Tevlin
Economist

Geoffrey Tootell
Associate Economist

Matthew M. Luecke
Deputy Secretary

Thomas A. Connors
Associate Economist (through
May 1, 2019)

Christopher J. Waller
Associate Economist

David W. Skidmore
Assistant Secretary
Michelle A. Smith
Assistant Secretary
Mark E. Van Der Weide
General Counsel
Michael Held
Deputy General Counsel
Richard M. Ashton
Assistant General Counsel
Steven B. Kamin
Economist
Heinrich T. Laubach
Economist

Rochelle M. Edge
Associate Economist
Eric M. Engen
Associate Economist
Beverly Hirtle
Associate Economist
Anna Paulson
Associate Economist (as of
April 30, 2019)
Daniel G. Sullivan
Associate Economist (through
April 30, 2019)

William Wascher
Associate Economist
Jonathan L. Willis
Associate Economist
Beth Anne Wilson
Associate Economist
Simon Potter
Manager, System Open Market
Account (through June 1, 2019)
Lorie K. Logan
Deputy Manager, System Open
Market Account

106th Annual Report | 2019

BOARD OF GOVERNORS ADVISORY COUNCILS
The Federal Reserve Board uses advisory committees in carrying out its varied responsibilities. To learn more,
visit https://www.federalreserve.gov/aboutthefed/advisorydefault.htm.
Federal Advisory Council
The Federal Advisory Council—a statutory body established under the Federal Reserve Act—consults with and
advises the Board of Governors on all matters within the Board’s jurisdiction. It is composed of one representative from each Federal Reserve District, chosen by the Reserve Bank in that District. The president and vice
president of the council are selected from amongst council members. The Federal Reserve Act requires the
council to meet in Washington, D.C., at least four times a year. In 2019, the council met on February 7–8,
May 9–10, September 5–6, and November 21–22. The council met with the Board on February 8, May 10, September 6, and November 22, 2019.
Members
District 1
John R. Ciulla
President and Chief Executive
Officer, Webster Financial
Corporation and Webster Bank,
Waterbury, CT
District 2
Rene F. Jones
Chairman and Chief Executive
Officer, M&T Bank Corporation,
Buffalo, NY
District 3
Jeffrey M. Schweitzer
Chief Executive Officer, Univest
Bank and Trust Co.,
Souderton, PA
District 4
Beth E. Mooney
Chairman and Chief Executive
Officer, KeyCorp, Cleveland, OH

District 5
Brian T. Moynihan
Chairman and Chief Executive
Officer, Bank of America,
Charlotte, NC

District 10
John B. Dicus
President and Chief Executive
Officer, Capitol Federal
Financial, Inc., Topeka, KS

District 6
William H. Rogers, Jr.
Chairman and Chief Executive
Officer, SunTrust Banks, Inc.,
Atlanta, GA

District 11
Phillip D. Green
Chairman and Chief Executive
Officer, Cullen/Frost Bankers
Inc., San Antonio, TX

District 7
Jeffrey J. Brown
Chief Executive Officer, Ally
Financial Inc., Detroit, MI

District 12
James H. Herbert, II
Chairman and CEO, First
Republic Bank, San
Francisco, CA

District 8
Ronald J. Kruszewski
Chairman, President, and Chief
Executive Officer, Stifel Financial
Corp., St. Louis, MO
District 9
Kevin P. Riley
President and Chief Executive
Officer, First Interstate
BancSystem, Inc., Billings, MT

Officers
Beth E. Mooney
President

William H. Rogers, Jr.
Vice President

Herb Taylor
Secretary

Federal Reserve System Organization

Community Depository Institutions Advisory Council
The Community Depository Institutions Advisory Council advises the Board of Governors on the economy,
lending conditions, and other issues of interest to community depository institutions. Members are selected
from among representatives of banks, thrift institutions, and credit unions who are serving on local advisory
councils at the 12 Federal Reserve Banks. One member of each of the Reserve Bank councils serves on the
Community Depository Institutions Advisory Council. The president and vice president are selected from
amongst council members. The council usually meets with the Board twice a year in Washington, D.C. In 2019,
the council met on April 5 and November 8.
Members
District 1
Dorothy A. Savarese
Chairman, President and Chief
Executive Officer, Cape Cod 5,
Orleans, MA
District 2
Tyrone E. Muse
President and Chief Executive
Officer, Visions Federal Credit
Union, Endicott, NY
District 3
Christopher D. Maher
President and Chief Executive
Officer, OceanFirst Financial
Corporation and OceanFirst
Bank, Toms River, NJ
District 4
T. Michael Price
President and Chief Executive
Officer, President and Chief
Executive Officer, First
Commonwealth Financial Corp.,
Indiana, PA

District 5
Robert A. DeAlmeida
Director, Orrstown Bank,
Harrisburg, PA

District 9
Shari Laven
Chief Executive Officer, Viking
Bank, Alexandria, MN

District 6
Alvin J. Cowans
President and Chief Executive
Officer, McCoy Federal Credit
Union, Orlando, FL

District 10
Brad Koehn
Regional President, Midwest
Bank, Lincoln, NE

District 7
Douglas S. Gordon
President and Chief Executive
Officer, WaterStone Bank, SSB,
Wauwatosa, WI
District 8
Ann Wells
Chief Executive Officer,
Commonwealth Bank & Trust
Company, Louisville, KY

Officers
Christopher D. Maher
President

Joe Quiroga
Vice President

District 11
Joe Quiroga
President, Texas National Bank,
Edinburg, TX
District 12
Richard M. Sanborn
President and Chief Executive
Officer, Seacoast Commerce
Bank and Seacoast Commerce
Banc Holdings, San Diego, CA

100

106th Annual Report | 2019

Community Advisory Council
The Community Advisory Council was formed in 2015 to advise the Board of Governors on the economic circumstances and financial services needs of consumers and communities, with a particular focus on the concerns
of low- and moderate-income populations. The council is composed of a diverse group of experts and representatives of consumer and community development organizations and interests, including from such fields as
affordable housing, community and economic development, employment and labor, financial services and technology, small business, and asset and wealth building. One member of the council serves as its chair. The council first met with the Board in November 2015, and meets with the Board twice each year. In 2019, the council
met with the Board on May 24 and November 1.
Members
Juan Bonilla
Deputy Director, Lawrence
Community Works,
Lawrence, MA
Adrian M. Brooks
CEO, Memorial Community
Development Corporation,
Evansville, IN
Barrett Burns
President and CEO, VantageScore
Solutions LLC, Stamford, CT
Vanessa Calderón-Rosado
CEO, IBA (Inquilinos Boricuas
en Acción), Boston, MA
Joshua Downey
President, Denver Area Labor
Federation, AFL-CIO,
Denver, CO

Donald Hinkle-Brown
President and CEO, Reinvestment
Fund, Philadelphia, PA
Barb Lau
Executive Director, Association of
Women Contractors, St.
Paul, MN
Andrea Levere
President, Prosperity Now,
Washington, DC
Andreanecia Morris
Executive Director,
HousingNOLA, New
Orleans, LA
Marc Norman
Associate Professor of Practice,
University of Michigan,
Taubman College of Architecture
and Urban Planning, Ann
Arbor, MI

Officers
Andrea Levere
Chair

Donald Hinkle-Brown
Vice Chair

Jonny Price
Director of Business Development,
Wefunder, San Francisco, CA
Gerry Roll
Executive Director, Foundation
for Appalachian Kentucky,
Chavies, KY
Bethany Sanchez
Fair Lending Director,
Metropolitan Milwaukee Fair
Housing Council, Milwaukee, WI
Bill Schlesinger
Co-Director, Project Vida, El
Paso, TX
Jesse Van Tol
CEO, National Community
Reinvestment Coalition,
Washington, DC

Federal Reserve System Organization

101

Model Validation Council
The Model Validation Council was established in 2012 by the Board of Governors to provide expert and independent advice on its process to rigorously assess the models used in stress tests of banking institutions. The
Dodd-Frank Wall Street Reform and Consumer Protection Act required the Federal Reserve to conduct annual
stress tests of large bank holding companies and systemically important, nonbank financial institutions supervised by the Board. The Model Validation Council provides input on the Board’s efforts to assess the effectiveness of the models used in the stress tests. The council is intended to improve the quality of the Federal
Reserve’s model assessment program and to strengthen the confidence in the integrity and independence of
the program.
Members
Monika Piazzesi
Professor, Stanford University
Jennie Bai
Assistant Professor, Georgetown
University

Robert Stine
Professor, University of
Pennsylvania
Paul Glasserman
Professor, Columbia University

Stijn Van Nieuwerburgh
Professor, Columbia University
Andrew Patton
Professor, Duke University

102

106th Annual Report | 2019

FEDERAL RESERVE BANKS AND BRANCHES
To carry out the day-to-day operations of the Federal Reserve System, the nation has been divided into 12 Federal Reserve Districts, each with a Reserve Bank. The majority of Reserve Banks also have at least one Branch.
Reserve Bank and Branch Directors
As required by the Federal Reserve Act, each Federal Reserve Bank is supervised by a nine-member board with
three different classes of three directors each: Class A directors, who are nominated and elected by the member
banks in that District to represent the stockholding banks; Class B directors, who are nominated and elected by
the member banks to represent the public; and Class C directors, who are appointed by the Board of Governors
to represent the public. Class B and Class C directors are selected with due, but not exclusive, consideration to
the interests of agriculture, commerce, industry, services, labor, and consumers. Each Federal Reserve Bank
Branch also has a board with either five or seven directors. A majority of the directors on each Branch board
are appointed by the Federal Reserve Bank, with the remaining directors appointed by the Board of Governors.
For more information on Reserve Bank and Branch directors, see https://www.federalreserve.gov/aboutthefed/
directors/about.htm.
Reserve Bank and Branch directors are listed below. For each director, the class of directorship, the director’s
principal place of business, and the expiration date of the director’s current term are shown. Also shown are
maps that identify Federal Reserve Districts by their official number, city, and letter designation. For more
information on the Federal Reserve indicator letters, see https://www.uscurrency.gov/denominations/bank-noteidentifiers.
District 1–Boston
Covers the states of Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont;
and all but Fairfield County in Connecticut.
For more information on this District and to learn more about the Federal Reserve Bank of
Boston’s operations, visit https://www.bostonfed.org/. Information on economic conditions
for this District can be found in the Federal Reserve System’s Beige Book at https://www
.federalreserve.gov/monetarypolicy/beigebook2019.htm. Also find the Reserve Bank’s financial statements for 2019 at https://www.federalreserve.gov/aboutthefed/files/
bostonfinstmt2019.pdf.

NH
RI

Class A

Class B

Class C

Bruce Van Saun , 2019
Chairman and Chief Executive
Officer, Citizens Financial Group,
Stamford, CT

Niraj Shah, 2019
Chief Executive Officer,
Co-Founder, and Co-Chairman,
Wayfair, Boston, MA

Christina Hull Paxson, 2019
President, Brown University,
Providence, RI

Michael E. Tucker, 2020
President and Chief Executive
Officer, Greenfield Cooperative
Bank, Greenfield, MA

Kimberly Sherman Stamler, 2020
President, Related Beal,
Boston, MA

Kathleen E. Walsh, 2020
President and Chief Executive
Officer, Boston Medical Center,
Boston, MA

Roger W. Crandall , 2021
Chairman, President, and Chief
Executive Officer, MassMutual
Financial Group,
Springfield, MA

Phillip L. Clay, 2021
Professor Emeritus of City
Planning, Massachusetts Institute
of Technology, Cambridge, MA

Chandler Howard, 2021
Retired President and Chief
Executive Officer, Liberty Bank,
Middletown, CT

Federal Reserve System Organization

103

District 2–New York
Covers the state of New York; Fairfield County in Connecticut; and 12 counties in northern New Jersey, and serves the Commonwealth of Puerto Rico and the U.S. Virgin Islands.
For more information on this District and to learn more about the Federal Reserve Bank of
New York’s operations, visit https://www.newyorkfed.org/. Information on economic conditions for this District can be found in the Federal Reserve System’s Beige Book at https://
www.federalreserve.gov/monetarypolicy/beigebook2019.htm. Also find the Reserve Bank’s
financial statements for 2019 at https://www.federalreserve.gov/aboutthefed/files/
newyorkfinstmt2019.pdf.

NY
CT
Puerto Rico
NJ

Virgin Islands

Class A

Class B

Class C

Gerald H. Lipkin, 2019
Chairman, Valley National Bank
and Valley National Bancorp,
Wayne, NJ

Adena T. Friedman, 2019
President and Chief Executive
Officer, Nasdaq, New York, NY

Denise Scott, 2019
Executive Vice President, Local
Initiatives Support Corporation,
New York, NY

Paul P. Mello, 2020
President and Chief Executive
Officer, Solvay Bank, Solvay, NY
James P. Gorman, 2021
Chairman and Chief Executive
Officer, Morgan Stanley, New
York, NY

Charles Phillips, 2020
Chief Executive Officer, Infor,
New York, NY
Glenn H. Hutchins, 2021
Chairman, North Island, and
Co-Founder, Silver Lake, New
York, NY

Rosa Gil, 2020
President and Chief Executive
Officer, Comunilife, Inc., New
York, NY
Vincent Alvarez, 2021
President, New York City Central
Labor Council, AFL-CIO, New
York, NY

District 3–Philadelphia
Covers the state of Delaware; nine counties in southern New Jersey; and 48 counties in the
eastern two-thirds of Pennsylvania.
For more information on this District and to learn more about the Federal Reserve Bank of
Philadelphia’s operations, visit https://www.philadelphiafed.org/. Information on economic
conditions for this District can be found in the Federal Reserve System’s Beige Book at
https://www.federalreserve.gov/monetarypolicy/beigebook2019.htm. Also find the Reserve
Bank’s financial statements for 2019 at https://www.federalreserve.gov/aboutthefed/files/
philadelphiafinstmt2019.pdf.

Class A

Class B

Class C

William S. Aichele, 2019
Chairman, Univest Corporation
of Pennsylvania, Souderton, PA

Anthony Ibarguen, 2019
President, AquaVenture Holdings,
Ltd., and Chief Executive Officer,
Quench USA, Inc., King of
Prussia, PA

Brian M. McNeill, 2019
President and Chief Executive
Officer, TouchPoint, Inc.,
Concordville, PA

Jon S. Evans, 2020
President and Chief Executive
Officer, Atlantic Community
Bankers Bank, Camp Hill, PA
Timothy Snyder, 2021
President and Chief Executive
Officer, Fleetwood Bank,
Fleetwood, PA

Patricia Hasson, 2020
President and Executive Director,
Clarifi, Philadelphia, PA
Julia H. Klein, 2021
Chairwoman and Chief Executive
Officer, C. H. Briggs Company,
Reading, PA

Madeline Bell, 2020
President and Chief Executive
Officer, The Children’s Hospital
of Philadelphia – CHOP,
Philadelphia, PA
Phoebe Haddon, 2021
Chancellor, Rutgers
University–Camden, Camden, NJ

104

106th Annual Report | 2019

District 4–Cleveland
Covers the state of Ohio; 56 counties in eastern Kentucky; 19 counties in western Pennsylvania; and 6 counties in northern West Virginia.
For more information on this District and to learn more about the Federal Reserve Bank of
Cleveland’s operations, visit https://www.clevelandfed.org/. Information on economic conditions for this District can be found in the Federal Reserve System’s Beige Book at https://
www.federalreserve.gov/monetarypolicy/beigebook2019.htm. Also find the Reserve Bank’s
financial statements for 2019 at https://www.federalreserve.gov/aboutthefed/files/
clevelandfinstmt2019.pdf.

Pittsburgh
PA
OH
WV
Cincinnati
KY

Class A

Class C

Cincinnati Branch

Stephen D. Steinour, 2019
Chairman, President, and Chief
Executive Officer, Huntington
Bancshares Incorporated,
Columbus, OH

Dwight E. Smith, 2019
President and Chief Executive
Officer, Sophisticated Systems,
Inc., Columbus, OH

Appointed by the Federal Reserve Bank

Dean J. Miller, 2020
President and Chief Executive
Officer, First National Bank of
Bellevue, Bellevue, OH
Eddie L. Steiner, 2021
President and Chief Executive
Officer, CSB Bancorp, Inc.,
Millersburg, OH
Class B
David Megenhardt, 2019
Executive Director, United Labor
Agency, Cleveland, OH
Charles H. Brown, 2020
Retired Executive Adviser, Toyota
Motor North America,
Erlanger, KY
Valarie L. Sheppard, 2021
Comptroller Treasurer and
Executive Vice
President-Company Transition
Leader, The Procter & Gamble
Company, Cincinnati, OH

Doris Carson Williams, 2020
President and Chief Executive
Officer, African American
Chamber of Commerce of
Western Pennsylvania,
Pittsburgh, PA
Dawne S. Hickton, 2021
President and Chief Operating
Officer, Jacobs Aerospace,
Technology & Nuclear,
Pittsburgh, PA

Darin C. Hall, 2019
President and Chief Executive
Officer, Civitas Development
Group, Cincinnati, OH
Alfonso Cornejo, 2020
President, Hispanic Chamber
Cincinnati USA, Cincinnati, OH
David C. Evans, 2020
President and Chief Executive
Officer, TESSEC LLC,
Dayton, OH
Tucker Ballinger, 2021
President and Chief Executive
Officer, Forcht Bank, N.A.,
Lexington, KY
Appointed by the Board of Governors

Holly B. Wiedemann, 2019
Founder and President, AU
Associates, Inc., Lexington, KY
Jenell R. Ross, 2020
President, Bob Ross Auto Group,
Centerville, OH
Rachid Abdallah, 2021
Chairman and Chief Executive
Officer, Jedson Engineering,
Cincinnati, OH

Federal Reserve System Organization

Pittsburgh Branch
Appointed by the Federal Reserve Bank

Shelley L. Fant, 2019
President and Chief Executive
Officer, FCG Solutions, Inc.,
Pittsburgh, PA
Audrey Dunning, 2020
President and Chief Executive
Officer, AMP Growth Advisors,
LLC, Cranberry Township, PA

105

Robert I. Glimcher, 2020
President, Glimcher Group Inc.,
Pittsburgh, PA

Suzanne Mellon, 2020
President, Carlow University,
Pittsburgh, PA

Vera Krekanova, 2021
Chief Research Officer, Allegheny
Conference on Community
Development, Pittsburgh, PA

Dmitri D. Shiry, 2021
Managing Partner
Deloitte-Pittsburgh, Deloitte LLP,
Pittsburgh, PA

Appointed by the Board of Governors

Kathryn Z. Klaber, 2019
Managing Partner, The Klaber
Group, Sewickley, PA

District 5–Richmond
Covers the states of Maryland, Virginia, North Carolina, and South Carolina; 49 counties constituting most of West Virginia; and the District of Columbia.
For more information on this District and to learn more about the Federal Reserve Bank
of Richmond’s operations, visit https://www.richmondfed.org/. Information on economic conditions for this District can be found in the Federal Reserve System’s Beige
Book at https://www.federalreserve.gov/monetarypolicy/beigebook2019.htm. Also find
the Reserve Bank’s financial statements for 2019 at https://www.federalreserve.gov/
aboutthefed/files/richmondfinstmt2019.pdf.

Baltimore

VA
WV

NC
Charlotte
SC

Class A

Class C

Baltimore Branch

William A. Loving, Jr., 2019
President and Chief Executive
Officer, Pendleton Community
Bank, Franklin, WV

Margaret G. Lewis, 2019
Retired President, HCA Capital
Division, Richmond, VA

Appointed by the Federal Reserve Bank

Robert R. Hill, Jr., 2020
Chief Executive Officer, South
State Corporation, Columbia, SC
Susan K. Still, 2021
President and Chief Executive
Officer, HomeTown Bankshares
Corporation and HomeTown
Bank, Roanoke, VA

Kathy J. Warden, 2020
Chief Executive Officer and
President, Northrop Grumman
Corporation, Falls Church, VA
Eugene A. Woods, 2021
President and Chief Executive
Officer, Atrium Health,
Charlotte, NC

Mary Ann Scully, 2019
Chairman, President, and Chief
Executive Officer, Howard
Bancorp, Ellicott City, MD
Vacancy, 2020
Laura L. Gamble, 2021
Regional President Greater
Maryland, PNC, Baltimore, MD
Tom Geddes, 2021
Chief Executive Officer, Plank
Industries, Baltimore, MD

Class B

Appointed by the Board of Governors

Ángel Cabrera, 2019
President, Georgia Institute of
Technology, Atlanta, GA

Wayne A. I. Frederick, MD, 2019
President, Howard University,
Washington, DC

Thomas C. Nelson, 2020
Chairman, President, and Chief
Executive Officer, National
Gypsum Company,
Charlotte, NC

Susan J. Ganz, 2020
Chief Executive Officer, Lion
Brothers Company, Inc., Owings
Mills, MD

Catherine A. Meloy, 2021
President and Chief Executive
Officer, Goodwill of Greater
Washington/Goodwill Excel
Center, Washington, DC

Kenneth R. Banks, 2021
President and Chief Executive
Officer, Banks Contracting
Company, Greenbelt, MD

106

106th Annual Report | 2019

Charlotte Branch
Appointed by the Federal Reserve Bank

Michael C. Crapps, 2019
President and Chief Executive
Officer, First Community Bank,
Lexington, SC
Vacancy, 2020
Michael D. Garcia, 2021
President, Pulp and Paper,
Domtar Corp., Fort Mill, SC

Jerry L. Ocheltree, 2021
President and Chief Executive
Officer, Carolina Trust Bank,
Lincolnton, NC
Appointed by the Board of Governors

Laura Y. Clark, 2021
Executive Vice President and
Chief Impact Officer, United Way
of Central Carolinas,
Charlotte, NC

Vacancy, 2019
R. Glenn Sherrill, Jr., 2020
Chairman and Chief Executive
Officer, SteelFab Inc.,
Charlotte, NC

District 6–Atlanta
Covers the states of Alabama, Florida, and Georgia; 74 counties in the
eastern two-thirds of Tennessee; 38 parishes of southern Louisiana; and
43 counties of southern Mississippi.
For more information on this District and to learn more about the Federal
Reserve Bank of Atlanta’s operations, visit https://www.frbatlanta.org/.
Information on economic conditions for this District can be found in the
Federal Reserve System’s Beige Book at https://www.federalreserve.gov/
monetarypolicy/beigebook2019.htm. Also find the Reserve Bank’s financial statements for 2019 at https://www.federalreserve.gov/aboutthefed/
files/atlantafinstmt2019.pdf.
Class A
Robert W. Dumas, 2019
Chairman, President, and Chief
Executive Officer, AuburnBank,
Auburn, AL
Kessel D. Stelling, Jr., 2020
Chairman and Chief Executive
Officer, Synovus Financial
Corporation, Columbus, GA

Michael Russell, 2021
Chief Executive Officer, H.J.
Russell and Company,
Atlanta, GA
Class C
Elizabeth A. Smith, 2019
Executive Chair, Bloomin’
Brands, Inc., Tampa, FL

Claire W. Tucker, 2021
Chief Executive Officer, CapStar
Financial Holdings, Inc.,
Nashville, TN

Myron A. Gray, 2020
Retired President, U.S.
Operations, United Parcel Service,
Atlanta, GA

Class B

Claire Lewis Arnold, 2021
Chief Executive Officer, Leapfrog
Services, Inc., Atlanta, GA

Mary A. Laschinger, 2019
Chairman and Chief Executive
Officer, Veritiv Corporation,
Atlanta, GA
Jonathan T.M. Reckford, 2020
Chief Executive Officer, Habitat
for Humanity International,
Atlanta, GA

Birmingham Branch
Appointed by the Federal Reserve Bank

Brian C. Hamilton, 2019
President and Chief Executive
Officer, Trillion Communications
Corp., Bessemer, AL

Nashville

TN
Birmingham

MS
LA
New Orleans

GA
Jacksonville
FL
Miami

Herschell L. Hamilton, 2020
Chief Strategic Officer, BLOC
Global Group, Birmingham, AL
David M. Benck, 2021
Vice President and General
Counsel, Hibbett Sports,
Birmingham, AL
David L. Nast, 2021
President and Chief Executive
Officer, Progress Bank,
Huntsville, AL
Appointed by the Board of Governors

Merrill H. Stewart, Jr., 2019
President, The Stewart/Perry
Company, Inc., Birmingham, AL
Nancy C. Goedecke, 2020
Chairman and Chief Executive
Officer, Mayer Electric Supply
Company, Inc., Birmingham, AL
Vacancy, 2021

Federal Reserve System Organization

Jacksonville Branch
Appointed by the Federal Reserve Bank

Paul G. Boynton, 2019
Chairman, President, and Chief
Executive Officer, Rayonier
Advanced Materials, Inc.,
Jacksonville, FL
William O. West, 2020
Chief Executive Officer, The
Bank of Tampa, Tampa, FL
John Hirabayashi, 2021
President and Chief Executive
Officer, Community First Credit
Union of Florida,
Jacksonville, FL
Dawn Lockhart, 2021
Director of Strategic Partnerships,
Office of the Mayor, City of
Jacksonville, Jacksonville, FL
Appointed by the Board of Governors

Nicole B. Thomas, 2019
Hospital President, Baptist
Medical Center South,
Jacksonville, FL
Troy D. Taylor, 2020
Chairman and Chief Executive
Officer, Coca-Cola Beverages
Florida, LLC, Tampa, FL

Appointed by the Board of Governors

Ana M. Menendez, 2019
Chief Financial Officer and
Treasurer, Watsco, Inc.,
Miami, FL
Keith T. Koenig, 2020
President, City Furniture,
Tamarac, FL
Michael A. Wynn, 2021
Board Chairman and President,
Sunshine Ace Hardware, Bonita
Springs, FL
Nashville Branch
Appointed by the Federal Reserve Bank

Amber Krupacs, 2019
Chief Financial Officer and
Executive Vice President, Clayton
Homes, Maryville, TN
John W. Garratt, 2020
Executive Vice President and
Chief Financial Officer, Dollar
General, Goodlettsville, TN
Beth R. Chase, 2021
Senior Managing Director,
Ankura Consulting Group,
Nashville, TN

Timothy P. Cost, 2021
President, Jacksonville University,
Jacksonville, FL

Leif M. Murphy, 2021
Chief Executive Officer,
TeamHealth Holdings, Inc.,
Knoxville, TN

Miami Branch

Appointed by the Board of Governors

Appointed by the Federal Reserve Bank

Eduardo Arriola, 2019
Chairman and Chief Executive
Officer, Apollo Bank, Miami, FL
N. Maria Menendez, 2020
Chief Financial Officer, GL
Homes of Florida Holding,
Sunrise, FL
Victoria E. Villalba, 2020
President and Chief Executive
Officer, Victoria & Associates
Career Services, Inc., Miami, FL
Abel L. Iglesias, 2021
President and Chief Executive
Officer, Professional Bank, Coral
Gables, FL

Matthew S. Bourlakas, 2019
President and Chief Executive
Officer, Goodwill Industries of
Middle Tennessee, Inc.,
Nashville, TN
Heath M. Holtz, 2020
Senior Vice President,
Manufacturing, Purchasing and
Supply Chain, Nissan North
America, Inc., Franklin, TN
Thomas Zacharia, 2021
Laboratory Director/ President
and Chief Executive Officer, Oak
Ridge National Laboratory/
UT-Battelle, LLC, Oak
Ridge, TN

107

New Orleans Branch
Appointed by the Federal Reserve Bank

Toni D. Cooley, 2019
Chief Executive Officer, Systems
Companies, Jackson, MS
Lampkin Butts, 2020
President and Chief Operating
Officer, Sanderson Farms, Inc.,
Laurel, MS
Katherine A. Crosby, 2021
Board Chair, Fidelity Bank, New
Orleans, LA
David T. Darragh, 2021
Retired President and Chief
Executive Officer, Reily Foods
Company, New Orleans, LA
Appointed by the Board of Governors

G. Janelle Frost, 2019
President and Chief Executive
Officer, AMERISAFE, Inc.,
DeRidder, LA
Michael E. Hicks, 2020
President and Chief Executive
Officer, Hixardt Technologies,
Inc., Pensacola, FL
Art E. Favre, 2021
President and Chief Executive
Officer, Performance Contractors,
Inc., Baton Rouge, LA

108

106th Annual Report | 2019

District 7–Chicago
Covers the state of Iowa; 68 counties of northern Indiana; 50 counties of
northern Illinois; 68 counties of southern Michigan; and 46 counties of southern Wisconsin.
For more information on this District and to learn more about the Federal
Reserve Bank of Chicago’s operations, visit https://www.chicagofed.org/. Information on economic conditions for this District can be found in the Federal
Reserve System’s Beige Book at https://www.federalreserve.gov/monetarypolicy/
beigebook2019.htm. Also find the Reserve Bank’s financial statements for 2019
at https://www.federalreserve.gov/aboutthefed/files/chicagofinstmt2019.pdf.

MI
WI

Detroit

IA
IL

Class A

Class B

Detroit Branch

Abram A. Tubbs, 2019
Chairman and Chief Executive
Officer, Ohnward Bank & Trust,
Cascade, IA

Jorge Ramirez, 2019
Managing Director, GCM
Grosvenor, Chicago, IL

Appointed by the Federal Reserve Bank

David W. Nelms, 2020
Former Chairman, Discover
Financial Services,
Riverwoods, IL
Christopher J. Murphy III, 2021
Chairman and Chief Executive
Officer, 1st Source Bank, South
Bend, IN

Helene D. Gayle, 2020
President and Chief Executive
Officer, The Chicago Community
Trust, Chicago, IL
Susan M. Collins, 2021
Professor of Public Policy and
Economics, University of
Michigan, Ann Arbor, MI

Michael L. Seneski, 2019
Chief Financial Officer, Credibly,
Troy, MI
Sandy K. Baruah, 2020
President and Chief Executive
Officer, Detroit Regional
Chamber, Detroit, MI

Vacancy, 2019

Sandra E. Pierce, 2020
Chairman & Senior Executive Vice
President, Private Client Group
and Regional Banking Director,
Huntington Michigan,
Southfield, MI

E. Scott Santi, 2020
Chairman and Chief Executive
Officer, Illinois Tool Works Inc.,
Glenview, IL

Rip Rapson, 2021
President and Chief Executive
Officer, The Kresge Foundation,
Troy, MI

Wright L. Lassiter III, 2021
President and Chief Executive
Officer, Henry Ford Health
System, Detroit, MI

Appointed by the Board of Governors

Class C

Linda P. Hubbard, 2019
President and Chief Operating
Officer, Carhartt, Inc.,
Dearborn, MI
Joseph B. Anderson, Jr., 2020
Chairman and Chief Executive
Officer, TAG Holdings, LLC,
Wixom, MI
James M. Nicholson, 2021
Co-Chairman, PVS Chemicals,
Inc., Detroit, MI

Federal Reserve System Organization

109

District 8–St. Louis
Covers the state of Arkansas; 44 counties in southern Illinois; 24 counties in southern Indiana; 64 counties in western Kentucky; 39 counties in northern Mississippi;
71 counties in central and eastern Missouri; the city of St. Louis; and 21 counties in
western Tennessee.
For more information on this District and to learn more about the Federal Reserve
Bank of St. Louis’s operations, visit https://www.stlouisfed.org/. Information on
economic conditions for this District can be found in the Federal Reserve System’s
Beige Book at https://www.federalreserve.gov/monetarypolicy/beigebook2019.htm.
Also find the Reserve Bank’s financial statements for 2019 at https://www
.federalreserve.gov/aboutthefed/files/stlouisfinstmt2019.pdf.
Class A
D. Bryan Jordan, 2019
Chairman, President, and Chief
Executive Officer, First Horizon
National Corporation,
Memphis, TN
Elizabeth G. McCoy, 2020
President and Chief Executive
Officer, Planters Bank,
Hopkinsville, KY
Patricia L. Clarke, 2021
President and Chief Executive
Officer, First National Bank of
Raymond, Raymond, IL
Class B
Alice K. Houston, 2019
Chief Executive Officer, HJI
Supply Chain Solutions,
Louisville, KY
John N. Roberts III, 2020
President and Chief Executive
Officer, J.B. Hunt Transport
Services, Inc., Lowell, AR
Vacancy, 2021
Class C
Kathleen M. Mazzarella, 2019
Chairman, President, and Chief
Executive Officer, Graybar
Electric Company, Inc., St.
Louis, MO
James M. McKelvey, Jr., 2020
Chief Executive Officer, Invisibly,
Inc., St. Louis, MO

Suzanne Sitherwood, 2021
President and Chief Executive
Officer, Spire Inc., St. Louis, MO

IL
MO
AR
Little Rock

Louisville
TN
Memphis
MS

Louisville Branch
Appointed by the Federal Reserve Bank

Appointed by the Federal Reserve Bank

Patrick J. Glotzbach, 2019
Director, New Independent
Bancshares, Inc.,
Charlestown, IN

R. Andrew Clyde, 2019
President and Chief Executive
Officer, Murphy USA Inc., El
Dorado, AR

Emerson M. Goodwin, 2020
Vice President of Operations,
ARcare d/b/a KentuckyCare,
Paducah, KY

Keith Glover, 2020
President and Chief Executive
Officer, Producers Rice Mill, Inc.,
Stuttgart, AR

Blake B. Willoughby, 2020
President, First Breckinridge
Bancshares, Inc., Irvington, KY

Little Rock Branch

Karama Neal, 2020
Chief Operating Officer, Southern
Bancorp Community Partners,
Little Rock, AR
Jeff Lynch, 2021
President and Chief Executive
Officer, Eagle Bank and Trust,
Little Rock, AR
Appointed by the Board of Governors

Millie A. Ward, 2019
President, Stone Ward, Little
Rock, AR
Vickie D. Judy, 2020
Chief Financial Officer and Vice
President, America’s Car-Mart,
Inc, Bentonville, AR
Jamie Henry, 2021
Vice President Finance, Emerging
Payments, Walmart Inc.,
Bentonville, AR

Ben Reno-Weber, 2021
Project Director, Greater
Louisville Project, Louisville, KY
Appointed by the Board of Governors

Randy W. Schumaker, 2019
Former President and Chief
Management Officer, Logan
Aluminum, Inc., Russellville, KY
Sadiqa N. Reynolds, 2020
President and Chief Executive
Officer, Louisville Urban League,
Louisville, KY
Vacancy, 2021

110

106th Annual Report | 2019

Memphis Branch
Appointed by the Federal Reserve Bank

J. Brice Fletcher, 2019
Chairman, First National Bank of
Eastern Arkansas, Forrest
City, AR
Michael E. Cary, 2020
President and Chief Executive
Officer, Carroll Bank and Trust,
Huntingdon, TN

Michael Ugwueke, 2020
President and Chief Executive
Officer, Methodist Le Bonheur
Healthcare, Memphis, TN
Beverly Crossen, 2021
Owner, Farmhouse Tupelo,
Tupelo, MS

David T. Cochran, Jr., 2020
Partner, CoCo Planting Co.,
Avon, MS
Eric D. Robertson, 2021
President, Community LIFT
Corporation, Memphis, TN

Appointed by the Board of Governors

Carolyn Chism Hardy, 2019
President and Chief Executive
Officer, Chism Hardy
Investments, LLC,
Collierville, TN

District 9–Minneapolis
Covers the states of Minnesota, Montana, North Dakota,
and South Dakota; the Upper Peninsula of Michigan; and
26 counties in northern Wisconsin.

MT
ND

Helena
For more information on this District and to learn more
about the Federal Reserve Bank of Minneapolis’s operaSD
tions, visit https://www.minneapolisfed.org/. Information
on economic conditions for this District can be found in
the Federal Reserve System’s Beige Book at https://www
.federalreserve.gov/monetarypolicy/beigebook2019.htm.
Also find the Reserve Bank’s financial statements for 2019
at https://www.federalreserve.gov/aboutthefed/files/minneapolisfinstmt2019.pdf.

Class A
Catherine T. Kelly, 2019
Regional President, PNC Bank
Financial Services Group,
Minneapolis-St. Paul,
Minneapolis, MN
Thomas W. Armstrong, 2020
Senior Vice President/ Market
President, Forward Bank, Park
Falls, WI
Jeanne H. Crain, 2021
President and Chief Executive
Officer, Bremer Financial
Corporation, St. Paul, MN
Class B
David R. Emery, 2019
Executive Chairman, Black Hills
Corporation, Rapid City, South
Dakota
Kathleen Neset, 2020
President, Neset Consulting
Service, Tioga, ND

Sarah Walsh, 2021
Chief Operating Officer,
PayneWest Insurance,
Helena, MT
Class C
Kendall J. Powell, 2019
Retired Chairman, General Mills,
Inc., Minneapolis, MN
Srilata Zaheer, 2020
Dean, Carlson School of
Management, University of
Minnesota, Minneapolis, MN
Harry D. Melander, 2021
President, Minnesota Building
and Construction Trades Council,
St. Paul, MN

MI
WI

Helena Branch
Appointed by the Federal Reserve Bank

Mary Rutherford, 2019
President and Chief Executive
Officer, Montana Community
Foundation, Helena, MT
William E. Coffee, 2020
Chief Executive Officer,
Stockman Financial Corporation,
Billings, MT
Jason Adams, 2021
Chief Financial Officer, Energy
Keepers, Inc., Polson, MT
Appointed by the Board of Governors

Norma Nickerson, 2020
Director, Institute for Tourism &
Recreation Research, University
of Montana, Missoula, MT
Bobbi Wolstein, 2021
Chief Financial Officer, LHC,
Inc., Kalispell, MT

Federal Reserve System Organization

111

District 10–Kansas City
Covers the states of Colorado, Kansas, Nebraska, Oklahoma, and
Wyoming; 43 counties in western Missouri; and 14 counties in
northern New Mexico.
For more information on this District and to learn more about the
Federal Reserve Bank of Kansas City’s operations, visit https://
www.kansascityfed.org/. Information on economic conditions for
this District can be found in the Federal Reserve System’s Beige
Book at https://www.federalreserve.gov/monetarypolicy/
beigebook2019.htm. Also find the Reserve Bank’s financial statements for 2019 at https://www.federalreserve.gov/aboutthefed/files/
kansascityfinstmt2019.pdf.
Gregory Hohl, 2019
Chairman and President, Wahoo
State Bank, Wahoo, NE

James C. Farrell, 2020
President and Chief Executive
Officer, Farmers National
Company, Omaha, NE

Patricia J. Minard, 2020
President and Chief Executive
Officer, Southwest National
Bank, Wichita, KS

Edmond Johnson, 2021
President and Owner, Premier
Manufacturing, Inc.,
Frederick, CO

Class A

Kyle Heckman, 2021
Chairman, President, and Chief
Executive Officer, Flatirons Bank,
Boulder, CO
Class B
Douglas J. Stussi, 2019
Executive Vice President and
Treasurer, Love’s Travel Stops &
Country Stores, Managing
Director, Love Family Office,
Oklahoma City, OK
Lilly Marks, 2020
Vice President for Health Affairs,
University of Colorado and
Anschutz Medical Campus,
Aurora, CO
Brent A. Stewart, Sr., 2021
President and Chief Executive
Officer, United Way of Greater
Kansas City, Kansas City, MO
Class C
Rose M. Washington, 2019
Chief Executive Officer, Tulsa
Economic Development
Corporation, Tulsa, OK

Denver Branch
Appointed by the Federal Reserve Bank

WY
NE
MO

CO
KS
NM

Oklahoma City
OK

Oklahoma City Branch
Appointed by the Federal Reserve Bank

Susan Chapman Plumb, 2019
Board Chair and Chief Executive
Officer, Bank of Cherokee
County, Tahlequah, OK
Christopher C. Turner, 2019
President and Chief Financial
Officer, The First State Bank,
Oklahoma City, OK

Jeffrey C. Wallace, 2019
Chief Executive Officer, Wyoming
Bank & Trust, Cheyenne, WY

Dana S. Weber, 2020
President and Chief Executive
Officer, Webco Industries, Inc.,
Sand Springs, OK

Ashley J. Burt, 2020
President and Chief Executive
Officer, The Gunnison Bank and
Trust Company, Gunnison, CO

J. Walter Duncan IV, 2021
President, Duncan Oil Properties,
Inc., Oklahoma City, OK

Nicole Glaros, 2021
Chief Investment Strategy Officer,
Techstars, Boulder, CO
Katharine W. Winograd, 2021
President, Central New Mexico
Community College,
Albuquerque, NM
Appointed by the Board of Governors

Taryn Christison, 2019
Senior Vice President, Saunders
Construction, Englewood, CO

Appointed by the Board of Governors

Clint D. Abernathy, 2019
President, Abernathy Farms, Inc.,
Altus, OK
Katrina Washington, 2020
Owner, Stratos Realty Group,
Oklahoma City, OK
Tina Patel, 2021
Chief Financial Officer, Promise
Hotels, Inc., Tulsa, OK
Omaha Branch

Vacancy, 2020

Appointed by the Federal Reserve Bank

Jacqueline Baca, 2021
President, Bueno Foods,
Albuquerque, NM

Annette Hamilton, 2019
Chief Operating Officer,
Ho-Chunk, Inc., Winnebago, NE

112

106th Annual Report | 2019

Dwayne W. Sieck, 2020
President and Chief Operating
Officer, Mutual of Omaha Bank,
Omaha, NE
Zac Karpf, 2021
Chief Operating Officer, Platte
Valley Bank, Scottsbluff, NE
Thomas J. Henning, 2021
President and Chief Executive
Officer, Cash-Wa Distributing
Co., Kearney, NE

Appointed by the Board of Governors

John F. Bourne, 2019
Retired International
Representative, International
Brotherhood of Electrical
Workers, Omaha, NE

Kimberly A. Russel, 2021
President and Chief Executive
Officer, Bryan Health,
Lincoln, NE

Eric L. Butler, 2020
Retired Executive Vice President
and Chief Administrative Officer,
Union Pacific Railroad,
Omaha, NE

District 11–Dallas
Covers the state of Texas; 26 parishes in northern Louisiana; and
18 counties in southern New Mexico.
For more information on this District and to learn more about the
Federal Reserve Bank of Dallas’s operations, visit https://www
.dallasfed.org/. Information on economic conditions for this District can be found in the Federal Reserve System’s Beige Book at
https://www.federalreserve.gov/monetarypolicy/beigebook2019
.htm. Also find the Reserve Bank’s financial statements for 2019 at
https://www.federalreserve.gov/aboutthefed/files/dallasfinstmt2019
.pdf.
Class A
J. Russell Shannon, 2019
President and Chief Executive
Officer, National Bank of
Andrews, Andrews, TX
Christopher C. Doyle, 2020
President and Chief Executive
Officer, Texas First Bank, Texas
City, TX
Kelly A. Barclay, 2021
President and Chief Executive
Officer, Ozona National Bank,
Wimberly, TX
Class B
Curtis V. Anastasio, 2019
Chairman, GasLog Partners L.P.,
San Antonio, TX
Gerald B. Smith, 2020
Chairman and Chief Executive
Officer, Smith, Graham &
Company Investment Advisors,
L.P., Houston, TX

TX
NM

El Paso

Houston
San Antonio

Renard U. Johnson, 2021
President and Chief Executive
Officer, Management &
Engineering Technologies
International, Inc., El Paso, TX

El Paso Branch

Class C

Sally A. Hurt-Deitch, 2020
Group President/Chief Executive
Officer El Paso Rio Grande Valley,
The Hospitals of
Providence/Tenet, El Paso, TX

Thomas J. Falk, 2019
Executive Chairman,
Kimberly-Clark Corporation,
Dallas, TX
Claudia Aguirre, 2020
President and Chief Executive
Officer, BakerRipley,
Houston, TX
Greg L. Armstrong, 2021
Retired Chairman and Chief
Executive Officer, Plains All
American Pipeline L.P.,
Houston, TX

Appointed by the Federal Reserve Bank

Paul L. Foster, 2019
President, Franklin Mountain
Management, LLC, El Paso, TX

Teresa O. Molina, 2020
President, First New Mexico
Bank, Deming, NM

Federal Reserve System Organization

William Serrata, 2021
President, El Paso Community
College, El Paso, TX

Gina Luna, 2020
Chief Executive Officer, Luna
Strategies, LLC, Houston, TX

Appointed by the Board of Governors

David Zalman, 2021
Chairman and Chief Executive
Officer, Prosperity Bancshares,
Houston, TX

Julio Chiu, 2019
Founder and Chief Executive
Officer, SEISA Medical, Inc., El
Paso, TX
Richard D. Folger, 2020
Managing General Partner,
Colbridge Partners Ltd.,
Midland, TX
Tracy J. Yellen, 2021
Chief Executive Officer, Paso del
Norte Community Foundation,
El Paso, TX
Houston Branch
Appointed by the Federal Reserve Bank

Appointed by the Board of Governors

Marcus A. Watts, 2019
President, The Friedkin Group,
Houston, TX
Cynthia Taylor, 2020
President and Chief Executive
Officer, Oil States International
Inc., Houston, TX
Janiece Longoria, 2021
Former Chairman, Port
Commission of the Port of
Houston Authority, Houston, TX

Darryl L. Wilson, 2019
President and Founder, The
Wilson Collective, Houston, TX

San Antonio Branch

Albert Chao, 2020
President and Chief Executive
Officer, Westlake Chemical Corp.,
Houston, TX

Charles E. Amato, 2019
Chairman and Co-Founder,
Southwest Business Corp., San
Antonio, TX

Appointed by the Federal Reserve Bank

113

Paula Gold-Williams, 2020
President and Chief Executive
Officer, CPS Energy, San
Antonio, TX
Robert L. Lozano, 2020
President/Owner, Lynn Lee
Inc./Dairy Queen, Pharr, TX
Alfred B. Jones, 2021
President and Director, American
Bank Holding Corp., Corpus
Christi, TX
Appointed by the Board of Governors

James Conrad Weaver, 2019
Chief Executive Officer,
McCombs Partners, San
Antonio, TX
Vacancy, 2020
Jesús Garza, 2021
Retired President and Chief
Executive Officer, Seton
Healthcare Family, Austin, TX

District 12–San Francisco
Covers the states of Alaska, Arizona, California, Hawaii, Idaho, Nevada,
Oregon, Utah, and Washington, and serves American Samoa, Guam,
and the Commonwealth of the Northern Mariana Islands.
For more information on this District and to learn more about the Federal Reserve Bank of San Francisco’s operations, visit http://www.frbsf
.org/. Information on economic conditions for this District can be found
in the Federal Reserve System’s Beige Book at https://www.federalreserve
.gov/monetarypolicy/beigebook2019.htm. Also find the Reserve Bank’s
financial statements for 2019 at https://www.federalreserve.gov/
aboutthefed/files/sanfranciscofinstmt2019.pdf.
Class A
Steven R. Gardner, 2019
Chairman and Chief Executive
Officer, Pacific Premier Bank,
Irvine, CA
S. Randolph Compton, 2020
Chief Executive Officer and
Co-Chair of the Board, Pioneer
Trust Bank, N.A., Salem, OR

Greg Becker, 2021
President and Chief Executive
Officer, SVB Financial Group,
Chief Executive Officer, Silicon
Valley Bank, Santa Clara, CA

Alaska

Seattle
OR
CA
Guam

Portland
ID
NV
Salt Lake
City
UT
Los Angeles

Hawaii

114

106th Annual Report | 2019

Class B
Sanford L. Michelman, 2019
Chairman, Michelman &
Robinson, LLP, Los Angeles, CA
Tamara L Lundgren, 2020
President and Chief Executive
Officer, Schnitzer Steel Industries,
Inc., Portland, OR
Arthur F. Oppenheimer, 2021
Chairman and Chief Executive
Officer, Oppenheimer Companies,
Inc., President, Oppenheimer
Development Corporation,
Boise, ID
Class C
Barry M. Meyer, 2019
Retired Chairman and Chief
Executive Officer, Warner Bros.,
Founder and Chairman, North
Ten Mile Associates, Los
Angeles, CA
Rosemary Turner, 2020
Retired President, UPS North
California District, Oakland, CA
David P. White, 2021
National Executive Director,
SAG-AFTRA, Los Angeles, CA
Los Angeles Branch
Appointed by the Federal Reserve Bank

Steven W. Streit, 2019
Founder, President, and Chief
Executive Officer, Green Dot
Bank and Green Dot
Corporation, Pasadena, CA

Deborah Flint, 2021
Chief Executive Officer, Los
Angeles World Airports, Los
Angeles, CA
Appointed by the Board of Governors

James A. Hughes, 2019
Former Director and Chief
Executive Officer, First Solar,
Inc., Tempe, AZ
Robert H. Gleason, 2020
President and Chief Executive
Officer, Evans Hotels, San
Diego, CA
Anita V. Pramoda, 2021
Chief Executive Officer, Owned
Outcomes, Las Vegas, NV
Portland Branch
Appointed by the Federal Reserve Bank

Steven J. Zika, 2019
Chief Executive Officer, Hampton
Lumber, Portland, OR
Hilary K. Krane, 2020
Executive Vice President, Chief
Administrative Officer, and
General Counsel, Nike, Inc.,
Beaverton, OR
Cheryl R. Nester Wolfe, 2020
President and Chief Executive
Officer, Salem Health Hospital
and Clinics, Salem, OR
Stacey M.L. Dodson, 2021
Market President, Portland and
Southwest Washington, U.S.
Bank, Portland, OR

Carl J.P. Chang, 2020
Chief Executive Officer,
Redwood-Kairos Real Estate
Partners and Pieology Pizzeria,
Rancho Santa Margarita, CA

Appointed by the Board of Governors

Luis Faura, 2021
President and Chief Executive
Officer, C&F Foods, Inc., City of
Industry, CA

Charles A. Wilhoite, 2020
Managing Director, Willamette
Management Associates,
Portland, OR

Anne C. Kubisch, 2019
President and Chief Executive
Officer, The Ford Family
Foundation, Roseburg, OR

Gale Castillo, 2021
President, Cascade Centers, Inc.,
Portland, OR
Salt Lake City Branch
Appointed by the Federal Reserve Bank

Peter R. Metcalf, 2019
Founder, Brand Advocate, and
Chief Executive Officer Emeritus,
Black Diamond, Inc., Salt Lake
City, UT
Jas Krdzalic, 2020
President and Chief Executive
Officer, Bodybuilding.com,
Boise, ID
Park Price, 2020
Chief Executive Officer Emeritus
and Chairman, Bank of Idaho,
Idaho Falls, ID
O. Randall Woodbury, 2021
President and Chief Executive
Officer, Woodbury Corporation,
Salt Lake City, UT
Appointed by the Board of Governors

Russell A. Childs, 2019
Chief Executive Officer and
President, SkyWest, Inc., St.
George, UT
Patricia R. Richards, 2020
President and Chief Executive
Officer, SelectHealth, Inc.,
Murray, UT
Thomas K. Corrick, 2021
Chief Executive Officer, Boise
Cascade Company, Boise, ID
Seattle Branch
Appointed by the Federal Reserve Bank

Andrew Wolff, 2019
Chief Financial Officer,
International and Channel
Development, Starbucks Coffee
Company, Seattle, WA

Federal Reserve System Organization

Craig Dawson, 2020
President and Chief Executive
Officer, Retail Lockbox, Inc.,
Seattle, WA
Laura Lee Stewart, 2020
President and Chief Executive
Officer, Sound Community Bank
and Sound Financial
Bancorporation, Seattle, WA

Cheryl B. Fambles, 2021
Chief Executive Officer, Pacific
Mountain Workforce
Development Council,
Tumwater, WA
Appointed by the Board of Governors

Sophie Minich, 2019
President and Chief Executive
Officer, Cook Inlet Region, Inc.,
Anchorage, AK

115

Elaine S. Couture, 2020
Executive Vice President and
Chief Executive Officer,
Washington and Montana Region,
Providence St. Joseph Health,
Spokane, WA
West Mathison, 2021
President, Stemilt Growers, LLC,
Wenatchee, WA

116

106th Annual Report | 2019

Reserve Bank and Branch Leadership
Each year, the Board of Governors designates one Class C director to serve as chair, and one Class C director
to serve as deputy chair, of each Reserve Bank board. Reserve Banks also have a president and first vice president who are appointed by the Bank’s Class C, and certain Class B, directors, subject to approval by the Board
of Governors. Each Reserve Bank selects a chair for every Branch in its District from among the directors on
the Branch board who were appointed by the Board of Governors. For each Branch, an officer from its Reserve
Bank is also charged with the oversight of Branch operations.
Boston

Cincinnati

Birmingham

Jenell R. Ross, Chair

Nancy C. Goedecke, Chair

Rick Kaglic, Vice President and
Senior Regional Officer

Anoop Mishra, Vice President and
Regional Executive

Pittsburgh

Jacksonville

Phillip L. Clay, Chair
Christina Hull Paxson, Deputy
Chair
Eric S. Rosengren, President and
Chief Executive Officer
Kenneth C. Montgomery, First
Vice President and Chief
Operating Officer

Dmitri D. Shiry, Chair

Nicole B. Thomas, Chair

Mekael Teshome, Vice President
and Senior Regional Officer

Christopher L. Oakley, Vice
President and Regional Executive

New York

Richmond

Denise Scott, Chair
Rosa Gil, Deputy Chair
John C. Williams, President
Michael Strine, First Vice
President

Kathy J. Warden, Chair
Margaret G. Lewis, Deputy Chair
Thomas I. Barkin, President
Becky C. Bareford, First Vice
President and Chief Operating
Officer

Miami
Ana M. Menendez, Chair
Karen Gilmore, Vice President and
Regional Executive
Nashville
Matthew S. Bourlakas, Chair

Baltimore

Laurel Graefe, Vice President and
Regional Executive

Philadelphia

Susan J. Ganz, Chair

Brian M. McNeill, Chair
Phoebe Haddon, Deputy Chair
Patrick T. Harker, President and
Chief Executive Officer
James D. Narron, First Vice
President

Andy Bauer, Vice President and
Baltimore Regional Executive

New Orleans

Additional office at East Rutherford, NJ

Cleveland
Dawne S. Hickton, Chair
Dwight E. Smith, Deputy Chair
Loretta J. Mester, President and
Chief Executive Officer
Gregory Stefani, First Vice
President

Charlotte

G. Janelle Frost, Chair
Adrienne C. Slack, Vice President
and Regional Executive

R. Glenn Sherrill, Jr, Chair
Matthew A. Martin, Senior Vice
President and Charlotte Regional
Executive
Atlanta
Myron A. Gray, Chair
Elizabeth A. Smith, Deputy Chair
Raphael W. Bostic, President
André Anderson, First Vice
President

Chicago
Vacancy, Chair
E. Scott Santi, Deputy Chair
Charles L. Evans, President
Ellen J. Bromagen, First Vice
President
Additional office at Des Moines, IA

Federal Reserve System Organization

Detroit

Helena

Houston

Joseph B. Anderson, Jr, Chair

Norma Nickerson,Chair

Marcus A. Watts, Chair

Michael Hoppe, Senior Vice
President and Branch Manager

Kansas City

Daron D. Peschel, Senior Vice
President in Charge

St. Louis
Kathleen M. Mazzarella, Chair
Suzanne Sitherwood, Deputy
Chair

Rose M. Washington, Chair
James C. Farrell, Deputy Chair
Esther L. George, President
Kelly J. Dubbert, First Vice
President

James Bullard, President

Denver

David A. Sapenaro, First Vice
President

Taryn Christison, Chair

Little Rock

Nicholas Sly, Assistant Vice
President and Branch Executive

Millie A. Ward, Chair

Oklahoma City

Robert Hopkins, Senior Vice
President and Regional Executive

Clint D. Abernathy, Chair

Nikki R. Lanier, Senior Vice
President and Regional Executive

San Antonio
James Conrad Weaver, Chair
Blake Hastings, Senior Vice
President in Charge
San Francisco
Barry M. Meyer, Chair
Rosemary Turner, Deputy Chair
Mary Daly, President
Mark A. Gould, First Vice
President

Chad R. Wilkerson, Vice President
and Branch Executive

Additional office at Phoenix, AZ

Omaha

Robert Gleason, Chair

Eric L. Butler, Chair

Roger W. Replogle, Executive Vice
President and Regional Executive

Louisville
Randy W. Schumaker, Chair

117

Nathan Kauffman, Assistant Vice
President and Branch Executive

Memphis

Los Angeles

Portland

Dallas

Charles A. Wilhoite, Chair
Lynn Jorgensen, Vice President
and Regional Executive

Harry D. Melander, Deputy Chair

Greg L. Armstrong, Chair
Thomas J. Falk, Deputy Chair
Robert S. Kaplan, President and
Chief Executive Officer
Meredith N. Black, First Vice
President and Chief Operating
Officer

Neel T. Kashkari, President

El Paso

Seattle

Ron Feldman, First Vice President

Julio Chiu, Chair

West Mathison, Chair

Roberto A. Coronado, Senior Vice
President in Charge

Darlene Wilczynski, Vice
President and Regional Executive

Eric D. Johnson, Chair
Douglas G. Scarboro, Senior Vice
President and Regional Executive
Minneapolis
Kendall J. Powell, Chair

Salt Lake City
Patricia R. Richards, Chair
Becky Potts, Vice President and
Regional Executive

118

106th Annual Report | 2019

Leadership Conferences
Conference of Chairs
The chairs of the Federal Reserve Banks are organized into the Conference of Chairs, which meets to consider
matters of common interest and to consult with and advise the Board of Governors. Such meetings, also
attended by the deputy chairs, were held in Washington, D.C., on May 14–15, 2019, and November 12–13,
2019. The conference’s executive committee members for 2019 are listed below.5
Conference of Chairs
Executive Committee—2019
Kendall J. Powell, Chair,
Federal Reserve Bank of
Minneapolis

Dawne S. Hickton, Vice Chair,
Federal Reserve Bank of
Cleveland
Phillip L. Clay, Member,
Federal Reserve Bank of Boston

Conference of Presidents
The presidents of the Federal Reserve Banks are organized into the Conference of Presidents, which meets periodically to identify, define, and deliberate issues of strategic significance to the Federal Reserve System; to consider matters of common interest; and to consult with and advise the Board of Governors. The chief executive
officer of each Reserve Bank was originally labeled governor and did not receive the title of president until the
passage of the Banking Act of 1935. Consequently, when the Conference was first established in 1914 it was
known as the Conference of Governors. Conference officers for 2019 are listed below.
Conference of
Presidents—2019
Charles L. Evans, Chair,
Federal Reserve Bank of Chicago
James Bullard, Vice Chair,
Federal Reserve Bank of St.
Louis
Keri Trolson, Secretary,
Federal Reserve Bank of Chicago
Douglas Scarboro, Assistant
Secretary,
Federal Reserve Bank of St.
Louis
5

On November 13, 2019, the Conference of Chairs elected Dawne S. Hickton, chair of the Federal Reserve Bank of Cleveland, as chair of
the conference’s executive committee for 2020. The conference also elected Phillip L. Clay, chair of the Federal Reserve Bank of Boston,
as vice chair, and Greg L. Armstrong, chair of the Federal Reserve Bank of Dallas, as the executive committee’s third member.

Federal Reserve System Organization

119

Conference of First Vice Presidents
The Conference of First Vice Presidents of the Federal Reserve Banks was organized in 1969 to meet periodically for the consideration of operations and other matters. Conference officers for 2019 are listed below.6
Conference of First Vice
Presidents—2019
Kelly J. Dubbert, Chair,
Federal Reserve Bank of
Kansas City
Michael Strine, Vice Chair,
Federal Reserve Bank of
New York
6

Erika Hamilton, Secretary,
Federal Reserve Bank of
Kansas City
Laura Forman, Assistant
Secretary,
Federal Reserve Bank of
New York

On December 3, 2019, the conference elected Kelly J. Dubbert, Federal Reserve Bank of Kansas City, as chair for 2020 and Michael
Strine, Federal Reserve Bank of New York, as vice chair. The conference also elected Laura Forman, Federal Reserve Bank of New
York, as secretary and Joshua Silverstein, Federal Reserve Bank of Philadelphia, as assistant secretary.

121

Minutes of
Federal Open Market
Committee Meetings

The policy actions of the Federal Open Market Committee, recorded in the minutes of its meetings, are
presented in the Annual Report of the Board of Governors pursuant to the requirements of section 10 of
the Federal Reserve Act. That section provides that
the Board shall keep a complete record of the actions
taken by the Board and by the Federal Open Market
Committee on all questions of policy relating to open
market operations, that it shall record therein the
votes taken in connection with the determination of
open market policies and the reasons underlying each
policy action, and that it shall include in its annual
report to Congress a full account of such actions.
The minutes of the meetings contain the votes on the
policy decisions made at those meetings, as well as a
summary of the information and discussions that led
to the decisions. In addition, four times a year, a
Summary of Economic Projections is published as an
addendum to the minutes. The descriptions of economic and financial conditions in the minutes and the
Summary of Economic Projections are based solely
on the information that was available to the Committee at the time of the meetings.
Members of the Committee voting for a particular
action may differ among themselves as to the reasons
for their votes; in such cases, the range of their views

is noted in the minutes. When members dissent from
a decision, they are identified in the minutes and a
summary of the reasons for their dissent is provided.
Policy directives of the Federal Open Market Committee are issued to the Federal Reserve Bank of New
York as the Bank selected by the Committee to
execute transactions for the System Open Market
Account. In the area of domestic open market operations, the Federal Reserve Bank of New York operates under instructions from the Federal Open Market Committee that take the form of an Authorization for Domestic Open Market Operations and a
Domestic Policy Directive. (A new Domestic Policy
Directive is adopted at each regularly scheduled
meeting.) In the foreign currency area, the Federal
Reserve Bank of New York operates under an Authorization for Foreign Currency Operations and a Foreign Currency Directive. Changes in the instruments
during the year are reported in the minutes for the
individual meetings.1
1

As of January 1, 2019, the Federal Reserve Bank of New York
was operating under the Domestic Policy Directive approved at
the December 18–19, 2018, Committee meeting. The other
policy instruments (the Authorization for Domestic Open Market Operations, the Authorization for Foreign Currency Operations, and the Foreign Currency Directive) in effect as of January 1, 2019, were approved at the January 30–31, 2018, meeting.

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106th Annual Report | 2019

Meeting Held
on January 29–30, 2019
A joint meeting of the Federal Open Market Committee and the Board of Governors was held in the
offices of the Board of Governors of the Federal
Reserve System in Washington, D.C., on Tuesday,
January 29, 2019, at 10:00 a.m. and continued on
Wednesday, January 30, 2019, at 9:00 a.m.1

Present
Jerome H. Powell
Chairman
John C. Williams
Vice Chairman
Michelle W. Bowman
Lael Brainard
James Bullard
Richard H. Clarida
Charles L. Evans
Esther L. George
Randal K. Quarles
Eric Rosengren
Patrick Harker, Robert S. Kaplan, Neel Kashkari,
Loretta J. Mester, and Michael Strine
Alternate Members of the Federal Open Market
Committee
Thomas I. Barkin, Raphael W. Bostic,
and Mary C. Daly
Presidents of the Federal Reserve Banks of
Richmond, Atlanta, and San Francisco, respectively
James A. Clouse
Secretary
Matthew M. Luecke
Deputy Secretary
David W. Skidmore
Assistant Secretary
Michelle A. Smith
Assistant Secretary

Michael Held
Deputy General Counsel
Steven B. Kamin
Economist
Thomas Laubach
Economist
Stacey Tevlin
Economist
Thomas A. Connors, Rochelle M. Edge,
Beverly Hirtle, Daniel G. Sullivan,
Christopher J. Waller, William Wascher,
Jonathan L. Willis, and Beth Anne Wilson
Associate Economists
Simon Potter
Manager, System Open Market Account
Lorie K. Logan
Deputy Manager, System Open Market Account
Ann E. Misback
Secretary, Office of the Secretary, Board of
Governors
Matthew J. Eichner2
Director, Division of Reserve Bank Operations and
Payment Systems, Board of Governors
Andreas Lehnert
Director, Division of Financial Stability,
Board of Governors
Jennifer J. Burns
Deputy Director, Division of Supervision and
Regulation, Board of Governors
Michael T. Kiley
Deputy Director, Division of Financial Stability,
Board of Governors
Trevor A. Reeve
Deputy Director, Division of Monetary Affairs,
Board of Governors
Jon Faust
Senior Special Adviser to the Chairman, Office of
Board Members, Board of Governors
Antulio N. Bomfim
Special Adviser to the Chairman, Office of Board
Members, Board of Governors

Mark E. Van Der Weide
General Counsel
1

The Federal Open Market Committee is referenced as the
“FOMC” and the “Committee” in these minutes.

Attended through the discussion of the long-run monetary
policy implementation frameworks.

Minutes of Federal Open Market Committee Meetings | January

Brian M. Doyle, Joseph W. Gruber, Ellen E. Meade,
and John M. Roberts
Special Advisers to the Board, Office of Board
Members, Board of Governors
Linda Robertson
Assistant to the Board, Office of Board Members,
Board of Governors
Christopher J. Erceg
Senior Associate Director, Division of International
Finance, Board of Governors
David E. Lebow and Michael G. Palumbo
Senior Associate Directors, Division of Research and
Statistics, Board of Governors
Edward Nelson and Robert J. Tetlow
Senior Advisers, Division of Monetary Affairs,
Board of Governors
Jeremy B. Rudd
Senior Adviser, Division of Research and Statistics,
Board of Governors
Marnie Gillis DeBoer2
Associate Director, Division of Monetary Affairs,
Board of Governors
Jeffrey D. Walker2
Deputy Associate Director, Division of Reserve
Bank Operations and Payment Systems,
Board of Governors
Eric C. Engstrom
Deputy Associate Director, Division of
Monetary Affairs,
and
Adviser, Division of Research and Statistics,
Board of Governors
Glenn Follette and Norman J. Morin
Assistant Directors, Division of Research and
Statistics, Board of Governors
Christopher J. Gust, Laura Lipscomb,2
and Zeynep Senyuz2
Assistant Directors, Division of Monetary Affairs,
Board of Governors
Dana L. Burnett, Michele Cavallo,2 and Dan Li
Section Chiefs, Division of Monetary Affairs,
Board of Governors
Sean Savage
Senior Project Manager, Division of Monetary
Affairs, Board of Governors

123

David H. Small
Project Manager, Division of Monetary Affairs,
Board of Governors
Kurt F. Lewis
Principal Economist, Division of Monetary Affairs,
Board of Governors
Christopher L. Smith
Principal Economist, Division of Research and
Statistics, Board of Governors
Ayelen Banegas
Senior Economist, Division of Monetary Affairs,
Board of Governors
Luke Pettit2
Senior Financial Institution and Policy Analyst,
Division of Monetary Affairs, Board of Governors
Pon Sagnanert
Financial Analyst, Division of Monetary Affairs,
Board of Governors
Yvette McKnight3
Staff Assistant, Office of the Secretary,
Board of Governors
Meredith Black
First Vice President, Federal Reserve Bank of Dallas
David Altig and Sylvain Leduc
Executive Vice Presidents, Federal Reserve
Banks of Atlanta and San Francisco,
respectively
Bruce Fallick, Marc Giannoni, Susan McLaughlin,2
Anna Nordstrom,2 Angela O’Connor,2 Keith Sill,
and Mark L. J. Wright
Senior Vice Presidents, Federal Reserve Banks of
Cleveland, Dallas, New York, New York,
New York, Philadelphia, and Minneapolis,
respectively
Roc Armenter,2 Kathryn B. Chen,2 Joe Peek,
Alexander L. Wolman, and Patricia Zobel2
Vice Presidents, Federal Reserve Banks of
Philadelphia, New York, Boston, Richmond, and
New York, respectively
Samuel Schulhofer-Wohl
Senior Economist and Research Advisor, Federal
Reserve Bank of Chicago
3

Attended Tuesday session only.

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106th Annual Report | 2019

Annual Organizational Matters4

Jerome H. Powell
Chairman

In the agenda for this meeting, it was reported that
advices of the election of the following members and
alternate members of the Federal Open Market Committee for a term beginning January 29, 2019, had
been received and that these individuals had executed
their oaths of office.

John C. Williams
Vice Chairman

The elected members and alternate members were as
follows:
John C. Williams
President of the Federal Reserve Bank of New York,
with
Michael Strine
First Vice President of the Federal Reserve Bank of
New York, as alternate.
Eric Rosengren
President of the Federal Reserve Bank of Boston,
with
Patrick Harker
President of the Federal Reserve Bank of
Philadelphia, as alternate.
Charles L. Evans
President of the Federal Reserve Bank of Chicago,
with
Loretta J. Mester
President of the Federal Reserve Bank of Cleveland,
as alternate.

James A. Clouse
Secretary
Matthew M. Luecke
Deputy Secretary
David W. Skidmore
Assistant Secretary
Michelle A. Smith
Assistant Secretary
Mark E. Van Der Weide
General Counsel
Michael Held
Deputy General Counsel
Richard M. Ashton
Assistant General Counsel
Steven B. Kamin
Economist
Thomas Laubach
Economist
Stacey Tevlin
Economist
Thomas A. Connors
Rochelle M. Edge

James Bullard
President of the Federal Reserve Bank of St. Louis,
with

Eric M. Engen

Robert S. Kaplan
President of the Federal Reserve Bank of Dallas,
as alternate.

Geoffrey Tootell

Esther L. George
President of the Federal Reserve Bank of
Kansas City, with
Neel Kashkari
President of the Federal Reserve Bank of
Minneapolis, as alternate.
By unanimous vote, the following officers of the
Committee were selected to serve until the selection
of their successors at the first regularly scheduled
meeting of the Committee in 2020:
4

Committee organizational documents are available at https://
www.federalreserve.gov/monetarypolicy/rules_authorizations
.htm.

Beverly Hirtle
Daniel G. Sullivan
Christopher J. Waller
William Wascher
Jonathan L. Willis
Beth Anne Wilson
Associate Economists
By unanimous vote, the Federal Reserve Bank of
New York was selected to execute transactions for
the System Open Market Account (SOMA).
By unanimous vote, the Committee selected Simon
Potter and Lorie K. Logan to serve at the pleasure of
the Committee as manager and deputy manager of
the SOMA, respectively, on the understanding that
these selections were subject to their being satisfactory to the Federal Reserve Bank of New York.

Minutes of Federal Open Market Committee Meetings | January

Secretary’s note: Advice subsequently was
received that the manager and deputy manager
selections indicated above were satisfactory to the
Federal Reserve Bank of New York.
By unanimous vote, the Committee approved the
Authorization for Domestic Open Market Operations with a revision that makes clear that small value
tests for rollovers and maturities are included in the
$5 billion limit of the operational readiness testing
program. The Guidelines for the Conduct of System
Open Market Operations in Federal-Agency Issues
remained suspended.
Authorization for Domestic Open Market
Operations (As Amended Effective
January 29, 2019)
Open Market Transactions
1. The Federal Open Market Committee (the “Committee”) authorizes and directs the Federal
Reserve Bank selected by the Committee to
execute open market transactions (the “Selected
Bank”), to the extent necessary to carry out the
most recent domestic policy directive adopted by
the Committee:
A. To buy or sell in the open market securities
that are direct obligations of, or fully guaranteed as to principal and interest by, the
United States, and securities that are direct
obligations of, or fully guaranteed as to principal and interest by, any agency of the
United States, that are eligible for purchase
or sale under Section 14(b) of the Federal
Reserve Act (“Eligible Securities”) for the
System Open Market Account (“SOMA”):
i. As an outright operation with securities
dealers and foreign and international
accounts maintained at the Selected
Bank: on a same-day or deferred delivery
basis (including such transactions as are
commonly referred to as dollar rolls and
coupon swaps) at market prices; or
ii. As a temporary operation: on a same-day
or deferred delivery basis, to purchase
such Eligible Securities subject to an
agreement to resell (“repo transactions”)
or to sell such Eligible Securities subject
to an agreement to repurchase (“reverse
repo transactions”) for a term of 65 business days or less, at rates that, unless otherwise authorized by the Committee,

125

are determined by competitive bidding,
after applying reasonable limitations on
the volume of agreements with individual
counterparties;
B. To allow Eligible Securities in the SOMA to
mature without replacement;
C. To exchange, at market prices, in connection
with a Treasury auction, maturing Eligible
Securities in the SOMA with the Treasury, in
the case of Eligible Securities that are direct
obligations of the United States or that are
fully guaranteed as to principal and interest
by the United States; and
D. To exchange, at market prices, maturing Eligible Securities in the SOMA with an agency
of the United States, in the case of Eligible
Securities that are direct obligations of that
agency or that are fully guaranteed as to
principal and interest by that agency.
Securities Lending
2. In order to ensure the effective conduct of open
market operations, the Committee authorizes the
Selected Bank to operate a program to lend Eligible Securities held in the SOMA to dealers on
an overnight basis (except that the Selected Bank
may lend Eligible Securities for longer than an
overnight term to accommodate weekend, holiday, and similar trading conventions).
A. Such securities lending must be:
i. At rates determined by competitive
bidding;
ii. At a minimum lending fee consistent with
the objectives of the program;
iii. Subject to reasonable limitations on the
total amount of a specific issue of Eligible Securities that may be auctioned; and
iv. Subject to reasonable limitations on the
amount of Eligible Securities that each
borrower may borrow.
B. The Selected Bank may:
i. Reject bids that, as determined in its sole
discretion, could facilitate a bidder’s ability to control a single issue;

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106th Annual Report | 2019

ii. Accept Treasury securities or cash as collateral for any loan of securities authorized in this paragraph 2; and

Account, when appropriate and subject to all
other necessary authorization and approvals, to:

iii. Accept agency securities as collateral only
for a loan of agency securities authorized
in this paragraph 2.

i. Undertake repo transactions in Eligible
Securities with dealers with a corresponding reverse repo transaction in such Eligible Securities with the Customer
Accounts; and

Operational Readiness Testing
3. The Committee authorizes the Selected Bank to
undertake transactions of the type described in
paragraphs 1 and 2 from time to time for the purpose of testing operational readiness, subject to
the following limitations:
A. All transactions authorized in this paragraph
3 shall be conducted with prior notice to the
Committee;
B. The aggregate par value of the transactions
authorized in this paragraph 3 that are of the
type described in paragraph 1.A.i, 1.B, 1.C
and 1.D shall not exceed $5 billion per calendar year; and
C. The outstanding amount of the transactions
described in paragraphs 1.A.ii and 2 shall not
exceed $5 billion at any given time.
Transactions with Customer Accounts
4. In order to ensure the effective conduct of open
market operations, while assisting in the provision
of short-term investments or other authorized
services for foreign central bank and international
accounts maintained at a Federal Reserve Bank
(the “Foreign Accounts”) and accounts maintained at a Federal Reserve Bank as fiscal agent
of the United States pursuant to section 15 of the
Federal Reserve Act (together with the Foreign
Accounts, the “Customer Accounts”), the Committee authorizes the following when undertaken
on terms comparable to those available in the
open market:
A. The Selected Bank, for the SOMA, to undertake reverse repo transactions in Eligible
Securities held in the SOMA with the Customer Accounts for a term of 65 business
days or less; and
B. Any Federal Reserve Bank that maintains
Customer Accounts, for any such Customer

ii. Undertake intra-day repo transactions in
Eligible Securities with Foreign Accounts.
Transactions undertaken with Customer
Accounts under the provisions of this paragraph
4 may provide for a service fee when appropriate.
Transactions undertaken with Customer
Accounts are also subject to the authorization or
approval of other entities, including the Board of
Governors of the Federal Reserve System and,
when involving accounts maintained at a Federal
Reserve Bank as fiscal agent of the United States,
the United States Department of the Treasury.
Additional Matters
5. The Committee authorizes the Chairman of the
Committee, in fostering the Committee’s objectives during any period between meetings of the
Committee, to instruct the Selected Bank to act
on behalf of the Committee to:
A. Adjust somewhat in exceptional circumstances the stance of monetary policy and to
take actions that may result in material
changes in the composition and size of the
assets in the SOMA; or
B. Undertake transactions with respect to Eligible Securities in order to appropriately
address temporary disruptions of an operational or highly unusual nature in U.S. dollar
funding markets.
Any such adjustment described in subparagraph
A of this paragraph 5 shall be made in the context of the Committee’s discussion and decision
about the stance of policy at its most recent meeting and the Committee’s long-run objectives to
foster maximum employment and price stability,
and shall be based on economic, financial, and
monetary developments since the most recent
meeting of the Committee. The Chairman, whenever feasible, will consult with the Committee

Minutes of Federal Open Market Committee Meetings | January

127

before making any instruction under this paragraph 5.

Article IV of the Articles of Agreement of
the International Monetary Fund (IMF).1

The Committee voted unanimously to reaffirm without revision the Authorization for Foreign Currency
Operations and the Foreign Currency Directive as
shown below.

B. In close and continuous cooperation and
consultation, as appropriate, with the United
States Treasury.

Authorization for Foreign Currency Operations
(As Reaffirmed Effective January 29, 2019)

C. In consultation, as appropriate, with foreign
monetary authorities, foreign central banks,
and international monetary institutions.

In General
D. At prevailing market rates.
1. The Federal Open Market Committee (the “Committee”) authorizes the Federal Reserve Bank
selected by the Committee (the “Selected Bank”)
to execute open market transactions for the
System Open Market Account as provided in this
Authorization, to the extent necessary to carry
out any foreign currency directive of the
Committee:

Standalone Spot and Forward Transactions
3. For any operation that involves standalone spot
or forward transactions in foreign currencies:
A. Approval of such operation is required as
follows:
i. The Committee must direct the Selected
Bank in advance to execute the operation
if it would result in the overall volume of
standalone spot and forward transactions
in foreign currencies, as defined in paragraph 3.C of this Authorization, exceeding $5 billion since the close of the most
recent regular meeting of the Committee.
The Foreign Currency Subcommittee (the
“Subcommittee”) must direct the Selected
Bank in advance to execute the operation
if the Subcommittee believes that consultation with the Committee is not feasible
in the time available.

A. To purchase and sell foreign currencies (also
known as cable transfers) at home and
abroad in the open market, including with
the United States Treasury, with foreign monetary authorities, with the Bank for International Settlements, and with other entities in
the open market. This authorization to purchase and sell foreign currencies encompasses
purchases and sales through standalone spot
or forward transactions and through foreign
exchange swap transactions. For purposes of
this Authorization, foreign exchange swap
transactions are: swap transactions with the
United States Treasury (also known as warehousing transactions), swap transactions with
other central banks under reciprocal currency
arrangements, swap transactions with other
central banks under standing dollar liquidity
and foreign currency liquidity swap arrangements, and swap transactions with other entities in the open market.
B. To hold balances of, and to have outstanding
forward contracts to receive or to deliver, foreign currencies.
2. All transactions in foreign currencies undertaken
pursuant to paragraph 1 above shall, unless otherwise authorized by the Committee, be conducted:
A. In a manner consistent with the obligations
regarding exchange arrangements under

ii. The Committee authorizes the Subcommittee to direct the Selected Bank in
advance to execute the operation if it
would result in the overall volume of
standalone spot and forward transactions
in foreign currencies, as defined in paragraph 3.C of this Authorization, totaling
$5 billion or less since the close of the
1

In general, as specified in Article IV, each member of the IMF
undertakes to collaborate with the IMF and other members to
assure orderly exchange arrangements and to promote a stable
system of exchange rates. These obligations include seeking to
direct the member’s economic and financial policies toward the
objective of fostering orderly economic growth with reasonable
price stability. These obligations also include avoiding manipulating exchange rates or the international monetary system in
such a way that would impede effective balance of payments
adjustment or to give an unfair competitive advantage over
other members.

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106th Annual Report | 2019

most recent regular meeting of the
Committee.

Subcommittee believes that consultation with
the Committee is not feasible in the time
available).

B. Such an operation also shall be:
i. Generally directed at countering disorderly market conditions; or
ii. Undertaken to adjust System balances in
light of probable future needs for currencies; or
iii. Conducted for such other purposes as
may be determined by the Committee.
C. For purposes of this Authorization, the overall volume of standalone spot and forward
transactions in foreign currencies is defined
as the sum (disregarding signs) of the dollar
values of individual foreign currencies purchased and sold, valued at the time of the
transaction.
Warehousing
4. The Committee authorizes the Selected Bank,
with the prior approval of the Subcommittee and
at the request of the United States Treasury, to
conduct swap transactions with the United States
Exchange Stabilization Fund established by section 10 of the Gold Reserve Act of 1934 under
agreements in which the Selected Bank purchases
foreign currencies from the Exchange Stabilization Fund and the Exchange Stabilization Fund
repurchases the foreign currencies from the
Selected Bank at a later date (such purchases and
sales also known as warehousing).
Reciprocal Currency Arrangements, and
Standing Dollar and Foreign Currency
Liquidity Swaps
5. The Committee authorizes the Selected Bank to
maintain reciprocal currency arrangements established under the North American Framework
Agreement, standing dollar liquidity swap
arrangements, and standing foreign currency
liquidity swap arrangements as provided in this
Authorization and to the extent necessary to
carry out any foreign currency directive of the
Committee.
A. For reciprocal currency arrangements all
drawings must be approved in advance by the
Committee (or by the Subcommittee, if the

B. For standing dollar liquidity swap arrangements all drawings must be approved in
advance by the Chairman. The Chairman
may approve a schedule of potential drawings, and may delegate to the manager,
System Open Market Account, the authority
to approve individual drawings that occur
according to the schedule approved by the
Chairman.
C. For standing foreign currency liquidity swap
arrangements all drawings must be approved
in advance by the Committee (or by the Subcommittee, if the Subcommittee believes that
consultation with the Committee is not feasible in the time available).
D. Operations involving standing dollar liquidity swap arrangements and standing foreign
currency liquidity swap arrangements shall
generally be directed at countering strains in
financial markets in the United States or
abroad, or reducing the risk that they could
emerge, so as to mitigate their effects on economic and financial conditions in the United
States.
E. For reciprocal currency arrangements, standing dollar liquidity swap arrangements, and
standing foreign currency liquidity swap
arrangements:
i. All arrangements are subject to annual
review and approval by the Committee;
ii. Any new arrangements must be approved
by the Committee; and
iii. Any changes in the terms of existing
arrangements must be approved in
advance by the Chairman. The Chairman
shall keep the Committee informed of any
changes in terms, and the terms shall be
consistent with principles discussed with
and guidance provided by the Committee.
Other Operations in Foreign Currencies
6. Any other operations in foreign currencies for
which governance is not otherwise specified in
this Authorization (such as foreign exchange swap

Minutes of Federal Open Market Committee Meetings | January

transactions with private-sector counterparties)
must be authorized and directed in advance by
the Committee.

129

instructions to the Selected Bank regarding
holdings of foreign currencies.
Additional Matters

Foreign Currency Holdings
7. The Committee authorizes the Selected Bank to
hold foreign currencies for the System Open Market Account in accounts maintained at foreign
central banks, the Bank for International Settlements, and such other foreign institutions as
approved by the Board of Governors under Section 214.5 of Regulation N, to the extent necessary to carry out any foreign currency directive of
the Committee.
A. The Selected Bank shall manage all holdings
of foreign currencies for the System Open
Market Account:
i. Primarily, to ensure sufficient liquidity to
enable the Selected Bank to conduct foreign currency operations as directed by
the Committee;
ii. Secondarily, to maintain a high degree of
safety;
iii. Subject to paragraphs 7.A.i and 7.A.ii, to
provide the highest rate of return possible
in each currency; and
iv. To achieve such other objectives as may
be authorized by the Committee.
B. The Selected Bank may manage such foreign
currency holdings by:
i. Purchasing and selling obligations of, or
fully guaranteed as to principal and interest by, a foreign government or agency
thereof (“Permitted Foreign Securities”)
through outright purchases and sales;
ii. Purchasing Permitted Foreign Securities
under agreements for repurchase of such
Permitted Foreign Securities and selling
such securities under agreements for the
resale of such securities; and
iii. Managing balances in various time and
other deposit accounts at foreign institutions approved by the Board of Governors under Regulation N.
C. The Subcommittee, in consultation with
the Committee, may provide additional

8. The Committee authorizes the Chairman:
A. With the prior approval of the Committee, to
enter into any needed agreement or understanding with the Secretary of the United
States Treasury about the division of responsibility for foreign currency operations
between the System and the United States
Treasury;
B. To advise the Secretary of the United States
Treasury concerning System foreign currency
operations, and to consult with the Secretary
on policy matters relating to foreign currency
operations;
C. To designate Federal Reserve System persons
authorized to communicate with the United
States Treasury concerning System Open
Market Account foreign currency operations; and
D. From time to time, to transmit appropriate
reports and information to the National
Advisory Council on International Monetary
and Financial Policies.
9. The Committee authorizes the Selected Bank to
undertake transactions of the type described in
this Authorization, and foreign exchange and
investment transactions that it may be otherwise
authorized to undertake, from time to time for
the purpose of testing operational readiness. The
aggregate amount of such transactions shall not
exceed $2.5 billion per calendar year. These transactions shall be conducted with prior notice to
the Committee.
10. All Federal Reserve banks shall participate in the
foreign currency operations for System Open
Market Account in accordance with paragraph
3G(1) of the Board of Governors’ Statement of
Procedure with Respect to Foreign Relationships
of Federal Reserve Banks dated January 1, 1944.
11. Any authority of the Subcommittee pursuant to
this Authorization may be exercised by the Chairman if the Chairman believes that consultation
with the Subcommittee is not feasible in the time

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106th Annual Report | 2019

available. The Chairman shall promptly report to
the Subcommittee any action approved by the
Chairman pursuant to this paragraph.
12. The Committee authorizes the Chairman, in
exceptional circumstances where it would not be
feasible to convene the Committee, to foster the
Committee’s objectives by instructing the
Selected Bank to engage in foreign currency
operations not otherwise authorized pursuant to
this Authorization. Any such action shall be made
in the context of the Committee’s discussion and
decisions regarding foreign currency operations.
The Chairman, whenever feasible, will consult
with the Committee before making any instruction under this paragraph.
Foreign Currency Directive (As Reaffirmed
Effective January 29, 2019)
1. The Committee directs the Federal Reserve Bank
selected by the Committee (the “Selected Bank”)
to execute open market transactions, for the
System Open Market Account, in accordance
with the provisions of the Authorization for Foreign Currency Operations (the “Authorization”)
and subject to the limits in this Directive.
2. The Committee directs the Selected Bank to
execute warehousing transactions, if so requested
by the United States Treasury and if approved by
the Foreign Currency Subcommittee (the “Subcommittee”), subject to the limitation that the
outstanding balance of United States dollars provided to the United States Treasury as a result
of these transactions not at any time exceed
$5 billion.
3. The Committee directs the Selected Bank to
maintain, for the System Open Market Account:
A. Reciprocal currency arrangements with the
following foreign central banks:

Foreign central bank

Bank of Canada
Bank of Mexico

Maximum amount
(millions of dollars or
equivalent)
2,000
3,000

B. Standing dollar liquidity swap arrangements
with the following foreign central banks:
Bank of Canada
Bank of England

Bank of Japan
European Central Bank
Swiss National Bank
C. Standing foreign currency liquidity swap
arrangements with the following foreign central banks:
Bank of Canada
Bank of England
Bank of Japan
European Central Bank
Swiss National Bank
4. The Committee directs the Selected Bank to hold
and to invest foreign currencies in the portfolio in
accordance with the provisions of paragraph 7 of
the Authorization.
5. The Committee directs the Selected Bank to
report to the Committee, at each regular meeting
of the Committee, on transactions undertaken
pursuant to paragraphs 1 and 6 of the Authorization. The Selected Bank is also directed to provide
quarterly reports to the Committee regarding the
management of the foreign currency holdings
pursuant to paragraph 7 of the Authorization.
6. The Committee directs the Selected Bank to conduct testing of transactions for the purpose of
operational readiness in accordance with the provisions of paragraph 9 of the Authorization.
By unanimous vote, the Committee reaffirmed its
Program for Security of FOMC Information.
In the Committee’s annual reconsideration of the
Statement on Longer-Run Goals and Monetary
Policy Strategy, participants agreed that only a minor
revision was required at this meeting, which was to
update the reference to the median of FOMC participants’ estimates of the longer-run normal rate of
unemployment from 4.6 percent to 4.4 percent. All
participants supported the statement with the revision, and the Committee voted unanimously to
approve the updated statement.
Statement on Longer-Run Goals and Monetary
Policy Strategy (As Amended Effective
January 29, 2019)
The Federal Open Market Committee (FOMC) is
firmly committed to fulfilling its statutory mandate
from the Congress of promoting maximum employment, stable prices, and moderate long-term interest
rates. The Committee seeks to explain its monetary

Minutes of Federal Open Market Committee Meetings | January

policy decisions to the public as clearly as possible.
Such clarity facilitates well-informed decisionmaking
by households and businesses, reduces economic and
financial uncertainty, increases the effectiveness of
monetary policy, and enhances transparency and
accountability, which are essential in a democratic
society.
Inflation, employment, and long-term interest rates
fluctuate over time in response to economic and
financial disturbances. Moreover, monetary policy
actions tend to influence economic activity and
prices with a lag. Therefore, the Committee’s policy
decisions reflect its longer-run goals, its medium-term
outlook, and its assessments of the balance of risks,
including risks to the financial system that could
impede the attainment of the Committee’s goals.
The inflation rate over the longer run is primarily
determined by monetary policy, and hence the Committee has the ability to specify a longer-run goal for
inflation. The Committee reaffirms its judgment that
inflation at the rate of 2 percent, as measured by the
annual change in the price index for personal consumption expenditures, is most consistent over the
longer run with the Federal Reserve’s statutory mandate. The Committee would be concerned if inflation
were running persistently above or below this objective. Communicating this symmetric inflation goal
clearly to the public helps keep longer-term inflation
expectations firmly anchored, thereby fostering price
stability and moderate long-term interest rates and
enhancing the Committee’s ability to promote maximum employment in the face of significant economic
disturbances. The maximum level of employment is
largely determined by nonmonetary factors that
affect the structure and dynamics of the labor market. These factors may change over time and may not
be directly measurable. Consequently, it would not be
appropriate to specify a fixed goal for employment;
rather, the Committee’s policy decisions must be
informed by assessments of the maximum level of
employment, recognizing that such assessments are
necessarily uncertain and subject to revision. The
Committee considers a wide range of indicators in
making these assessments. Information about Committee participants’ estimates of the longer-run normal rates of output growth and unemployment is
published four times per year in the FOMC’s Summary of Economic Projections. For example, in the
most recent projections, the median of FOMC participants’ estimates of the longer-run normal rate of
unemployment was 4.4 percent.

131

In setting monetary policy, the Committee seeks to
mitigate deviations of inflation from its longer-run
goal and deviations of employment from the Committee’s assessments of its maximum level. These
objectives are generally complementary. However,
under circumstances in which the Committee judges
that the objectives are not complementary, it follows
a balanced approach in promoting them, taking into
account the magnitude of the deviations and the
potentially different time horizons over which
employment and inflation are projected to return to
levels judged consistent with its mandate.
The Committee intends to reaffirm these principles
and to make adjustments as appropriate at its annual
organizational meeting each January.

Developments in Financial Markets and
Open Market Operations
The deputy manager of the System Open Market
Account (SOMA) provided an overview of developments in U.S. and global financial markets. Financial
markets were quite volatile over the intermeeting
period. Market participants pointed to a number of
factors as contributing to the heightened volatility
and sustained declines in risk asset prices and interest
rates over recent months including a weaker outlook
and greater uncertainties for foreign economies (particularly for Europe and China), perceptions of
greater policy risks, and the partial shutdown of the
federal government. Against this backdrop, market
participants appeared to interpret FOMC communications at the time of the December meeting as not
fully appreciating the tightening of financial conditions and the associated downside risks to the U.S.
economic outlook that had emerged since the fall. In
addition, some market reports suggested that investors perceived the FOMC to be insufficiently flexible
in its approach to adjusting the path for the federal
funds rate or the process for balance sheet normalization in light of those risks. The deterioration in risk
sentiment late in December was reportedly amplified
by poor liquidity and thin trading conditions around
year-end.
Early in the new year, market sentiment improved
following communications by Federal Reserve officials emphasizing that the Committee could be
“patient” in considering further adjustments to the
stance of policy and that it would be flexible in managing the reduction of securities holdings in the
SOMA. On balance, stock prices finished the period

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up almost 5 percent while corporate risk spreads narrowed, reversing a portion of the changes in these
variables since the September FOMC meeting.

public feedback on this effort later this year and initiate publication of these averages by the first half of
2020.

The deputy manager reported results from the Open
Market Desk’s latest surveys of primary dealers and
market participants. Regarding the outlook for
policy, the median path for the federal funds rate
among respondents had shifted down about 25 basis
points relative to the responses from the surveys conducted ahead of the December meeting. Moreover,
the average probability that respondents attached to
an increase in the target range as the next policy
action declined and the corresponding probabilities
they attached to the possibility that the target range
would be unchanged or lowered at some point this
year increased. Concerning expectations for the
FOMC statement, many survey respondents anticipated the retention of language pointing to the likelihood of “some further gradual increases” in the target range for the federal funds rate but many also
expected the statement to emphasize patience or data
dependence in the conduct of policy. Consistent with
recent communications that the FOMC would be
flexible in its approach to balance sheet normalization, the survey results also suggested that the
respondents anticipated that the Committee would
slow the balance sheet runoff in scenarios that
involved a reduction in the target range for the federal funds rate.

Following the briefing, participants raised a number
of questions about market reports that the Federal
Reserve’s balance sheet runoff and associated “quantitative tightening” had been an important factor
contributing to the selloff in equity markets in the
closing months of last year. While respondents
assessed that the reduction of securities held in the
SOMA would put some modest upward pressure on
Treasury yields and agency mortgage-backed securities (MBS) yields over time, they generally placed
little weight on balance sheet reduction as a prime
factor spurring the deterioration in risk sentiment
over that period. However, some other investors
reportedly held firmly to the belief that the runoff of
the Federal Reserve’s securities holdings was a factor
putting significant downward pressure on risky asset
prices, and the investment decisions of these investors, particularly in thin market conditions around
the year-end, might have had an outsized effect on
market prices for a time. Participants also discussed
the hypothesis that investors may have taken some
signal about the future path of the federal funds rate
based on perceptions that the Federal Reserve was
unwilling to adjust the pace of balance sheet runoff
in light of economic and financial developments.

In reviewing money market developments, the deputy
manager noted that federal funds continued to trade
at rates close to the interest on excess reserves rate.
Moreover, no signs of reserve scarcity were evident in
the behavior of the federal funds rate; the correlation
between daily changes in reserve balances and the
federal funds rate remained close to zero. In other
markets, repurchase agreement (repo) rates spiked at
year-end, reportedly reflecting strong demands for
financing from dealers associated with large Treasury
auction net settlements on that day combined with a
cutback in the supply of financing available from
banks and others managing the size of their balance
sheets over year-end for reporting purposes. The
deputy manager noted that the Federal Reserve Bank
of New York was planning to release a notice in early
February for public comment on plans to include
new data on selected deposits in the calculation of
the overnight bank funding rate (OBFR). In addition, the staff had begun work aimed at publishing a
series of backward-looking average secured overnight
financing rates (SOFR) as a further step to support
reference rate reform. The staff planned to solicit

By unanimous vote, the Committee ratified the
Desk’s domestic transactions over the intermeeting
period. There were no intervention operations in foreign currencies for the System’s account during the
intermeeting period.

Long-Run Monetary Policy Implementation
Frameworks
Committee participants resumed their discussion
from the December 2018 meeting of the appropriate
long-run framework for monetary policy implementation. At the January meeting, the staff provided
briefings on the effectiveness and efficiency of the
Committee’s current operating regime and on
options for transitioning to the longer-run size of the
balance sheet.
The staff noted that the Committee had previously
indicated that, in the longer run, it intends to operate
with no more securities holdings than necessary to
implement monetary policy efficiently and effectively.
In considering the effectiveness of the operating
regime, the staff observed that over recent years, the

Minutes of Federal Open Market Committee Meetings | January

Federal Reserve had been able to implement monetary policy in an environment with ample reserves
by adjusting administered rates—including the rates
on required and excess reserve balances and the
offered rate at the overnight reverse repurchase agreement facility—without needing to actively manage
the supply of reserves. Over this period, the effective
federal funds rate was generally steady at levels well
within the Committee’s target range despite substantial changes in the level of reserves in the banking
system and significant changes in money markets,
regulations, and financial institutions’ business models. In addition, other money market rates generally
moved closely with the federal funds rate. The current
regime was therefore effective both in providing control of the policy rate and in ensuring transmission of
the policy stance to other rates and broader financial
markets.
The staff briefing also included a discussion of factors relevant in judging the level of reserves that
would support the efficient implementation of monetary policy. The staff suggested that maintaining a
buffer of reserves above the minimum quantity that
corresponds to the flat portion of the reserve demand
curve could reduce the size and frequency of open
market operations needed to maintain good control
of the policy rate. The aggregate level of reserves had
already declined by $1.2 trillion from a peak level of
$2.8 trillion reached in October 2014; the decline
stemmed from both reductions in asset holdings and
increases in nonreserve liabilities such as Federal
Reserve notes in circulation. Some recent survey
information and other evidence suggested that
reserves might begin to approach an efficient level
later this year. Against this backdrop, the staff presented options for substantially slowing the decline in
reserves by ending the reduction in asset holdings at
some point over the latter half of this year and thereafter holding the size of the SOMA portfolio roughly
constant for a time so that the average level of
reserves would fall at a very gradual pace reflecting
the trend growth in other Federal Reserve liabilities.
The staff also described options for communicating
plans both for the operating regime and for the
completion of the normalization of the size of the
balance sheet. If the Committee reached a decision to
continue using its current operating regime, announcing this decision after the current meeting would help
reduce uncertainty about both the long-run implementation framework and the likely evolution of the
balance sheet. In addition, the Committee could
revise its previous communications to make clear that

133

it was flexible in its approach to normalizing the balance sheet and was prepared to change the details of
its balance sheet normalization plans in light of economic and financial developments if necessary to
support the FOMC’s broader policy goals. The staff
noted that, after the end of asset redemptions, the
Desk could reinvest principal payments received from
holdings of agency MBS in Treasury securities as
directed.
Participants noted some of the key advantages of the
Federal Reserve’s current operating regime, including
good control of the policy rate in a variety of conditions and good transmission to other money market
rates and broader financial markets. They observed
that a regime that controlled the policy rate through
active management of the supply of reserves likely
would have disadvantages. In particular, the level and
variability of reserve demand and supply were likely
to be much larger than in the period before the crisis,
and stabilizing the policy rate in this environment
would require large and frequent open market operations. Participants judged that, in light of their extensive previous discussions, it was now appropriate to
provide the public with more certainty that the Federal Reserve would continue to use its current operating regime. Choosing an operating regime would also
allow the Committee to move forward on related
issues, including plans for concluding the normalization of the size of the balance sheet. Participants
emphasized the importance of describing their chosen operating regime in clear terms to enhance public
understanding.
Participants discussed market commentary that suggested that the process of balance sheet normalization might be influencing financial markets. Participants noted that the ongoing reduction in the Federal
Reserve’s asset holdings had proceeded smoothly for
more than a year, with no significant effects on financial markets. The gradual reduction in securities
holdings had been announced well in advance and, as
intended, was proceeding largely in the background,
with the federal funds rate remaining the Committee’s primary tool for adjusting the stance of policy.
Nonetheless, some investors might have interpreted
previous communications as indicating that a very
high threshold would have to be met before the Committee would be willing to adjust its balance sheet
normalization plans. Participants observed that,
although the target range for the federal funds rate
was the Committee’s primary means of adjusting the
stance of policy, the balance sheet normalization process should proceed in a way that supports the

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106th Annual Report | 2019

achievement of the Federal Reserve’s dual-mandate
goals of maximum employment and stable prices.
Consistent with this principle, participants agreed
that it was important to be flexible in managing the
process of balance sheet normalization, and that it
would be appropriate to adjust the details of balance
sheet normalization plans in light of economic and
financial developments if necessary to achieve the
Committee’s macroeconomic objectives.
Almost all participants thought that it would be
desirable to announce before too long a plan to stop
reducing the Federal Reserve’s asset holdings later
this year. Such an announcement would provide
more certainty about the process for completing the
normalization of the size of the Federal Reserve’s
balance sheet. A substantial majority expected that
when asset redemptions ended, the level of reserves
would likely be somewhat larger than necessary for
efficient and effective implementation of monetary
policy; if so, many suggested that some further very
gradual decline in the average level of reserves,
reflecting the trend growth of other liabilities such as
Federal Reserve notes in circulation, could be appropriate. In these participants’ view, this process would
allow the Federal Reserve to arrive slowly at an efficient level of reserves while maintaining good control
of short-term interest rates without needing to
engage in more frequent open market operations. A
few participants judged that there would be little benefit to allowing reserves to continue to fall after the
end of redemptions or that this approach could have
costs, such as an undue risk of volatility in shortterm interest rates, that would exceed its benefits.
These participants thought that upon ending asset
redemptions, the Federal Reserve should begin adding to its assets to offset growth in nonreserve liabilities, so as to keep the average level of reserves relatively stable. A couple of participants suggested that
a ceiling facility to mitigate temporary unexpected
pressures in reserve markets could play a useful role
in supporting policy implementation at lower levels
of reserves.
Participants commented that, in light of the Committee’s longstanding plan to hold primarily Treasury
securities in the long run, it would be appropriate
once asset redemptions end to reinvest most, if not
all, principal payments received from agency MBS in
Treasury securities. Some thought that continuing to
reinvest agency MBS principal payments in excess of
$20 billion per month in agency MBS, as under the
current balance sheet normalization plan, would simplify communications or provide a helpful backstop

against scenarios in which large declines in long-term
interest rates caused agency MBS prepayment speeds
to increase sharply. However, some others judged
that retaining the cap on agency MBS redemptions
was unnecessary at this stage in the normalization
process. These participants noted considerations in
support of this view, including that principal payments were unlikely to reach the $20 billion level
after 2019, that the cap could slightly slow the return
to a portfolio of primarily Treasury securities, or that
the Committee would have the flexibility to adjust
the details of its balance sheet normalization plans in
light of economic and financial developments. Participants commented that it would be important over
time to develop and communicate plans for reinvesting agency MBS principal payments, and they
expected to continue their discussion of balance sheet
normalization and related issues at upcoming
meetings.
Following the discussion, the Chairman proposed
that the Committee communicate its intentions
regarding monetary policy implementation and its
willingness to adjust the details of its balance sheet
normalization program by publishing a statement at
the conclusion of the meeting. All participants
agreed with the proposed statement.
Statement Regarding Monetary Policy
Implementation and Balance Sheet
Normalization (Adopted January 30, 2019)
After extensive deliberations and thorough review of
experience to date, the Committee judges that it is
appropriate at this time to provide additional information regarding its plans to implement monetary
policy over the longer run. Additionally, the Committee is revising its earlier guidance regarding the conditions under which it could adjust the details of its
balance sheet normalization program.5 Accordingly,
all participants agreed to the following:
• The Committee intends to continue to implement
monetary policy in a regime in which an ample
supply of reserves ensures that control over the
5

The Committee’s Policy Normalization Principles and Plans
were adopted on September 16, 2014, and are available at https
://www.federalreserve.gov/monetarypolicy/files/FOMC_
PolicyNormalization.pdf. On March 18, 2015, the Committee
adopted an addendum to the Policy Normalization Principles
and Plans, which is available at https://www.federalreserve.gov/
monetarypolicy/files/FOMC_PolicyNormalization.20150318
.pdf. On June 13, 2017, the Committee adopted a second
addendum to the Policy Normalization Principles and Plans,
which is available at https://www.federalreserve.gov/
monetarypolicy/files/FOMC_PolicyNormalization.20170613
.pdf.

Minutes of Federal Open Market Committee Meetings | January

level of the federal funds rate and other short-term
interest rates is exercised primarily through the setting of the Federal Reserve’s administered rates,
and in which active management of the supply of
reserves is not required.
• The Committee continues to view changes in the
target range for the federal funds rate as its primary
means of adjusting the stance of monetary policy.
The Committee is prepared to adjust any of the
details for completing balance sheet normalization
in light of economic and financial developments.
Moreover, the Committee would be prepared to
use its full range of tools, including altering the size
and composition of its balance sheet, if future economic conditions were to warrant a more accommodative monetary policy than can be achieved
solely by reducing the federal funds rate.

Staff Review of the Economic Situation
The information available for the January 29–30
meeting indicated that labor market conditions continued to strengthen and that growth in real gross
domestic product (GDP) was solid in the fourth
quarter of last year, although the availability of data
was more limited than usual because of the partial
federal government shutdown that extended from
December 22 to January 25. Consumer price inflation, as measured by the 12-month percentage
change in the price index for personal consumption
expenditures (PCE), was a bit below 2 percent in
November, held down in part by recent declines in
consumer energy prices. Survey-based measures of
longer-run inflation expectations were little changed.
Total nonfarm payroll employment expanded
strongly in December. The national unemployment
rate edged up but was still at a low level of 3.9 percent, while the labor force participation rate also
increased somewhat; as a result, the employment-topopulation ratio remained steady in December. The
unemployment rates for African Americans, Asians,
and Hispanics in December were below their levels at
the end of the previous economic expansion,
although persistent differentials in unemployment
rates across groups remained. The share of workers
employed part time for economic reasons continued
to be close to the lows reached in late 2007. The rates
of private-sector job openings and quits edged down
in November but were still at high levels; initial
claims for unemployment insurance benefits through
the middle of January were near historically low lev-

135

els. Average hourly earnings for all employees rose
3.2 percent over the 12 months ending in December.
Industrial production increased solidly in December.
Output gains were strong in the manufacturing and
mining sectors, while the output of utilities declined,
with warmer-than-usual temperatures lowering the
demand for heating. Automakers’ assembly schedules
suggested that the production of light motor vehicles
would ease somewhat in the first quarter, although
new orders indexes from national and regional manufacturing surveys pointed to moderate gains in overall factory output in the coming months.
Household spending looked to have increased
strongly in the fourth quarter, as real PCE growth
was strong in October and November. The release of
the retail sales report for December was delayed, but
available indicators—such as credit card and debit
card transaction data and light motor vehicle sales—
suggested that household spending growth remained
strong in December. Key factors that influence consumer spending—including ongoing gains in real disposable personal income and still-elevated measures
of households’ net worth—continued to be supportive of solid real PCE growth in the near term. Consumer sentiment, as measured by the University of
Michigan Surveys of Consumers, was less upbeat in
early January than it had been last year but remained
at a generally favorable level.
Real residential investment appeared to have declined
again in the fourth quarter, likely reflecting in part
decreases in the affordability of housing arising from
both the net increase in mortgage interest rates over
the past year and ongoing, though somewhat slower,
house price appreciation. Data on starts and permits
for new residential construction in December were not
available, but building permit issuance for new singlefamily homes—which tends to be a good indicator of
the underlying trend in construction of such homes—
had moved down modestly in the previous couple of
months. Sales of existing homes decreased, on net,
over November and December, while data on new
home sales for those two months were delayed.
Growth in real private expenditures for business
equipment and intellectual property looked to have
picked up solidly in the fourth quarter. Nominal
shipments of nondefense capital goods excluding aircraft rose, on balance, in October and November,
while information on shipments for December was
delayed; available indicators of transportation equip-

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ment spending in the fourth quarter were strong.
Forward-looking indicators of business equipment
spending—such as orders for nondefense capital
goods excluding aircraft and readings on business
sentiment—pointed to somewhat slower spending
gains in the near term. Data on nominal business
expenditures for nonresidential structures outside of
the drilling and mining sector in November were not
available. The number of crude oil and natural gas
rigs in operation—an indicator of business spending
for structures in the drilling and mining sector—was
roughly flat in December and through most of
January.
Total real government purchases appeared to have
increased moderately in the fourth quarter. Nominal
defense spending in October and November pointed
to solid growth in real federal purchases, although
spending data for December were delayed. The partial federal government shutdown restrained real federal purchases somewhat in the fourth quarter and
likely had a more significant negative effect on federal purchases in the first quarter. Real purchases by
state and local governments looked to have risen
modestly in the fourth quarter, as the payrolls of
those governments expanded a bit over that period.
Nominal state and local construction spending had
risen solidly in October, but construction data for
November were delayed.
Data on U.S. international trade for November and
December also were delayed. The available data for
October suggested that the contribution of the
change in net exports to real GDP growth in the
fourth quarter would be much less negative than the
drag of nearly 2 percentage points in the third
quarter.
Total U.S. consumer prices, as measured by the PCE
price index, increased 1.8 percent over the 12 months
ending in November. Core PCE price inflation,
which excludes changes in consumer food and energy
prices, was 1.9 percent over that same period. The
consumer price index (CPI) rose 1.9 percent over the
12 months ending in December, while core CPI inflation was 2.2 percent. Recent readings on surveybased measures of longer-run inflation expectations—including those from the Michigan survey and
the Desk’s Survey of Primary Dealers and Survey of
Market Participants—were little changed.
Recent data suggested that foreign economic growth
was subdued in the fourth quarter relative to earlier
in the year. In the advanced foreign economies

(AFEs), especially the euro area, indicators of economic activity weakened further, though they
remained consistent with positive economic growth.
In the emerging market economies (EMEs), growth
in Mexico and Brazil appeared to have slowed to a
modest pace in the fourth quarter after a temporary
pickup in the third quarter. The Chinese economy
expanded at a slower pace than earlier in the year
amid notable weakness in household spending, and
Chinese imports from other emerging Asian economies turned down. Foreign inflation fell in the fourth
quarter, largely reflecting lower oil prices. Inflation
pressures, especially in some AFEs, generally
remained muted.

Staff Review of the Financial Situation
Investor risk sentiment fluctuated materially over the
intermeeting period. A variety of factors—including
FOMC communications, weaker-than-expected data,
trade policy uncertainties, the partial federal government shutdown, and concerns about the outlook for
corporate earnings—were cited by market participants as contributing to a deterioration in risk sentiment early in the period. During this time, broad
equity indexes declined substantially amid a sharp
rise in financial market volatility, and corporate bond
spreads widened notably. Subsequently, positive signals regarding trade policy, robust economic data
releases, and communications from FOMC participants led to an improvement in risk sentiment. On
net, the S&P 500 index rose, option-implied volatility—the VIX—fell, Treasury yields declined, and corporate spreads narrowed over the intermeeting
period. Despite the intermeeting moves in financial
markets, financial conditions remained notably
tighter than in September 2018. Financing conditions
for businesses and households tightened a bit further
over the intermeeting period but remained generally
supportive of spending.
December FOMC communications were reportedly
perceived by market participants as not fully appreciating the implications of tighter financial conditions and
softening global data over recent months for the U.S.
economic outlook. Subsequent communications from
FOMC participants were interpreted as suggesting
that the FOMC would be patient in assessing the
implications of recent economic and financial developments. The market-implied path for the federal funds
rate in 2019 was little changed, on net, over the intermeeting period and investors continued to expect no
change to the target range for the federal funds rate at

Minutes of Federal Open Market Committee Meetings | January

the January FOMC meeting. The market-implied path
for 2020 shifted down somewhat.
Nominal Treasury yields fluctuated substantially,
with heightened risk aversion contributing to a significant decline in yields early in the intermeeting
period. Subsequently, yields rose, though 2-, 5-, and
10-year yields still ended the period somewhat lower,
on net. The spread between the yields on nominal 10and 2-year Treasury securities was little changed over
the period, and remained in the lower end of its historical range over recent decades. The near-term forward spread—the difference between the current
implied three-month forward rate at a horizon six
quarters ahead (derived from the Treasury yield
curve) and the current yield on a three-month Treasury bill—narrowed, on net, and also was in the lower
end of its historical distribution. The 5-year and 5-to10-year-forward inflation compensation measures
based on Treasury Inflation-Protected Securities
(TIPS) edged down a bit over the period; both measures were down significantly from levels prevailing in
the fall of last year.
In U.S. risky asset markets, the S&P 500 equity index
was down as much as 8 percent at one point during
the period but ended the period notably higher. On
net, the VIX fell substantially while corporate bond
spreads narrowed a bit.
The federal funds rate and other overnight funding
rates rose following the increase in the target range
for the federal funds rate at the December FOMC
meeting. Year-end pressures in repo markets were
reportedly exacerbated by a high volume of settlements of Treasury securities against a backdrop of
large dealer inventories and reduced intermediation
by global systemically important banks. General collateral repo rates moved up sharply at year-end but
subsequently returned to normal levels.
Foreign financial markets followed the same general
pattern as those in the United States. On balance, foreign equity prices moved up moderately and sovereign credit spreads in EMEs narrowed. Moreover,
inflows to dedicated emerging market funds resumed
after two quarters of outflows. Longer-term sovereign yields in AFEs edged lower on net.
The dollar depreciated broadly amid falling U.S.
yields and greater investor optimism about prospects
for some EMEs. The dollar depreciated notably
against the British pound, on net, as market participants reportedly saw an increased likelihood of a

137

delay in the Brexit process. The dollar also depreciated considerably against the Brazilian real and the
Mexican peso following progress on pension reform
in Brazil and a fiscal announcement in Mexico that
was perceived as prudent.
Financing conditions for nonfinancial firms tightened somewhat, on balance. Gross issuance of corporate bonds slowed considerably in December
across the credit rating spectrum but rebounded in
January. Even so, the volume of high-yield bonds
issued by nonfinancial firms remained well below its
average over the past few years. Spreads on nonfinancial corporate bonds were volatile but narrowed a bit,
on net, and stayed at levels well above those that prevailed a year ago. The credit quality of nonfinancial
corporations continued to show signs of deterioration, although actual corporate bond defaults
remained low overall. Institutional leveraged loan
issuance slowed in December to its lowest level since
July 2016, as loan spreads widened substantially.
Small business credit market conditions were little
changed, and credit conditions in municipal bond
markets stayed accommodative on net.
Private-sector analysts significantly revised down
their projections for corporate earnings for the fourth
quarter and for 2019 as a whole. The pace of gross
equity issuance through both initial and seasoned
offerings was sluggish in December, amid reports
that several firms may have pushed back initial equity
offerings.
Respondents to the January 2019 Senior Loan Officer
Opinion Survey on Bank Lending Practices (SLOOS)
reported that lending standards for commercial and
industrial (C&I) loans remained basically unchanged
in the fourth quarter, after having reported easing standards over the past several quarters. Growth of C&I
loans on banks’ balance sheets picked up in the fourth
quarter, reflecting stronger originations as well as
reduced paydowns and loan sales.
In the commercial real estate (CRE) sector, financing
conditions remained accommodative. Although commercial mortgage backed securities (CMBS) spreads
were volatile, they were little changed, on net, over
the intermeeting period, and issuance of both agency
and non-agency CMBS remained strong. CRE loan
growth at banks continued to expand at a pace comparable with that seen over the course of 2018. Banks
in the January SLOOS reported that demand was
unchanged, on net, in the fourth quarter for nonfarm
nonresidential loans, the largest CRE loan category,

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106th Annual Report | 2019

while demand was reportedly weaker for multifamily
loans and construction loans. On balance, banks
reported tightening their standards for all types of
CRE loans in the fourth quarter.
Financing conditions in the residential mortgage
market also remained accommodative for most borrowers. Purchase mortgage origination activity continued to decline modestly through November, while
refinancing activity continued to be muted.
In consumer credit markets, financing conditions
tightened a bit but, on balance, remained generally
supportive of growth in household spending. Banks
reported in the SLOOS that they tightened credit
card lending standards during the fourth quarter. In
the consumer asset-backed securities market, spreads
widened somewhat amid broad market volatility.
The staff provided an update on its views with
respect to potential risks to financial stability. The
increase in financial market volatility seen over the
fall of last year was characterized as a return to historically more typical levels, following the historically
low-volatility environment that persisted through
much of 2017 and 2018. However, the increase in
volatility in financial markets in December was
viewed as substantial and as likely exacerbated by
thin year-end liquidity, among other factors. Staff
judged asset valuation pressures in equity and corporate debt markets to have abated somewhat in the
period since the assessment presented in the November 2018 financial stability report. Staff continued to
monitor developments in the leveraged loan market
given the sharp rise in spreads and slowdown in issuance late last year. The build-up in overall nonfinancial business debt to levels close to historical highs
relative to GDP was viewed as a factor that could
amplify adverse shocks to the business sector. Staff
continued to judge risks associated with householdsector debt as moderate. Both the risks associated
with financial leverage and the vulnerabilities related
to maturity transformation were viewed as being low,
as they have been for some time.

Staff Economic Outlook
The U.S. economic forecast prepared by the staff for
the January FOMC meeting was revised down a
little, on balance, primarily reflecting somewhat lower
projected paths for domestic equity prices and foreign economic growth. The staff estimated that U.S.

real GDP growth was solid in the fourth quarter of
last year, bolstered by consumer spending and business investment, and that the effects of the partial
federal government shutdown were quite small in that
quarter. Real GDP growth was expected to slow but
remain solid in the first half of this year, with the
effects of the partial federal government shutdown
modestly restraining GDP growth in the first quarter
and those effects being reversed in the second quarter. In the medium term, real GDP growth in 2019
was forecast to be at a rate above the staff’s estimate
of potential output growth, step down to the growth
rate of potential output next year and then slow further to a pace below potential output growth in 2021.
The unemployment rate was projected to decline
somewhat further below the staff’s estimate of its
longer-run natural rate but to bottom out by the end
of this year and begin to edge up in 2021. With labor
market conditions judged to already be tight, the
staff continued to assume that projected employment
gains would manifest in smaller-than-usual downward pressure on the unemployment rate and in
larger-than-usual upward pressure on the labor force
participation rate.
The staff’s forecast for inflation was little revised for
the January FOMC meeting. Core PCE price inflation was still expected to step up to 2 percent over
this year as a whole and then to run at that level
through the medium term. Total PCE price inflation
was forecast to be a little below core inflation this
year and next, reflecting projected declines in energy
prices, and then to run at the same level as core inflation in 2021.
The staff viewed the uncertainty around its projections for real GDP growth, the unemployment rate,
and inflation as similar to the average of the past
20 years. The staff also saw the risks to the forecasts
for real GDP growth and the unemployment rate as
roughly balanced. On the upside, household spending
and business investment could expand faster than the
staff projected, supported in part by the tax cuts
enacted last year. On the downside, trade policies and
foreign economic developments could move in directions that have significant negative effects on U.S.
economic growth. Risks to the inflation projection
also were seen as balanced. The upside risk that inflation could increase more than expected in an
economy that was projected to move further above its
potential was counterbalanced by the downside risk
that longer-term inflation expectations may be lower

Minutes of Federal Open Market Committee Meetings | January

than was assumed in the staff forecast, as well as the
possibility that the dollar could appreciate if foreign
economic conditions deteriorated.

Participants’ Views on Current Conditions
and the Economic Outlook
Participants agreed that over the intermeeting period
the labor market had continued to strengthen and that
economic activity had been rising at a solid rate. Job
gains had been strong, on average, in recent months,
and the unemployment rate had remained low. Household spending had continued to grow strongly, while
growth of business fixed investment had moderated
from its rapid pace earlier last year. On a 12-month
basis, both overall inflation and inflation for items
other than food and energy had remained near 2 percent. Although market-based measures of inflation
compensation had moved lower in recent months,
survey-based measures of longer-term inflation expectations were little changed.
Participants continued to view a sustained expansion
of economic activity, strong labor market conditions,
and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes over the
next few years. Participants generally continued to
expect the growth rate of real GDP in 2019 to step
down somewhat from the pace seen over 2018 to a rate
closer to their estimates of longer-run growth, with a
few participants commenting that waning fiscal stimulus was expected to contribute to the step-down. Several participants commented that they had nudged
down their outlooks for output growth since the
December meeting, citing a softening in consumer or
business sentiment, a reduction in the outlook for foreign economic growth, or the tightening in financial
conditions that had occurred in recent months.
In their discussion of the household sector, participants noted that recent data on spending had been
strong, supported by a strong job market and rising
incomes. A couple of participants commented that
contacts in their Districts remained optimistic about
consumer spending. However, some participants
noted the recent softening in surveys of consumer
sentiment. Participants observed that the recent partial federal government shutdown had presented a
significant hardship for many families. A few participants also pointed to continued weakness in the
housing sector, which was attributed in part to concerns about affordability among potential
homebuyers.

139

Participants noted that growth of business fixed
investment had moderated from its rapid pace earlier
last year. Some participants highlighted that recent
surveys of business sentiment or District contacts
had indicated some weakening in optimism or confidence about the economic outlook, though available
indicators suggested that the level of business sentiment had remained high. Concerns about the economic outlook were variously attributed to uncertainty or worries about slowing global economic
growth, including in Europe and China; trade policy;
waning fiscal policy stimulus; and the partial government shutdown. Manufacturing contacts in a number
of Districts indicated that such factors were causing
them to delay or defer capital expenditures. In addition, a few participants noted that recent declines in
oil or gasoline prices had damped plans for capital
expenditures in the energy sector. A few participants
observed that conditions in the agricultural sector
remained difficult, citing large inventories of agricultural commodities, uncertainty about international
trade policies, and concerns regarding low prices of
commodities and farmland. However, a few participants commented that business optimism had
increased among contacts in their Districts, or that
they were planning new capital expenditures.
Participants observed that both overall inflation and
inflation for items other than food and energy
remained near 2 percent on a 12-month basis. Participants continued to view inflation near the Committee’s
symmetric 2 percent objective as the most likely outcome. Some participants noted that some factors, such
as the decline in oil prices, slower growth and softer
inflation abroad, or appreciation of the dollar last
year, had held down some recent inflation readings
and may continue to do so this year. In addition, many
participants commented that upward pressures on
inflation appeared to be more muted than they
appeared to be last year despite strengthening labor
market conditions and rising input costs for some
industries.
In their discussion of indicators of inflation expectations, participants noted that market-based measures
of inflation compensation had moved lower in recent
months. Participants expressed a range of views in
interpreting the decline in inflation compensation.
On the one hand, that decline could stem from a
decrease in expected inflation on the part of market
participants. In that case, the current low levels of
inflation compensation could suggest that inflation
expectations are below the Committee’s 2 percent
inflation objective. On the other hand, the decline in

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inflation compensation might reflect in large part
declines in risk premiums or increased concerns
about downside risks to the outlook for inflation.
This interpretation was seen as consistent with the
behavior of the most recent survey-based measures
of expected inflation, which were little changed.
In their discussion of labor markets, participants
agreed that conditions had continued to strengthen.
Estimates of job gains in the December employment
report had been strong, the unemployment rate had
remained low, and the labor force participation rate
had moved up. Several participants noted solid rates
of hiring or other indicators of tight labor market
conditions in their Districts. Some participants commented on recent indicators at the national or District levels as suggesting a pickup in wage growth.
The pickup was attributed to tightening in national
or District labor market conditions or to gains in the
rate of productivity growth. Continued solid productivity growth was seen as a key factor necessary to
support rising real wages over time.
Participants commented on a number of risks associated with their outlook for economic activity, the
labor market, and inflation over the medium term.
Participants noted that some risks to the downside
had increased, including the possibilities of a
sharper-than-expected slowdown in global economic
growth, particularly in China and Europe, a rapid
waning of fiscal policy stimulus, or a further tightening of financial market conditions. An increase in
some foreign and domestic government policy uncertainties, including those associated with Brexit, an
escalation in international trade policy tensions, and
the potential for additional extended federal government shutdowns were also cited as downside risks. A
few participants expressed concern that longer-run
inflation expectations may be lower than levels consistent with the Committee’s 2 percent inflation
objective. Several participants judged that risks that
could lead to higher-than-expected inflation had
diminished relative to downside risks. The potential
that various sources of uncertainty might abate more
quickly than expected was mentioned as a potential
upside risk for the economic outlook.
In their discussion of financial developments, participants noted that although financial market conditions had not changed much, on net, over the intermeeting period, prices had been volatile and financial
conditions were materially tighter than they had been
several months ago, with lower equity prices and
wider corporate risk spreads. Several participants

also noted that the slope of the Treasury yield curve
was unusually flat by historical standards, which in
the past had often been associated with a deterioration in future macroeconomic performance. Participants noted that financial asset prices appeared to be
sensitive to information regarding trade policy tensions, domestic fiscal and monetary policy, and
global economic growth prospects. A couple of participants noted that the rise in credit spreads over
recent months, if it were to persist, could restrain
future economic activity. Participants agreed that it
was important to continue to monitor financial market developments and assess the implications of these
developments for the economic outlook.
Among those participants who commented on financial stability, a number expressed concerns about the
elevated financial market volatility and the apparent
decline in investors’ willingness to bear risk that
occurred toward the end of last year. Although these
conditions had eased somewhat in recent weeks, a
couple of participants noted that the strain in financial markets might have persisted or spread if it had
occurred during a period of less favorable macroeconomic conditions. A couple of participants highlighted the role that decreased liquidity at the end of
the year appeared to play in exacerbating changes in
financial market conditions. They emphasized the
need to monitor financial market structures or practices that may contribute to strained liquidity conditions. A few participants highlighted the importance
of ensuring that financial institutions were able to
withstand adverse financial market events—for
instance, by maintaining adequate levels of capital.
In their consideration of monetary policy at this
meeting, participants judged that information
received since December indicated that real economic
activity had been rising at a solid rate, labor market
conditions had continued to strengthen, and inflation
had been near the Committee’s objective. Participants generally expected economic activity to continue expanding at a solid pace in the period ahead,
with strong labor market conditions and inflation
near 2 percent. At the time of the December meeting,
the Committee had noted that it would continue to
monitor global economic and financial developments
and assess their implications for the economic outlook. Participants observed that since then, the economic outlook had become more uncertain. Financial market volatility had remained elevated over the
intermeeting period, and, despite some easing since
the December FOMC meeting, overall financial conditions had tightened since September. In addition,

Minutes of Federal Open Market Committee Meetings | January

the global economy had continued to record slower
growth, and consumer and business sentiment had
deteriorated. The government policy environment,
including trade negotiations and the recent partial
federal government shutdown, was also seen as a factor contributing to uncertainty about the economic
outlook.
Based on their current assessments, all participants
expressed the view that it would be appropriate for
the Committee to maintain the target range for the
federal funds rate at 2¼ to 2½ percent. With regard
to the Committee’s postmeeting statement, participants supported a proposed change in the forward
guidance language that would replace the previous
guidance referring to “some further gradual increases
in the target range for the federal funds rate” with an
indication that, in light of “global economic and
financial developments and muted inflation pressures,” the Committee would “be patient as it determines what future adjustments to the target range for
the federal funds rate may be appropriate.” Participants also supported a proposal to remove from the
statement the characterization of risks to the economic outlook as “roughly balanced.”
Participants pointed to a variety of considerations
that supported a patient approach to monetary
policy at this juncture as an appropriate step in managing various risks and uncertainties in the outlook.
With regard to the domestic economic picture, additional data would help policymakers gauge the trajectory of business and consumer sentiment, whether
the recent softness in core and total inflation and
inflation compensation would persist, and the effect
of the tightening of financial conditions on aggregate
demand. Information arriving in coming months
could also shed light on the effects of the recent partial federal government shutdown on the U.S.
economy and on the results of the budget negotiations occurring in the wake of the shutdown, including the possible implications for the path of fiscal
policy. A patient approach would have the added
benefit of giving policymakers an opportunity to
judge the response of economic activity and inflation
to the recent steps taken to normalize the stance of
monetary policy. Furthermore, a patient posture
would allow time for a clearer picture of the international trade policy situation and the state of the
global economy to emerge and, in particular, could
allow policymakers to reach a firmer judgment about
the extent and persistence of the economic slowdown
in Europe and China.

141

Participants noted that maintaining the current target range for the federal funds rate for a time posed
few risks at this point. The current level of the federal
funds rate was at the lower end of the range of estimates of the neutral policy rate. Moreover, inflation
pressures were muted, and asset valuations were less
stretched than they had been a few months earlier.
Many participants suggested that it was not yet clear
what adjustments to the target range for the federal
funds rate may be appropriate later this year; several
of these participants argued that rate increases might
prove necessary only if inflation outcomes were
higher than in their baseline outlook. Several other
participants indicated that, if the economy evolved as
they expected, they would view it as appropriate to
raise the target range for the federal funds rate later
this year.
Participants observed that a patient posture in these
circumstances was consistent with their general
approach to setting the stance of policy, in which
they were importantly guided by the implications of
incoming data for the economic outlook. Some participants noted that, while global economic and
financial developments had been important factors
leading to a patient monetary policy posture, those
developments mattered because they affected assessments of the policy rate path most consistent with
achievement of the Committee’s dual-mandate goals
of maximum employment and price stability. Many
participants observed that if uncertainty abated, the
Committee would need to reassess the characterization of monetary policy as “patient” and might then
use different statement language.
A few participants expressed concerns that in the current environment of increased uncertainty, the policy
rate projections prepared as part of the Summary of
Economic Projections (SEP) do not accurately convey the Committee’s policy outlook. These participants were concerned that, although the individual
participants’ projections for the federal funds rate in
the SEP reflect their individual views of the appropriate path for the policy rate conditional on the evolution of the economic outlook, at times the public had
misinterpreted the median or central tendency of
those projections as representing the consensus view
of the Committee or as suggesting that policy was on
a preset course. However, some other participants
noted that the policy rate projections in the SEP are a
valuable component of the overall information provided about the monetary policy outlook.

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Committee Policy Action
In their discussion of monetary policy for the period
ahead, members judged that information received
since the Committee met in December indicated that
the labor market had continued to strengthen and
that economic activity had been rising at a solid rate.
Job gains had been strong, on average, in recent
months, and the unemployment rate had remained
low. Household spending had continued to grow
strongly, while growth of business fixed investment
had moderated from its rapid pace earlier last year.
On a 12-month basis, both overall inflation and inflation for items other than food and energy remained
near 2 percent. Although market-based measures of
inflation compensation had moved lower in recent
months, survey-based measures of longer-term inflation expectations were little changed.
In their consideration of the economic outlook,
members noted that financial conditions had tightened, on net, since September, and that global growth
had moderated; members also observed that a number of uncertainties, including those pertaining to the
evolution of policies of the U.S. and foreign governments, still awaited resolution. However, members
continued to view sustained expansion of economic
activity, strong labor market conditions, and inflation
near the Committee’s symmetric 2 percent objective
as the most likely outcomes for the U.S. economy in
the period ahead. In light of global economic and
financial developments and muted inflation pressures, the Committee could be patient as it determined what future adjustments to the target range
for the federal funds rate may be appropriate to support these outcomes.
After assessing current conditions and the outlook
for economic activity, the labor market, and inflation,
members decided to maintain the target range for the
federal funds rate at 2¼ to 2½ percent. Members
agreed that in determining the timing and size of
future adjustments to the target range for the federal
funds rate, the Committee would assess realized and
expected economic conditions relative to the Committee’s maximum employment and symmetric 2 percent inflation objectives. They reiterated that this
assessment would take into account a wide range of
information, including measures of labor market
conditions, indicators of inflation pressures and
inflation expectations, and readings on financial and
international developments. More generally, members
noted that decisions regarding near-term adjustments
of the stance of monetary policy would appropriately

remain dependent on the evolution of the outlook as
informed by incoming data.
With regard to the postmeeting statement, members
agreed to change the characterization of recent
growth in economic activity from “strong” to “solid,”
consistent with incoming information that suggested
that the pace of expansion of the U.S. economy had
moderated somewhat since late last year. The description of indicators of inflation expectations was
revised to recognize that the downward moves in
market-based measures of inflation compensation
that occurred in recent months had been sustained,
while also noting that survey-based measures of
longer-term inflation expectations were little
changed. Members also agreed to several adjustments
in the description of the outlook for the economy
and monetary policy. The statement language was
revised to indicate that the Committee continued to
view sustained expansion of economic activity,
strong labor market conditions, and inflation near
2 percent as “the most likely outcomes.” Members
also agreed to add a sentence indicating that, in light
of “global economic and financial developments and
muted inflation pressures, the Committee will be
patient as it determines what future adjustments to
the target range for the federal funds rate may be
appropriate to support these outcomes.” This sentence was intended to convey the Committee’s view
that a patient and flexible approach was appropriate
at this time as a way to manage risks while assessing
incoming information bearing on the economic outlook. In light of the range of uncertainties associated
with global economic and financial developments, the
Committee decided that it was not useful at this time
to express a judgment about the balance of risks.
At the conclusion of the discussion, the Committee
voted to authorize and direct the Federal Reserve
Bank of New York, until instructed otherwise, to
execute transactions in the SOMA in accordance
with the following domestic policy directive, to be
released at 2:00 p.m.:
“Effective January 31, 2019, the Federal Open
Market Committee directs the Desk to undertake open market operations as necessary to
maintain the federal funds rate in a target range
of 2¼ to 2½ percent, including overnight reverse
repurchase operations (and reverse repurchase
operations with maturities of more than one day
when necessary to accommodate weekend, holiday, or similar trading conventions) at an offering rate of 2.25 percent, in amounts limited only

Minutes of Federal Open Market Committee Meetings | January

by the value of Treasury securities held outright
in the System Open Market Account that are
available for such operations and by a per counterparty limit of $30 billion per day.
The Committee directs the Desk to continue
rolling over at auction the amount of principal
payments from the Federal Reserve’s holdings of
Treasury securities maturing during each calendar month that exceeds $30 billion, and to continue reinvesting in agency mortgage-backed
securities the amount of principal payments
from the Federal Reserve’s holdings of agency
debt and agency mortgage-backed securities
received during each calendar month that
exceeds $20 billion. Small deviations from these
amounts for operational reasons are acceptable.
The Committee also directs the Desk to engage
in dollar roll and coupon swap transactions as
necessary to facilitate settlement of the Federal
Reserve’s agency mortgage-backed securities
transactions.”
The vote also encompassed approval of the statement
below to be released at 2:00 p.m.:

143

market conditions, and inflation near the Committee’s symmetric 2 percent objective as the
most likely outcomes. In light of global economic and financial developments and muted
inflation pressures, the Committee will be
patient as it determines what future adjustments
to the target range for the federal funds rate may
be appropriate to support these outcomes.
In determining the timing and size of future
adjustments to the target range for the federal
funds rate, the Committee will assess realized
and expected economic conditions relative to its
maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of
information, including measures of labor market
conditions, indicators of inflation pressures and
inflation expectations, and readings on financial
and international developments.”
Voting for this action: Jerome H. Powell, John C.
Williams, Michelle W. Bowman, Lael Brainard,
James Bullard, Richard H. Clarida, Charles L.
Evans, Esther L. George, Randal K. Quarles, and
Eric Rosengren.

“Information received since the Federal Open
Market Committee met in December indicates
that the labor market has continued to
strengthen and that economic activity has been
rising at a solid rate. Job gains have been strong,
on average, in recent months, and the unemployment rate has remained low. Household spending has continued to grow strongly, while growth
of business fixed investment has moderated
from its rapid pace earlier last year. On a
12-month basis, both overall inflation and inflation for items other than food and energy
remain near 2 percent. Although market-based
measures of inflation compensation have moved
lower in recent months, survey-based measures
of longer-term inflation expectations are little
changed.

Voting against this action: None.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment
and price stability. In support of these goals, the
Committee decided to maintain the target range
for the federal funds rate at 2¼ to 2½ percent.
The Committee continues to view sustained
expansion of economic activity, strong labor

By notation vote completed on January 8, 2019, the
Committee unanimously approved the minutes of the
Committee meeting held on December 18–19, 2018.

Consistent with the Committee’s decision to leave the
target range for the federal funds rate unchanged, the
Board of Governors voted unanimously to leave the
interest rates on required and excess reserve balances
unchanged at 2.40 percent and voted unanimously to
approve establishment of the primary credit rate at
the existing level of 3.00 percent, effective January 31,
2019.
It was agreed that the next meeting of the Committee
would be held on Tuesday–Wednesday, March 19–20,
2019. The meeting adjourned at 10:30 a.m. on January 30, 2019.

Notation Vote

James A. Clouse
Secretary

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106th Annual Report | 2019

Meeting Held
on March 19–20, 2019
A joint meeting of the Federal Open Market Committee and the Board of Governors was held in the
offices of the Board of Governors of the Federal
Reserve System in Washington, D.C., on Tuesday,
March 19, 2019, at 10:00 a.m. and continued on
Wednesday, March 20, 2019, at 9:00 a.m.1

Michael Held
Deputy General Counsel
Steven B. Kamin
Economist
Thomas Laubach
Economist
Stacey Tevlin
Economist

Jerome H. Powell
Chair

Thomas A. Connors, Rochelle M. Edge,
Eric M. Engen, Christopher J. Waller,
William Wascher, and Beth Anne Wilson
Associate Economists

John C. Williams
Vice Chair

Simon Potter
Manager, System Open Market Account

Michelle W. Bowman

Lorie K. Logan
Deputy Manager, System Open Market Account

Present

Lael Brainard
James Bullard
Richard H. Clarida
Charles L. Evans
Esther L. George
Randal K. Quarles
Eric Rosengren
Patrick Harker, Robert S. Kaplan, Neel Kashkari,
Loretta J. Mester, and Michael Strine
Alternate Members of the Federal Open Market
Committee
Thomas I. Barkin, Raphael W. Bostic,
and Mary C. Daly
Presidents of the Federal Reserve Banks of
Richmond, Atlanta, and San Francisco, respectively
James A. Clouse
Secretary
Matthew M. Luecke
Deputy Secretary
David W. Skidmore
Assistant Secretary
Michelle A. Smith
Assistant Secretary

Ann E. Misback
Secretary, Office of the Secretary, Board of
Governors
Matthew J. Eichner2
Director, Division of Reserve Bank Operations and
Payment Systems, Board of Governors
Michael S. Gibson
Director, Division of Supervision and Regulation,
Board of Governors
Andreas Lehnert
Director, Division of Financial Stability,
Board of Governors
Daniel M. Covitz
Deputy Director, Division of Research and Statistics,
Board of Governors
Michael T. Kiley
Deputy Director, Division of Financial Stability,
Board of Governors
Trevor A. Reeve
Deputy Director, Division of Monetary Affairs,
Board of Governors
Jon Faust
Senior Special Adviser to the Chair, Office of Board
Members, Board of Governors

Mark E. Van Der Weide
General Counsel

Antulio N. Bomfim
Special Adviser to the Chair, Office of Board
Members, Board of Governors

The Federal Open Market Committee is referenced as the
“FOMC” and the “Committee” in these minutes.

Attended through the discussion of developments in financial
markets and open market operations.

Minutes of Federal Open Market Committee Meetings | March

145

Brian M. Doyle, Wendy E. Dunn, Joseph W. Gruber,
Ellen E. Meade, and John M. Roberts
Special Advisers to the Board, Office of Board
Members, Board of Governors

Martin Bodenstein, Marcel A. Priebsch,
and Bernd Schlusche2
Principal Economists, Division of Monetary Affairs,
Board of Governors

Linda Robertson
Assistant to the Board, Office of Board Members,
Board of Governors

Mary-Frances Styczynski2
Lead Financial Institution and Policy Analyst,
Division of Monetary Affairs, Board of Governors

Shaghil Ahmed
Senior Associate Director, Division of International
Finance, Board of Governors

Achilles Sangster II
Information Management Analyst, Division of
Monetary Affairs, Board of Governors

Joshua Gallin and David E. Lebow
Senior Associate Directors, Division of Research and
Statistics, Board of Governors

Gregory L. Stefani
First Vice President, Federal Reserve Bank of
Cleveland

Edward Nelson
Senior Adviser, Division of Monetary Affairs,
Board of Governors

David Altig, Kartik B. Athreya, Michael Dotsey,
Glenn D. Rudebusch, Ellis W. Tallman,
and Joseph S. Tracy
Executive Vice Presidents, Federal Reserve
Banks of Atlanta, Richmond, Philadelphia,
San Francisco, Cleveland, and Dallas, respectively

Jeremy B. Rudd
Senior Adviser, Division of Research and Statistics,
Board of Governors
2

Marnie Gillis DeBoer and David López-Salido
Associate Directors, Division of Monetary Affairs,
Board of Governors
Jeffrey D. Walker2
Deputy Associate Director, Division of Reserve
Bank Operations and Payment Systems,
Board of Governors
Andrew Figura
Assistant Director, Division of Research and
Statistics, Board of Governors
Laura Lipscomb2 Zeynep Senyuz,2
and Rebecca Zarutskie
Assistant Directors, Division of Monetary Affairs,
Board of Governors

Antoine Martin,2 Julie Ann Remache,2
and Mark L. J. Wright
Senior Vice Presidents, Federal Reserve Banks of
New York, New York, and Minneapolis, respectively
Roc Armenter,2 Kathryn B. Chen,2 Hesna Genay,
Jonathan P. McCarthy, and Patricia Zobel2
Vice Presidents, Federal Reserve Banks of
Philadelphia, New York, Chicago, New York,
and New York, respectively
Samuel Schulhofer-Wohl
Senior Economist and Research Advisor, Federal
Reserve Bank of Chicago
Daniel Cooper
Senior Economist and Policy Advisor, Federal Reserve
Bank of Boston

Michele Cavallo2
Section Chief, Division of Monetary Affairs,
Board of Governors

Ellen Correia Golay2
Markets Officer, Federal Reserve Bank of
New York

Penelope A. Beattie3
Assistant to the Secretary, Office of the Secretary,
Board of Governors

A. Lee Smith
Senior Economist, Federal Reserve Bank of
Kansas City

Mark A. Carlson
Senior Economic Project Manager, Division of
Monetary Affairs, Board of Governors
David H. Small
Project Manager, Division of Monetary Affairs,
Board of Governors
3

Attended Tuesday’s session only.

Balance Sheet Normalization
Committee participants resumed their discussion
from the January 2019 meeting on options for transitioning to the longer-run size of the balance sheet.
The staff described options for ending the reduction
in the Federal Reserve’s securities holdings at the end
of September 2019 and for potentially reducing the

146

106th Annual Report | 2019

pace of redemptions of Treasury securities before
that date. Reducing the pace of redemptions before
ending them would be consistent with most previous
changes in the Federal Reserve’s balance sheet policy
and would support a gradual transition to the longrun level of reserves. It could also reinforce the Committee’s communications indicating that the FOMC
was flexible in its plans for balance sheet normalization and that the process of balance sheet normalization would remain consistent with the attainment of
the Federal Reserve’s monetary policy objectives.
However, continuing redemptions at the current pace
through September might be simpler to communicate
and would somewhat shorten the transition to the
long-run level of reserves. The staff noted that reducing the pace of redemptions before September would
leave reserves and the balance sheet slightly larger
than continuing redemptions at the current pace
through September. However, the longer-run level of
reserves and size of the balance sheet would ultimately be determined by long-term demand for Federal Reserve liabilities. Staff projections of term premiums and macroeconomic outcomes did not differ
substantially across the two options.
The staff also described a possible interim plan for
reinvesting principal payments received from agency
debt and agency mortgage-backed securities (MBS)
after balance sheet runoff ends and until the Committee decides on the longer-run composition of the
System Open Market Account (SOMA) portfolio.
Consistent with the Committee’s long-standing aim
to hold primarily Treasury securities in the longer
run, any principal payments on agency debt and
agency MBS would generally be reinvested in Treasury securities in the secondary market. These reinvestments would be allocated across sectors of the
Treasury market roughly in proportion to the maturity composition of Treasury securities outstanding.
However, the plan would maintain the existing
$20 billion per month cap on MBS redemptions;
principal payments on agency debt and agency MBS
above $20 billion per month would continue to be
reinvested in agency MBS. This cap would limit the
pace at which the Federal Reserve’s agency MBS
holdings could decline if prepayments accelerated;
the staff projected that the redemption cap on agency
debt and agency MBS was unlikely to be reached
after 2019.
The staff noted that, once balance sheet runoff
ended, the average level of reserves would tend to
decline gradually, in line with trend growth in the
Federal Reserve’s nonreserve liabilities, until the

Committee chose to resume growth of the balance
sheet in order to maintain a level of reserves consistent with efficient and effective policy implementation.
Participants judged that ending the runoff of securities holdings at the end of September would reduce
uncertainty about the Federal Reserve’s plans for its
securities holdings and would be consistent with the
Committee’s decision at its January 2019 meeting to
continue implementing monetary policy in a regime
of ample reserves. Participants discussed advantages
and disadvantages of slowing balance sheet runoff
before the September stopping date. A slowing in the
pace of redemptions would accord with the Committee’s general practice of adjusting its holdings of
securities smoothly and predictably, which might
reduce the risk that market volatility would arise in
connection with the conclusion of the runoff of
securities holdings. However, these advantages
needed to be weighed against the additional complexity of a plan that would end balance sheet runoff in
steps rather than all at once.
Participants reiterated their support for the FOMC’s
intention to return to holding primarily Treasury
securities in the long run. Participants judged that
adopting an interim approach for reinvesting agency
debt and agency MBS principal payments into Treasury securities across a range of maturities was appropriate while the Committee continued to evaluate
potential long-run maturity structures for the Federal
Reserve’s portfolio of Treasury securities. Many participants offered preliminary views on advantages
and disadvantages of alternative compositions for the
SOMA portfolio. Participants expected to further
discuss the longer-run composition of the portfolio
at upcoming meetings.
Participants commented on considerations related to
allowing the average level of reserves to decline in line
with trend growth in nonreserve liabilities for a time
after the end of balance sheet runoff. Several participants preferred to stabilize the average level of
reserves by resuming purchases of Treasury securities
relatively soon after the end of runoff, because they
saw little benefit to further declines in reserve balances or because they thought the Committee should
minimize the risk of interest rate volatility that could
occur if the supply of reserves dropped below a point
consistent with efficient and effective implementation
of policy. Some others preferred to allow the average
level of reserves to continue to decline for a longer
time after balance sheet runoff ends because such

Minutes of Federal Open Market Committee Meetings | March

declines could allow the Committee to learn more
about underlying reserve demand, because they
judged that such a process was not likely to result in
excessive volatility in money market rates, or because
they judged that moving to lower levels of reserves
was more consistent with the Committee’s previous
communications indicating that it would hold no
more securities than necessary for implementing
monetary policy efficiently and effectively. Participants noted that the eventual resumption of purchases of securities to keep pace with growth in
demand for the Federal Reserve’s liabilities, whenever
it occurred, would be a normal part of operations to
maintain the ample-reserves monetary policy implementation regime and would not represent a change
in the stance of monetary policy. Some participants
suggested that, at future meetings, the Committee
should discuss the potential benefits and costs of
tools that might reduce reserve demand or support
interest rate control.
Following the discussion, the Chair proposed that the
Committee communicate its intentions regarding balance sheet normalization by publishing a statement at
the conclusion of the meeting. All participants agreed
that it was appropriate to issue the proposed statement.
Balance Sheet Normalization Principles and
Plans (Adopted March 20, 2019)
In light of its discussions at previous meetings and
the progress in normalizing the size of the Federal
Reserve’s securities holdings and the level of reserves
in the banking system, all participants agreed that it
is appropriate at this time for the Committee to provide additional information regarding its plans for
the size of its securities holdings and the transition to
the longer-run operating regime. At its January meeting, the Committee stated that it intends to continue
to implement monetary policy in a regime in which
an ample supply of reserves ensures that control over
the level of the federal funds rate and other shortterm interest rates is exercised primarily through the
setting of the Federal Reserve’s administered rates
and in which active management of the supply of
reserves is not required. The Statement Regarding
Monetary Policy Implementation and Balance Sheet
Normalization released in January as well as the principles and plans listed below together revise and
replace the Committee’s earlier Policy Normalization
Principles and Plans.
• To ensure a smooth transition to the longer-run
level of reserves consistent with efficient and effective policy implementation, the Committee intends

147

to slow the pace of the decline in reserves over
coming quarters provided that the economy and
money market conditions evolve about as expected.
Â The Committee intends to slow the reduction of
its holdings of Treasury securities by reducing
the cap on monthly redemptions from the current
level of $30 billion to $15 billion beginning in
May 2019.
Â The Committee intends to conclude the reduction of its aggregate securities holdings in the
System Open Market Account (SOMA) at the
end of September 2019.
Â The Committee intends to continue to allow its
holdings of agency debt and agency mortgagebacked securities (MBS) to decline, consistent
with the aim of holding primarily Treasury securities in the longer run.
▪ Beginning in October 2019, principal payments
received from agency debt and agency MBS
will be reinvested in Treasury securities subject
to a maximum amount of $20 billion per
month; any principal payments in excess of that
maximum will continue to be reinvested in
agency MBS.
▪ Principal payments from agency debt and
agency MBS below the $20 billion maximum
will initially be invested in Treasury securities
across a range of maturities to roughly match
the maturity composition of Treasury securities
outstanding; the Committee will revisit this
reinvestment plan in connection with its deliberations regarding the longer-run composition
of the SOMA portfolio.
▪ It continues to be the Committee’s view that
limited sales of agency MBS might be warranted in the longer run to reduce or eliminate
residual holdings. The timing and pace of any
sales would be communicated to the public well
in advance.
Â The average level of reserves after the FOMC has
concluded the reduction of its aggregate securities holdings at the end of September will likely
still be somewhat above the level of reserves necessary to efficiently and effectively implement
monetary policy.
▪ In that case, the Committee currently anticipates that it will likely hold the size of the
SOMA portfolio roughly constant for a time.
During such a period, persistent gradual
increases in currency and other nonreserve

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liabilities would be accompanied by corresponding gradual declines in reserve balances
to a level consistent with efficient and effective
implementation of monetary policy.
Â When the Committee judges that reserve balances have declined to this level, the SOMA
portfolio will hold no more securities than necessary for efficient and effective policy implementation. Once that point is reached, the Committee will begin increasing its securities holdings to
keep pace with trend growth of the Federal
Reserve’s non-reserve liabilities and maintain an
appropriate level of reserves in the system.

Developments in Financial Markets and
Open Market Operations
The manager of the SOMA discussed developments
in global financial markets over the intermeeting
period. In the United States, equity indexes moved
higher and credit spreads tightened. Market participants attributed these moves largely to a perceived
shift in the FOMC’s approach to policy following
communications stressing that the Committee would
be patient in assessing the need for future adjustments in the target range for the federal funds rate
and would be flexible on balance sheet policy.
In Europe, measures announced by the European
Central Bank (ECB) in March, including an extension of forward guidance on interest rates and the
announcement of another round of targeted longterm refinancing operations, were followed by a
decline in euro-area equity markets, particularly bank
stocks, as well as declines in euro-area rates. Market
contacts attributed the price reaction to a perception
that the measures were not as stimulative as might
have been expected, given downward revisions in the
ECB’s growth and inflation forecasts. In China,
authorities moved toward an easier fiscal and monetary stance; China’s aggregate credit growth had
rebounded slightly in recent months relative to the
declining trend observed last year. The Shanghai
Composite index had risen notably since the turn of
the year, driven in part by fiscal and monetary stimulus measures as well as perceived progress on trade
negotiations. Developments around Brexit remained
a source of market uncertainty. Consistent with
ongoing investor uncertainty over the outcome, risk
reversals on the pound–dollar currency pair contin-

ued to point to higher demand for protection against
pound depreciation relative to the dollar.
The deputy manager provided an overview of money
market developments and policy implementation
over the intermeeting period. The effective federal
funds rate (EFFR) continued to be very stable at a
level equal to the interest rate on excess reserves.
Rates in overnight secured markets continued to
exhibit some volatility, particularly on month-end
dates. Market participants attributed some of the
volatility in overnight secured rates to persistently
high net dealer inventories of Treasury securities and
to Treasury issuance coinciding with the month-end
statement dates. Over the upcoming intermeeting
period, with the combination of changes in the Treasury’s balances at the Federal Reserve and additional
asset redemptions, reserves were expected to decline
to a new low of around $1.4 trillion by early May,
with some notable fluctuations in reserves on days
associated with tax flows.
The deputy manager also discussed the transition to
a long-run regime of ample reserves, following the
Committee’s January announcement that it intends
to continue to implement monetary policy in such a
regime. Once the size of the Federal Reserve’s balance sheet has normalized, the Open Market Desk
will at some point need to conduct open market
operations to maintain a level of reserves in the
banking system that the Committee deems appropriate. In doing so, the Desk will need to assess banks’
demand for reserves as well as forecast other Federal
Reserve liabilities and plan operations to maintain a
supply of reserves sufficient to ensure that control
over short-term interest rates is exercised primarily
through the setting of administered rates.
The deputy manager described a possible operational
approach in an ample-reserves regime based on
establishing a minimum operating level that would be
a lower bound on the daily level of reserves. The
assessment of the minimum operating level of
reserves would be based on a range of information,
including surveys of banks and market participants,
data on banks’ reserve holdings, and market monitoring. Under the proposed approach, the Desk
would plan open market operations to maintain the
daily level of reserves above the minimum operating
level. Consistent with the Committee’s intention to
maintain a regime that does not require active man-

Minutes of Federal Open Market Committee Meetings | March

agement of the supply of reserves, the Desk could
plan these open market operations over a mediumterm horizon. The average level of reserves over the
medium term would then be above the minimum
operating level, providing a buffer of reserves to
absorb daily changes in nonreserve liabilities.
Following the manager and deputy manager’s report,
some participants commented on various aspects of
the minimum operating level approach. Decisions
regarding how far to allow reserves to decline would
need to balance important tradeoffs. On the one
hand, a lower minimum operating level might
increase the risk of excessive interest rate volatility.
On the other hand, a lower minimum operating level
could provide more opportunities to learn about
underlying reserve demand or could be viewed as
more consistent with moving to the smallest securities holdings necessary for efficient and effective
monetary policy implementation. However, the scope
for reducing the level of reserves much further after
the end of balance sheet runoff might be fairly
limited.
By unanimous vote, the Committee ratified the
Desk’s domestic transactions over the intermeeting
period. There were no intervention operations in foreign currencies for the System’s account during the
intermeeting period.

Staff Review of the Economic Situation
The information available for the March 19–20 meeting indicated that labor market conditions remained
strong, although growth in real gross domestic product (GDP) appeared to have slowed markedly in the
first quarter of this year from its solid fourth-quarter
pace. Consumer price inflation, as measured by the
12-month percentage change in the price index for
personal consumption expenditures (PCE), was
somewhat below 2 percent in December, held down
in part by recent declines in consumer energy prices,
while PCE price inflation for items other than food
and energy was close to 2 percent; more recent readings on PCE price inflation were delayed by the earlier federal government shutdown. Survey-based
measures of longer-run inflation expectations were
little changed on balance.
Increases in total nonfarm payroll employment
remained solid, on average, in recent months;
employment rose only a little in February but had
expanded strongly in January. The national unem-

149

ployment rate edged down, on net, over the past two
months to 3.8 percent in February, and both the
labor force participation rate and the employment-topopulation ratio rose slightly on balance. The unemployment rates for African Americans, Asians, and
Hispanics in February were at or below their levels at
the end of the previous economic expansion, though
persistent differentials in unemployment rates across
groups remained. The share of workers employed
part time for economic reasons moved down in February and was below the lows reached in late 2007.
The rate of private-sector job openings in January
was the same as its fourth-quarter average and
remained elevated, while the rate of quits edged up in
January; the four-week moving average of initial
claims for unemployment insurance benefits through
early March was still near historically low levels.
Average hourly earnings for all employees rose
3.4 percent over the 12 months ending in February, a
significantly faster pace than a year earlier. The
employment cost index for private-sector workers
increased 3 percent over the 12 months ending in
December, somewhat faster than a year earlier. Total
labor compensation per hour in the business sector
increased 2.9 percent over the four quarters of 2018,
about the same rate as a year earlier.
Industrial production declined in January and
rebounded only somewhat in February. Moreover,
manufacturing output decreased over both months,
as production in the motor vehicle and parts sector
contracted notably in January and declines were
more broad based in February. Production in the
mining and utilities sectors expanded, on net, over
the past two months. Automakers’ assembly schedules suggested that the production of light motor
vehicles would be roughly flat in the near term, and
new orders indexes from national and regional manufacturing surveys pointed to only modest gains in
overall factory output in the coming months.
Household spending looked to be slowing around the
turn of the year. Real PCE decreased markedly in
December after a solid increase in the previous
month, and the components of the nominal retail
sales data used by the Bureau of Economic Analysis
(BEA) to estimate PCE rebounded only partially in
January. Key factors that influence consumer spending—including a low unemployment rate, ongoing
gains in real labor compensation, and still elevated
measures of households’ net worth—were supportive
of a pickup in consumer spending to a solid pace in
the near term. In addition, consumer sentiment, as

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measured by the University of Michigan Surveys of
Consumers, stepped up in February and early March
to an upbeat level.
Real residential investment appeared to be softening
further in the first quarter, likely reflecting, in part,
decreases in the affordability of housing arising from
both the net increase in mortgage interest rates over
the past year and ongoing house price appreciation.
Starts of new single-family homes increased slightly,
on net, over December and January, while starts of
multifamily units declined. Building permit issuance
for new single-family homes—which tends to be a
good indicator of the underlying trend in construction of such homes—moved down over those two
months. In addition, sales of both new and existing
homes decreased in January.
Growth in real private expenditures for business
equipment and intellectual property looked to be
slowing in the first quarter. Nominal shipments of
nondefense capital goods excluding aircraft rose in
December and January, while available indicators
pointed to a decrease in transportation equipment
spending in the first quarter after a strong fourthquarter gain. Forward-looking indicators of business
equipment spending—such as orders for nondefense
capital goods excluding aircraft and readings on business sentiment—pointed to sluggish increases in the
near term. Nominal business expenditures for nonresidential structures outside of the drilling and mining sector increased in December and January. In
addition, the number of crude oil and natural gas
rigs in operation—an indicator of business spending
for structures in the drilling and mining sector—
expanded, on balance, in February and through the
middle of March.
Total real government purchases appeared to be moving sideways in the first quarter. Relatively strong
increases in real federal defense purchases were likely
to be roughly offset by an expected decline in real
nondefense purchases stemming from the effects of
the partial federal government shutdown. Real purchases by state and local governments looked to be
rising modestly in the first quarter, as the payrolls of
those governments expanded a bit in January and
February, and nominal state and local construction
spending rose, on net, in December and January.
The nominal U.S. international trade deficit narrowed in November before widening in December to
the largest deficit since 2008. Exports declined in
November and December, as exports of industrial
supplies and automotive products fell in both

months. Imports decreased in November before partially recovering in December, with imports of consumer goods and industrial supplies driving this
swing. The BEA estimated that the change in net
exports was a drag of about ¼ percentage point on
the rate of real GDP growth in the fourth quarter.
Total U.S. consumer prices, as measured by the PCE
price index, increased 1.7 percent over the 12 months
ending in December, slightly slower than a year earlier, as consumer energy prices declined a little and
consumer food prices rose only modestly. Core PCE
price inflation, which excludes changes in consumer
food and energy prices, was 1.9 percent over that
same period, somewhat higher than a year earlier.
The consumer price index (CPI) rose 1.5 percent over
the 12 months ending in February, while core CPI
inflation was 2.1 percent. Recent readings on surveybased measures of longer-run inflation expectations—including those from the Michigan survey, the
Blue Chip Economic Indicators, and the Desk’s Survey of Primary Dealers and Survey of Market Participants—were little changed on balance.
Economic growth in foreign economies slowed further in the fourth quarter. This development reflected
slowing in the Canadian economy and some emerging market economies (EMEs), including Brazil and
Mexico, along with continued economic weakness in
the euro area and China. In the advanced foreign
economies (AFEs), recent data suggested that economic activity, especially in the manufacturing sector,
remained subdued in the first quarter of this year.
Economic activity also remained weak in many
EMEs, particularly in Mexico and emerging Asia
excluding China, although some data pointed to a
modest pickup in China. Inflation in foreign economies slowed further early this year, partly reflecting
lower retail energy prices across both AFEs and
EMEs.

Staff Review of the Financial Situation
Investor sentiment toward risky assets continued to
improve over the intermeeting period. Market participants cited accommodative monetary policy communications and optimism for a trade deal between
the United States and China as factors that contributed to the improvement. Broad equity price indexes
increased notably, corporate bond spreads narrowed,
and measures of equity market volatility declined.
Meanwhile, financing conditions for businesses and
households improved slightly and generally remained
supportive of economic activity.

Minutes of Federal Open Market Committee Meetings | March

FOMC communications issued following the January
meeting were generally viewed by market participants
as more accommodative than expected. Subsequent
communications—including the minutes of the January FOMC meeting, the Chair’s semiannual testimony to the Congress, and speeches by FOMC participants—were interpreted as reflecting a patient
approach to monetary policy in the near term and a
likely conclusion to the Federal Reserve’s balance
sheet reduction by the end of this year. The marketimplied path for the federal funds rate in 2019
declined slightly over the period, while investors continued to expect no change to the target range for the
federal funds rate at the March FOMC meeting. The
market-implied path of the federal funds rate for
2020 and 2021 shifted down a little.
Yields on nominal Treasury securities declined a bit
across the Treasury yield curve over the intermeeting
period. Communications from FOMC participants
that were more accommodative than expected amid
muted readings on inflation, communications from
other major central banks that, on balance, were also
regarded as more accommodative than expected, and
generally mixed economic data releases reportedly
contributed to the decrease in yields and outweighed
improved risk sentiment. The spread between the
yields on nominal 10- and 2-year Treasury securities
was little changed over the period and remained in
the lower end of its historical range of recent
decades. Measures of inflation compensation derived
from Treasury Inflation-Protected Securities
increased modestly, on net, although they remained
below levels seen last fall.
Major U.S. equity price indexes increased over the
intermeeting period, with broad-based gains across
sectors. Improved prospects for a trade deal between
the United States and China and accommodative
monetary policy were cited as driving factors that
outweighed weaker-than-expected announcements of
corporate earnings for the fourth quarter of 2018 and
earnings projections for 2019. Consistent with
reports about a potential trade deal, stock prices of
firms with greater exposure to China generally outperformed the S&P 500 index. Option-implied volatility on the S&P 500 index at the one-month horizon—the VIX—declined and reached its lowest point
this year. Spreads on investment- and speculativegrade corporate bonds narrowed, consistent with the
gains in equity prices, but were still wider than levels
observed last fall.

151

Conditions in short-term funding markets generally
remained stable over the intermeeting period. The
EFFR was consistently equal to the rate of interest
on excess reserves, while take-up in the overnight
reverse repurchase agreement facility remained low.
Yield spreads on commercial paper and negotiable
certificates of deposit generally narrowed further
from their elevated year-end levels, likely reflecting an
increase in investor demand for short-term financial
assets. Meanwhile, the statutory federal government
debt ceiling was reestablished at $22 trillion on
March 1.
The prices of foreign risky assets broadly tracked the
positive moves in similar U.S. assets over the intermeeting period. Communications by major central
banks, which were, on net, more accommodative
than expected, along with optimism regarding trade
negotiations between the United States and China,
contributed to the upward price moves and more
than offset the effects of continued concerns about
foreign economic growth. In particular, global equity
prices generally ended the period higher, and dedicated emerging market funds continued to see
inflows. At the same time, long-term AFE yields
declined somewhat, on net, on communications from
major foreign central banks and investors’ concerns
about foreign economic growth.
The broad dollar index appreciated slightly as the
extension of accommodative policies and revised
guidance by major foreign central banks weighed on
AFE currencies. An exception was the British pound,
which strengthened a bit against the dollar, as market
participants viewed recent Parliamentary votes as
reducing the likelihood of a no-deal Brexit.
Financing conditions for nonfinancial businesses continued to be accommodative overall. Gross issuance of
both investment-grade and high-yield corporate bonds
was strong in January and February, recovering from
the low levels observed late last year. Issuance in the
institutional syndicated leveraged loan market also
recovered in the first two months of the year, as new
issuance in February was in line with average monthly
new issuance in 2018, and spreads narrowed somewhat
from their December levels. The credit quality of nonfinancial corporations continued to show signs of deterioration, although actual defaults remained low overall.
Commercial and industrial lending showed continued
strength in January and February. Small business credit
market conditions were little changed, and credit condi-

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tions in municipal bond markets stayed accommodative
on net.
Private-sector analysts revised down their projections
for 2019 and year-ahead corporate earnings a bit.
The pace of gross equity issuance was sluggish in
January but ticked up in February, consistent with
the uptick in the stock market.
In the commercial real estate (CRE) sector, financing
conditions continued to be generally accommodative.
Commercial mortgage-backed securities (CMBS)
spreads declined over the intermeeting period, with
triple-B spreads moving down to near their lateNovember levels. Issuance of non-agency CMBS
remained strong through February, and CRE lending
by banks grew at a strong pace in February following
relatively sluggish growth in January.
Residential mortgage financing conditions remained
accommodative on balance. Purchase mortgage origination activity was flat in December but edged up in
January, as mortgage rates remained lower than the
peak reached last November.
Financing conditions in consumer credit markets
were little changed in recent months and remained
generally supportive of household spending. Credit
card loan growth remained strong through December, though the pace slowed during 2018 amid tighter
lending standards by commercial banks. Auto loan
growth remained steady through the end of 2018.

Staff Economic Outlook
The U.S. economic projection prepared by the staff
for the March FOMC meeting was revised down a
little on balance. This revision reflected the effects of
weaker-than-expected incoming data on both aggregate domestic spending and foreign economic growth
that were only partially offset by a somewhat higher
projected path for domestic equity prices and a lower
projected trajectory for interest rates. The staff forecast that U.S. real GDP growth would slow markedly
in the first quarter, reflecting a softening in growth of
both consumer spending and business investment.
But the staff judged that the first-quarter slowdown
would be transitory and that real GDP growth would
bounce back solidly in the second quarter. In the
medium-term projection, real GDP growth was forecast to run at a rate similar to the staff’s estimate of
potential output growth in 2019 and 2020—a somewhat lower trajectory, on net, for real GDP than in
the previous projection—and then slow to a pace

below potential output growth in 2021. The staff
revised up slightly its assumed underlying trend in
the labor force participation rate, raising the level of
potential output a bit, which contributed—along
with the lower projected path for real GDP—to an
assessment that resource utilization was a little less
tight than in the previous forecast. The unemployment rate was projected to decline a little further
below the staff’s estimate of its longer-run natural
rate but to bottom out by the end of this year and
begin to edge up in 2021. With labor market conditions judged to still be tight, the staff continued to
assume that projected employment gains would
manifest in smaller-than-usual downward pressure on
the unemployment rate and in larger-than-usual
upward pressure on the labor force participation rate.
The staff’s forecast for inflation was revised down
slightly for the March FOMC meeting, reflecting
some recent softer-than-expected readings on consumer prices. Core PCE price inflation was expected
to remain at 1.9 percent over this year as a whole and
then to edge up to 2 percent for the remainder of the
medium term. Total PCE price inflation was forecast
to run a bit below core inflation over the next three
years, reflecting projected declines in energy prices.
The staff viewed the uncertainty around its projections for real GDP growth, the unemployment rate,
and inflation as generally similar to the average of
the past 20 years. The staff also saw the risks to the
forecasts for real GDP growth and the unemployment rate as roughly balanced. On the upside, household spending and business investment could expand
faster than the staff projected, supported by the tax
cuts enacted at the end of 2017, still strong overall
labor market conditions, and upbeat consumer sentiment. In addition, financial conditions might not
tighten as much as assumed in the staff forecast. On
the downside, the recent softening in a number of
economic indicators could be the harbinger of a substantial deterioration in economic activity. Moreover,
trade policies and foreign economic developments
could move in directions that have significant negative effects on U.S. economic growth. Risks to the
inflation projection also were seen as balanced. The
upside risk that inflation could increase more than
expected in an economy that is still projected to be
operating notably above potential for an extended
period was counterbalanced by the downside risk
that longer-term inflation expectations may be lower
than was assumed in the staff forecast, as well as the
possibility that the dollar could appreciate if foreign
economic conditions deteriorated.

Minutes of Federal Open Market Committee Meetings | March

Participants’ Views on Current Conditions
and the Economic Outlook
In conjunction with this FOMC meeting, members
of the Board of Governors and Federal Reserve
Bank presidents submitted their projections of the
most likely outcomes for real GDP growth, the
unemployment rate, and inflation for each year from
2019 through 2021 and over the longer run, based on
their individual assessments of the appropriate path
for the federal funds rate. The longer-run projections
represented each participant’s assessment of the rate
to which each variable would be expected to converge, over time, under appropriate monetary policy
and in the absence of further shocks to the economy.
These projections and policy assessments are
described in the Summary of Economic Projections
(SEP), which is an addendum to these minutes.
Participants agreed that information received since
the January meeting indicated that the labor market
had remained strong but that growth of economic
activity had slowed from its solid rate in the fourth
quarter. Payroll employment was little changed in
February, but job gains had been solid, on average, in
recent months, and the unemployment rate had
remained low. Recent indicators pointed to slower
growth of household spending and business fixed
investment in the first quarter. On a 12-month basis,
overall inflation had declined, largely as a result of
lower energy prices; inflation for items other than
food and energy remained near 2 percent. On balance, market-based measures of inflation compensation had remained low in recent months, and surveybased measures of longer-term inflation expectations
were little changed.
Participants continued to view a sustained expansion
of economic activity, strong labor market conditions,
and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes over the
next few years. Underlying economic fundamentals
continued to support sustained expansion, and most
participants indicated that they did not expect the
recent weakness in spending to persist beyond the
first quarter. Nevertheless, participants generally
expected the growth rate of real GDP this year to
step down from the pace seen over 2018 to a rate at
or modestly above their estimates of longer-run
growth. Participants cited various factors as likely to
contribute to the step-down, including slower foreign
growth and waning effects of fiscal stimulus. A number of participants judged that economic growth in
the remaining quarters of 2019 and in the subsequent

153

couple of years would likely be a little lower, on balance, than they had previously forecast. Reasons
cited for these downward revisions included disappointing news on global growth and less of a boost
from fiscal policy than had previously been
anticipated.
In their discussion of the household sector, participants noted that softness in consumer spending had
contributed importantly to the projected slowing in
economic growth in the current quarter. Many participants pointed to the weakness in retail sales in
December as notable, although they recognized that
the data for January had shown a partial recovery in
retail sales. Participants also observed that much of
the recent softness likely reflected temporary factors,
such as the partial federal government shutdown and
December’s volatility in financial markets, and that
consumer sentiment had recovered after these factors
had receded. Consequently, many participants
expected consumer spending to proceed at a stronger
pace in coming months, supported by favorable
underlying factors, including a strong labor market,
solid growth in household incomes, improvements in
financial conditions and in households’ balance sheet
positions, and upbeat consumer sentiment. Participants noted, however, that the continued softness in
the housing sector was a concern.
Participants also commented on the apparent slowing of growth in business fixed investment in the first
quarter. Factors cited as consistent with the recent
softness in investment growth included downward
revisions in forecasts of corporate earnings; relatively
low energy prices that provided less incentive for new
drilling and exploration; flattening capital goods
orders; reports from contacts of softer export sales
and of weaker economic activity abroad; elevated levels of uncertainty about government policies, including trade policies; and the likely effect of recent
financial market volatility on business sentiment.
However, many participants pointed to signs that the
weakness in investment would likely abate. Some contacts in manufacturing and other sectors reported
that business conditions were favorable, with strong
demand for labor, business sentiment had recovered
from its recent decline, and recent reductions in
mortgage interest rates would provide some support
for construction activity. Agricultural activity
remained weak in various areas of the country, with
the weakness in part reflecting adverse effects of
trade policy on commodity prices. Recent widespread
severe flooding had also adversely affected the agricultural sector.

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Participants noted that the latest readings on overall
inflation had been somewhat softer than expected.
However, participants observed that these readings
largely reflected the effects of earlier declines in crude
oil prices and that core inflation remained near 2 percent. Most participants, while seeing inflation pressures as muted, expected the overall rate of inflation
to firm somewhat and to be at or near the Committee’s longer-run objective of 2 percent over the next
few years. Many participants indicated that, while
inflation had been close to 2 percent last year, it was
noteworthy that it had not shown greater signs of
firming in response to strong labor market conditions
and rising nominal wage growth, as well as to the
short-term upward pressure on prices arising from
tariff increases. Low rates of price increases in sectors of the economy that were not cyclically sensitive
were cited by a couple of participants as one reason
for the recent easing in inflation. A few participants
observed that the pickup in productivity growth last
year was a welcome development helping to bolster
potential output and damp inflationary pressures.
In their discussion of indicators of inflation expectations, participants noted that market-based measures
of inflation compensation had risen modestly over
the intermeeting period, although they remained low.
A couple of participants stressed that recent readings
on survey measures of inflation expectations were
also still at low levels. Several participants suggested
that longer-term inflation expectations could be at
levels somewhat below those consistent with the
Committee’s 2 percent inflation objective and that
this might make it more difficult to achieve that
objective on a sustained basis.
In their discussion of the labor market, participants
cited evidence that conditions remained strong,
including the very low unemployment rate, a further
increase in the labor force participation rate, a low
number of layoffs, near-record levels of job openings
and help-wanted postings, and solid job gains, on
average, in recent months. Participants observed that,
following strong job gains in January, there had been
little growth in payrolls in February, although a few
participants pointed out that the February reading
had likely been affected by adverse weather conditions. A couple of participants noted that, over the
medium term, some easing in payroll growth was to
be expected as economic growth slowed to its longerrun trend rate. Reports from business contacts predominantly pointed to continued strong labor
demand, with firms offering both higher wages and

more nonwage benefits to attract workers. Economywide wage growth was seen as being broadly consistent with recent rates of labor productivity growth
and with inflation of 2 percent. A few participants
cited the combination of muted inflation pressures
and expanding employment as a possible indication
that some slack remained in the labor market.
Participants commented on a number of risks associated with their outlook for economic activity. A few
participants noted that there remained a high level of
uncertainty associated with international developments, including ongoing trade talks and Brexit
deliberations, although a couple of participants
remarked that the risks of adverse outcomes were
somewhat lower than in January. Other downside
risks included the possibility of sizable spillovers
from a greater-than-expected economic slowdown in
Europe and China, persistence of the softness in
spending, or a sharp falloff in fiscal stimulus. A few
participants observed that an economic deterioration
in the United States, if it occurred, might be amplified by significant debt service burdens for many
firms. Participants also mentioned a number of
upside risks regarding the outlook for economic
activity, including outcomes in which various sources
of uncertainty were resolved favorably, consumer and
business sentiment rebounded sharply, or the recent
strengthening in labor productivity growth signaled a
pickup in the underlying trend. Upside risks to the
outlook for inflation included the possibility that
wage pressures could rise unexpectedly and lead to
greater-than-expected price increases.
In their discussion of financial developments, participants observed that a good deal of the tightening
over the latter part of last year in financial conditions
had since been reversed; Federal Reserve communications since the beginning of this year were seen as an
important contributor to the recent improvements in
financial conditions. Participants noted that asset
valuations had recovered strongly and also discussed
the decline that had occurred in recent months in
yields on longer-term Treasury securities. Several participants expressed concern that the yield curve for
Treasury securities was now quite flat and noted that
historical evidence suggested that an inverted yield
curve could portend economic weakness; however,
their discussion also noted that the unusually low
level of term premiums in longer-term interest rates
made historical relationships a less reliable basis for
assessing the implications of the recent behavior of
the yield curve. Several participants pointed to the

Minutes of Federal Open Market Committee Meetings | March

increased debt issuance and higher leverage of nonfinancial corporations as a development that warranted continued monitoring.
In their discussion of monetary policy decisions at
the current meeting, participants agreed that it would
be appropriate to maintain the current target range
for the federal funds rate at 2¼ to 2½ percent. Participants judged that the labor market remained
strong, but that information received over the intermeeting period, including recent readings on household spending and business fixed investment, pointed
to slower economic growth in the early part of this
year than in the fourth quarter of 2018. Despite these
indications of softer first-quarter growth, participants generally expected economic activity to continue to expand, labor markets to remain strong, and
inflation to remain near 2 percent. Participants also
noted significant uncertainties surrounding their economic outlooks, including those related to global
economic and financial developments. In light of
these uncertainties as well as continued evidence of
muted inflation pressures, participants generally
agreed that a patient approach to determining future
adjustments to the target range for the federal funds
rate remained appropriate. Several participants
observed that the characterization of the Committee’s approach to monetary policy as “patient” would
need to be reviewed regularly as the economic outlook and uncertainties surrounding the outlook
evolve. A couple of participants noted that the
“patient” characterization should not be seen as limiting the Committee’s options for making policy
adjustments when they are deemed appropriate.
With regard to the outlook for monetary policy
beyond this meeting, a majority of participants
expected that the evolution of the economic outlook
and risks to the outlook would likely warrant leaving
the target range unchanged for the remainder of the
year. Several of these participants noted that the current target range for the federal funds rate was close
to their estimates of its longer-run neutral level and
foresaw economic growth continuing near its longerrun trend rate over the forecast period. Participants
continued to emphasize that their decisions about the
appropriate target range for the federal funds rate at
coming meetings would depend on their ongoing
assessments of the economic outlook, as informed by
a wide range of data, as well as on how the risks to
the outlook evolved. Several participants noted that
their views of the appropriate target range for the
federal funds rate could shift in either direction based
on incoming data and other developments. Some

155

participants indicated that if the economy evolved as
they currently expected, with economic growth above
its longer-run trend rate, they would likely judge it
appropriate to raise the target range for the federal
funds rate modestly later this year.
Several participants expressed concerns that the public had, at times, misinterpreted the medians of participants’ assessments of the appropriate level for the
federal funds rate presented in the SEP as representing the consensus view of the Committee or as suggesting that policy was on a preset course. Such misinterpretations could complicate the Committee’s
communications regarding its view of appropriate
monetary policy, particularly in circumstances when
the future course of policy is unusually uncertain.
Nonetheless, several participants noted that the
policy rate projections in the SEP are a valuable component of the overall information provided about the
monetary policy outlook. The Chair noted that he
had asked the subcommittee on communications to
consider ways to improve the information contained
in the SEP and to improve communications regarding the role of the federal funds rate projections in
the SEP as part of the policy process.
Participants also discussed alternative interpretations
of subdued inflation pressures in current economic
circumstances and the associated policy implications.
Several participants observed that limited inflationary pressures during a period of historically low
unemployment could be a sign that low inflation
expectations were exerting downward pressure on
inflation relative to the Committee’s 2 percent inflation target; in addition, subdued inflation pressures
could indicate a less tight labor market than suggested by common measures of resource utilization.
Consistent with these observations, several participants noted that various indicators of inflation
expectations had remained at the lower end of their
historical range, and a few participants commented
that they had recently revised down their estimates of
the longer-run unemployment rate consistent with
2 percent inflation. In light of these considerations,
some participants noted that the appropriate
response of the federal funds rate to signs of labor
market tightening could be modest provided that
signs of inflation pressures continued to be limited.
Some participants regarded their judgments that the
federal funds rate was likely to remain on a very flat
trajectory as reflecting other factors, such as low estimates of the longer-run neutral real interest rate or
risk-management considerations. A few participants
observed that the appropriate path for policy, insofar

156

106th Annual Report | 2019

as it implied lower interest rates for longer periods of
time, could lead to greater financial stability risks.
However, a couple of these participants noted that
such financial stability risks could be addressed
through appropriate use of countercyclical macroprudential policy tools or other supervisory or regulatory tools.

Committee Policy Action
In their discussion of monetary policy for the period
ahead, members judged that the information received
since the Committee met in January indicated that
the labor market remained strong but that growth of
economic activity had slowed from its solid rate in
the fourth quarter. Payroll employment was little
changed in February, but job gains had been solid,
on average, in recent months, and the unemployment
rate had remained low. Recent indicators pointed to
slower growth of household spending and business
fixed investment in the first quarter. On a 12-month
basis, overall inflation had declined, largely as a
result of lower energy prices; inflation for items other
than food and energy remained near 2 percent. On
balance, market-based measures of inflation compensation had remained low in recent months, and
survey-based measures of longer-term inflations
expectations were little changed.
In their consideration of the economic outlook,
members noted that financial conditions had
improved since the beginning of year, but that some
time would be needed to assess whether indications
of weak economic growth in the first quarter would
persist in subsequent quarters. Members also noted
that inflationary pressures remained muted and that
a number of uncertainties bearing on the U.S. and
global economic outlook still awaited resolution.
However, members continued to view sustained
expansion of economic activity, strong labor market
conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes for the U.S. economy in the period ahead. In
light of global economic and financial developments
and muted inflation pressures, members concurred
that the Committee could be patient as it determined
what future adjustments to the target range for the
federal funds rate may be appropriate to support
those outcomes.
After assessing current conditions and the outlook
for economic activity, the labor market, and inflation,
members decided to maintain the target range for the

federal funds rate at 2¼ to 2½ percent. Members
agreed that in determining the timing and size of
future adjustments to the target range for the federal
funds rate, the Committee would assess realized and
expected economic conditions relative to the Committee’s maximum-employment and symmetric 2 percent inflation objectives. They reiterated that this
assessment would take into account a wide range of
information, including measures of labor market
conditions, indicators of inflation pressures and
inflation expectations, and readings on financial and
international developments. More generally, members
noted that decisions regarding near-term adjustments
of the stance of monetary policy would appropriately
remain dependent on the evolution of the outlook as
informed by incoming data.
With regard to the postmeeting statement, members
agreed to characterize the labor market as remaining
strong. While payroll employment had been little
changed in February, job gains had been solid, on
average, in recent months, and the unemployment
rate had remained low. Members also agreed to note
that growth in economic activity appeared to have
slowed from its solid rate in the fourth quarter, consistent with recent indicators of household spending
and business fixed investment. The description of
overall inflation was revised to recognize that inflation had declined, largely as a result of lower energy
prices, while still noting that inflation for items other
than food and energy remained near 2 percent.
At the conclusion of the discussion, the Committee
voted to authorize and direct the Federal Reserve
Bank of New York, until instructed otherwise, to
execute transactions in the SOMA in accordance
with the following domestic policy directive, to be
released at 2:00 p.m.:
“Effective March 21, 2019, the Federal Open
Market Committee directs the Desk to undertake open market operations as necessary to
maintain the federal funds rate in a target range
of 2¼ to 2½ percent, including overnight reverse
repurchase operations (and reverse repurchase
operations with maturities of more than one day
when necessary to accommodate weekend, holiday, or similar trading conventions) at an offering rate of 2.25 percent, in amounts limited only
by the value of Treasury securities held outright
in the System Open Market Account that are
available for such operations and by a percounterparty limit of $30 billion per day.

Minutes of Federal Open Market Committee Meetings | March

The Committee directs the Desk to continue
rolling over at auction the amount of principal
payments from the Federal Reserve’s holdings of
Treasury securities maturing during each calendar month that exceeds $30 billion, and to continue reinvesting in agency mortgage-backed
securities the amount of principal payments
from the Federal Reserve’s holdings of agency
debt and agency mortgage-backed securities
received during each calendar month that
exceeds $20 billion. Small deviations from these
amounts for operational reasons are acceptable.
The Committee also directs the Desk to engage
in dollar roll and coupon swap transactions as
necessary to facilitate settlement of the Federal
Reserve’s agency mortgage-backed securities
transactions.”
The vote also encompassed approval of the statement
below to be released at 2:00 p.m.:
“Information received since the Federal Open
Market Committee met in January indicates that
the labor market remains strong but that growth
of economic activity has slowed from its solid
rate in the fourth quarter. Payroll employment
was little changed in February, but job gains
have been solid, on average, in recent months,
and the unemployment rate has remained low.
Recent indicators point to slower growth of
household spending and business fixed investment in the first quarter. On a 12-month basis,
overall inflation has declined, largely as a result
of lower energy prices; inflation for items other
than food and energy remains near 2 percent.
On balance, market-based measures of inflation
compensation have remained low in recent
months, and survey-based measures of longerterm inflation expectations are little changed.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment
and price stability. In support of these goals, the
Committee decided to maintain the target range
for the federal funds rate at 2¼ to 2½ percent.
The Committee continues to view sustained
expansion of economic activity, strong labor
market conditions, and inflation near the Committee’s symmetric 2 percent objective as the

157

most likely outcomes. In light of global economic and financial developments and muted
inflation pressures, the Committee will be
patient as it determines what future adjustments
to the target range for the federal funds rate may
be appropriate to support these outcomes.
In determining the timing and size of future
adjustments to the target range for the federal
funds rate, the Committee will assess realized
and expected economic conditions relative to its
maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of
information, including measures of labor market
conditions, indicators of inflation pressures and
inflation expectations, and readings on financial
and international developments.”
Voting for this action: Jerome H. Powell, John C.
Williams, Michelle W. Bowman, Lael Brainard,
James Bullard, Richard H. Clarida, Charles L.
Evans, Esther L. George, Randal K. Quarles, and
Eric Rosengren.
Voting against this action: None.
Consistent with the Committee’s decision to leave the
target range for the federal funds rate unchanged, the
Board of Governors voted unanimously to leave the
interest rates on required and excess reserve balances
unchanged at 2.40 percent and voted unanimously to
approve establishment of the primary credit rate at
the existing level of 3.00 percent, effective March 21,
2019.
It was agreed that the next meeting of the Committee
would be held on Tuesday–Wednesday, April 30–
May 1, 2019. The meeting adjourned at 10:00 a.m.
on March 20, 2019.

Notation Vote
By notation vote completed on February 19, 2019,
the Committee unanimously approved the minutes of
the Committee meeting held on January 29–30, 2019.
James A. Clouse
Secretary

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106th Annual Report | 2019

Addendum:
Summary of Economic Projections
In conjunction with the Federal Open Market Committee (FOMC) meeting held on March 19–20, 2019,
meeting participants submitted their projections of
the most likely outcomes for real gross domestic
product (GDP) growth, the unemployment rate, and
inflation for each year from 2019 to 2021 and over
the longer run. Each participant’s projections were
based on information available at the time of the
meeting, together with his or her assessment of
appropriate monetary policy—including a path for
the federal funds rate and its longer-run value—and
assumptions about other factors likely to affect economic outcomes. The longer-run projections represent each participant’s assessment of the value to
which each variable would be expected to converge,
over time, under appropriate monetary policy and in
the absence of further shocks to the economy.1
“Appropriate monetary policy” is defined as the
future path of policy that each participant deems
most likely to foster outcomes for economic activity
and inflation that best satisfy his or her individual
interpretation of the statutory mandate to promote
maximum employment and price stability.
Participants who submitted longer-run projections
generally expected that, under appropriate monetary
policy, growth of real GDP in 2019 would run at or
somewhat above their individual estimates of its
longer-run rate. Most participants continued to
expect real GDP growth to edge down over the projection horizon, with almost all participants projecting growth in 2021 to be at or below their estimates
of its longer-run rate. All participants who submitted
longer-run projections continued to expect that the
unemployment rate would run at or below their estimates of its longer-run level through 2021. Almost all
participants projected that inflation, as measured by
the four-quarter percentage change in the price index
for personal consumption expenditures (PCE), would
increase slightly over the next two years, and most
participants expected that it would be at or slightly
above the Committee’s 2 percent objective in 2020
and 2021. Compared with the Summary of Economic Projections (SEP) from December 2018, all
participants marked down somewhat their projections for real GDP growth in 2019, and most revised
down slightly their projections for total inflation in
1

One participant did not submit longer-run projections for real
GDP growth, the unemployment rate, or the federal funds rate.

2019. Table 1 and figure 1 provide summary statistics
for the projections.
As shown in figure 2, most participants expected that
the evolution of the economy, relative to their objectives of maximum employment and 2 percent inflation, would likely warrant keeping the federal funds
rate at its current level through the end of 2019. The
medians of participants’ assessments of the appropriate level of the federal funds rate in 2020 and 2021
were close to the median assessment of its longer-run
level. Compared with the December submissions, the
median projections for the federal funds rate for the
end of 2019, 2020, and 2021 were 50 basis points
lower.
A substantial majority of participants continued to
view the uncertainty around their projections as
broadly similar to the average of the past 20 years.
While a majority of participants viewed the risks to
the outlook as balanced, a couple more participants
than in December viewed the risks to inflation as
weighted to the downside.

The Outlook for Economic Activity
As shown in table 1, the median of participants’ projections for the growth rate of real GDP in 2019, conditional on their individual assessments of appropriate monetary policy, was 2.1 percent. Most participants continued to expect GDP growth to slow
throughout the projection horizon, with the median
projection at 1.9 percent in 2020 and at 1.8 percent in
2021, a touch lower than the median estimate of its
longer-run rate of 1.9 percent. Relative to the
December SEP, the medians of the projections for
real GDP growth in 2019 and 2020 were 0.2 percentage point and 0.1 percentage point lower, respectively.
Most participants mentioned a recent patch of
weaker data on domestic economic activity, and some
pointed to a softer global growth outlook, as factors
behind the downward revisions to their near-term
growth estimates.
The median of projections for the unemployment
rate in the fourth quarter of 2019 was 3.7 percent,
about ½ percentage point below the median assessment of its longer-run level. The median projections
for 2020 and 2021 were 3.8 percent and 3.9 percent,
respectively. These median unemployment rates were
a little higher than those from the December SEP.
Nevertheless, most participants continued to project
that the unemployment rate in 2021 would be below
their estimates of its longer-run level. The median

Minutes of Federal Open Market Committee Meetings | March

159

Table 1. Economic projections of Federal Reserve Board members and Federal Reserve Bank presidents, under their individual
assessments of projected appropriate monetary policy, March 2019
Percent
Median1

Central tendency2

Variable
2019

2020

2021

Change in real GDP
December projection
Unemployment rate
December projection
PCE inflation
December projection
Core PCE inflation4
December projection

2.1
2.3
3.7
3.5
1.8
1.9
2.0
2.0

1.9
2.0
3.8
3.6
2.0
2.1
2.0
2.0

1.8
1.8
3.9
3.8
2.0
2.1
2.0
2.0

Memo: Projected
appropriate
policy path
Federal funds rate
December projection

2.4
2.9

2.6
3.1

Longer
run

2019

2020

2021

1.9
1.9
4.3
4.4
2.0
2.0

1.9–2.2
2.3–2.5
3.6–3.8
3.5–3.7
1.8–1.9
1.8–2.1
1.9–2.0
2.0–2.1

1.8–2.0
1.8–2.0
3.6–3.9
3.5–3.8
2.0–2.1
2.0–2.1
2.0–2.1
2.0–2.1

1.7–2.0
1.5–2.0
3.7–4.1
3.6–3.9
2.0–2.1
2.0–2.1
2.0–2.1
2.0–2.1

2.8
2.8

2.4–2.6
2.6–3.1

2.4–2.9
2.9–3.4

2.4–2.9
2.6–3.1

Range3
Longer
run

Longer
run

2019

2020

2021

1.8–2.0
1.8–2.0
4.1–4.5
4.2–4.5
2.0
2.0

1.6–2.4
2.0–2.7
3.5–4.0
3.4–4.0
1.6–2.1
1.8–2.2
1.8–2.2
1.9–2.2

1.7–2.2
1.5–2.2
3.4–4.1
3.4–4.3
1.9–2.2
2.0–2.2
1.8–2.2
2.0–2.2

1.5–2.2
1.4–2.1
3.4–4.2
3.4–4.2
2.0–2.2
2.0–2.3
1.9–2.2
2.0–2.3

1.7–2.2
1.7–2.2
4.0–4.6
4.0–4.6
2.0
2.0

2.5–3.0
2.5–3.0

2.4–2.9
2.4–3.1

2.4–3.4
2.4–3.6

2.4–3.6
2.4–3.6

2.5–3.5
2.5–3.5

Note: Projections of change in real gross domestic product (GDP) and projections for both measures of inflation are percent changes from the fourth quarter of the previous year
to the fourth quarter of the year indicated. PCE inflation and core PCE inflation are the percentage rates of change in, respectively, the price index for personal consumption
expenditures (PCE) and the price index for PCE excluding food and energy. Projections for the unemployment rate are for the average civilian unemployment rate in the fourth
quarter of the year indicated. Each participant’s projections are based on his or her assessment of appropriate monetary policy. Longer-run projections represent each
participant’s assessment of the rate to which each variable would be expected to converge under appropriate monetary policy and in the absence of further shocks to the
economy. The projections for the federal funds rate are the value of the midpoint of the projected appropriate target range for the federal funds rate or the projected appropriate
target level for the federal funds rate at the end of the specified calendar year or over the longer run. The December projections were made in conjunction with the meeting of
the Federal Open Market Committee on December 18–19, 2018. One participant did not submit longer-run projections for the change in real GDP, the unemployment rate, or the
federal funds rate in conjunction with the December 18–19, 2018, meeting, and one participant did not submit such projections in conjunction with the March 19–20, 2019,
meeting.
1
For each period, the median is the middle projection when the projections are arranged from lowest to highest. When the number of projections is even, the median is the
average of the two middle projections.
2
The central tendency excludes the three highest and three lowest projections for each variable in each year.
3
The range for a variable in a given year includes all participants’ projections, from lowest to highest, for that variable in that year.
4
Longer-run projections for core PCE inflation are not collected.

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106th Annual Report | 2019

Figure 1. Medians, central tendencies, and ranges of economic projections, 2019–21 and over the longer run
Percent

Change in real GDP
Median of projections
Central tendency of projections
Range of projections

Actual

2
1

2014

2015

2016

2017

2018

2019

2020

2021

Longer
run
Percent

Unemployment rate
7
6
5
4
3

2014

2015

2016

2017

2018

2019

2020

2021

Longer
run Percent

PCE inflation
3

2014

2015

2016

2017

2018

2019

2020

2021

Longer
run
Percent

Core PCE inflation
3

2014

2015

2016

2017

2018

2019

2020

2021

Note: Definitions of variables and other explanations are in the notes to table 1. The data for the actual values of the variables are annual.

Longer
run

Minutes of Federal Open Market Committee Meetings | March

161

Figure 2. FOMC participants’ assessments of appropriate monetary policy: Midpoint of target range or target level for the
federal funds rate
Percent

5.0

4.5

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

2019

2020

2021

Longer run

Note: Each shaded circle indicates the value (rounded to the nearest ⅛ percentage point) of an individual participant’s judgment of the midpoint of the appropriate target range
for the federal funds rate or the appropriate target level for the federal funds rate at the end of the specified calendar year or over the longer run. One participant did not submit
longer-run projections for the federal funds rate.

162

106th Annual Report | 2019

estimate of the longer-run rate of unemployment was
4.3 percent, which was slightly lower than in
December.
Figures 3.A and 3.B show the distributions of participants’ projections for real GDP growth and the
unemployment rate from 2019 to 2021 and in the longer run. The distribution of individual projections for
real GDP growth for 2019 shifted down relative to
that in the December SEP, while the distributions for
2020, 2021, and the longer-run rate of GDP growth
changed only slightly. The distributions of individual
projections for the unemployment rate in 2019 and
2020 moved modestly higher relative to those in
December, and the distribution in 2021 edged higher
as well. Meanwhile, the distribution for the longerrun unemployment rate shifted down a touch.

The Outlook for Inflation
As shown in table 1, the medians of projections for
total PCE price inflation were 1.8 percent in 2019
and 2.0 percent in both 2020 and 2021, each a touch
lower than in the December SEP. The medians of
projections for core PCE price inflation over the
2019–21 period were 2.0 percent, the same as in
December.
Figures 3.C and 3.D provide information on the distributions of participants’ views about the outlook
for inflation. The distributions of projections for
total PCE price inflation and core PCE price inflation in 2019, 2020, and 2021 shifted down slightly
from the December SEP. Almost all participants
expected that total and core PCE price inflation
would be between 1.8 and 2.2 percent throughout the
projection horizon.

Appropriate Monetary Policy
Figure 3.E shows distributions of participants’ judgments regarding the appropriate target—or midpoint
of the target range—for the federal funds rate at the
end of each year from 2019 to 2021 and over the longer run. The distributions for 2019 through 2021
shifted toward lower values. Compared with the projections prepared for the December SEP, the median
federal funds rate was 50 basis points lower each year
over the 2019–21 period. At the end of 2019, the
median of federal funds rate projections was
2.38 percent, consistent with no rate increases over
the course of 2019. Thereafter, the medians of the
projections were 2.63 percent at the end of both 2020
and 2021, slightly lower than the median of the

longer-run projections of the federal funds rate of
2.75 percent. Muted inflationary pressures and riskmanagement considerations were both cited as factors contributing to the downward revisions in participants’ assessments of the appropriate path for the
policy rate. The distribution of individual projections
for the longer-run federal funds rate ticked down
from December.

Uncertainty and Risks
In assessing the appropriate path of the federal funds
rate, FOMC participants take account of the range
of possible economic outcomes, the likelihood of
those outcomes, and the potential benefits and costs
should they occur. As a reference, table 2 provides
measures of forecast uncertainty—based on the forecast errors of various private and government forecasts over the past 20 years—for real GDP growth,
the unemployment rate, and total PCE price inflation. Those measures are represented graphically in
the “fan charts” shown in the top panels of figures
4.A, 4.B, and 4.C. The fan charts display the SEP
medians for the three variables surrounded by symmetric confidence intervals derived from the forecast
errors reported in table 2. If the degree of uncertainty attending these projections is similar to the
typical magnitude of past forecast errors and the
risks around the projections are broadly balanced,
then future outcomes of these variables would have
about a 70 percent probability of being within these
confidence intervals. For all three variables, this
measure of uncertainty is substantial and generally
increases as the forecast horizon lengthens.
Participants’ assessments of the level of uncertainty
surrounding their individual economic projections
are shown in the bottom-left panels of figures 4.A,
4.B, and 4.C. A substantial majority of participants
continued to view the degree of uncertainty attached
to their economic projections for real GDP growth,
unemployment, and inflation as broadly similar to
the average of the past 20 years.2
Because the fan charts are constructed to be symmetric around the median projections, they do not reflect
any asymmetries in the balance of risks that participants may see in their economic projections. Participants’ assessments of the balance of risks to their
2

At the end of this summary, the box “Forecast Uncertainty”
discusses the sources and interpretation of uncertainty surrounding the economic forecasts and explains the approach
used to assess the uncertainty and risks attending the participants’ projections.

Minutes of Federal Open Market Committee Meetings | March

163

Figure 3.A. Distribution of participants’ projections for the change in real GDP, 2019–21 and over the longer run
Number of participants

2019
March projections
December projections

1.2 –
1.3

1.4 –
1.5

18
16
14
12
10
8
6
4
2
1.6 –
1.7

1.8 –
2.0 –
1.9
2.1
Percent range

2.2 –
2.3

2.4 –
2.5

2.6 –
2.7
Number of participants

2020
18
16
14
12
10
8
6
4
2
1.2 –
1.3

1.4 –
1.5

1.6 –
1.7

1.8 –
2.0 –
1.9
2.1
Percent range

2.2 –
2.3

2.4 –
2.5

2.6 –
2.7
Number of participants

2021
18
16
14
12
10
8
6
4
2
1.2 –
1.3

1.4 –
1.5

1.6 –
1.7

1.8 –
2.0 –
1.9
2.1
Percent range

2.2 –
2.3

2.4 –
2.5

2.6 –
2.7
Number of participants

Longer run
18
16
14
12
10
8
6
4
2
1.2 –
1.3

1.4 –
1.5

1.6 –
1.7

1.8 –
2.0 –
1.9
2.1
Percent range

Note: Definitions of variables and other explanations are in the notes to table 1.

2.2 –
2.3

2.4 –
2.5

2.6 –
2.7

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106th Annual Report | 2019

Figure 3.B. Distribution of participants’ projections for the unemployment rate, 2019–21 and over the longer run
Number of participants

2019
March projections
December projections

3.0 –
3.1

3.2 –
3.3

18
16
14
12
10
8
6
4
2
3.4 –
3.5

3.6 –
3.7

3.8 –
3.9

4.0 –
4.1
Percent range

4.2 –
4.3

4.4 –
4.5

4.6 –
4.7

4.8 –
4.9

5.0 –
5.1

Number of participants

2020
18
16
14
12
10
8
6
4
2
3.0 –
3.1

3.2 –
3.3

3.4 –
3.5

3.6 –
3.7

3.8 –
3.9

4.0 –
4.1
Percent range

4.2 –
4.3

4.4 –
4.5

4.6 –
4.7

4.8 –
4.9

5.0 –
5.1

Number of participants

2021
18
16
14
12
10
8
6
4
2
3.0 –
3.1

3.2 –
3.3

3.4 –
3.5

3.6 –
3.7

3.8 –
3.9

4.0 –
4.1
Percent range

4.2 –
4.3

4.4 –
4.5

4.6 –
4.7

4.8 –
4.9

5.0 –
5.1

Number of participants

Longer run
18
16
14
12
10
8
6
4
2
3.0 –
3.1

3.2 –
3.3

3.4 –
3.5

3.6 –
3.7

3.8 –
3.9

4.0 –
4.1
Percent range

Note: Definitions of variables and other explanations are in the notes to table 1.

4.2 –
4.3

4.4 –
4.5

4.6 –
4.7

4.8 –
4.9

5.0 –
5.1

Minutes of Federal Open Market Committee Meetings | March

165

Figure 3.C. Distribution of participants’ projections for PCE inflation, 2019–21 and over the longer run
Number of participants

2019
March projections
December projections

1.5 –
1.6

18
16
14
12
10
8
6
4
2
1.7–
1.8

1.9 –
2.0
Percent range

2.1–
2.2

2.3 –
2.4
Number of participants

2020
18
16
14
12
10
8
6
4
2
1.5 –
1.6

1.7–
1.8

1.9 –
2.0
Percent range

2.1–
2.2

2.3 –
2.4
Number of participants

2021
18
16
14
12
10
8
6
4
2
1.5 –
1.6

1.7–
1.8

1.9 –
2.0
Percent range

2.1–
2.2

2.3 –
2.4
Number of participants

Longer run
18
16
14
12
10
8
6
4
2
1.5 –
1.6

1.7–
1.8

1.9 –
2.0
Percent range

Note: Definitions of variables and other explanations are in the notes to table 1.

2.1–
2.2

2.3 –
2.4

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106th Annual Report | 2019

Figure 3.D. Distribution of participants’ projections for core PCE inflation, 2019–21
Number of participants

2019
March projections
December projections

18
16
14
12
10
8
6
4
2

1.7–
1.8

1.9 –
2.0

2.1–
2.2

2.3 –
2.4

Percent range
Number of participants

2020
18
16
14
12
10
8
6
4
2
1.7–
1.8

1.9 –
2.0

2.1–
2.2

2.3 –
2.4

Percent range
Number of participants

2021
18
16
14
12
10
8
6
4
2
1.7–
1.8

1.9 –
2.0

2.1–
2.2
Percent range

Note: Definitions of variables and other explanations are in the notes to table 1.

2.3 –
2.4

Minutes of Federal Open Market Committee Meetings | March

167

Figure 3.E. Distribution of participants’ judgments of the midpoint of the appropriate target range for the federal funds rate or
the appropriate target level for the federal funds rate, 2019–21 and over the longer run
Number of participants

2019
March projections
December projections

1.88 –
2.12

2.13 –
2.37

2.38 –
2.62

2.63 –
2.87

2.88 –
3.12

3.13 –
3.38 –
3.63 –
3.37
3.62
3.87
Percent range

3.88 –
4.12

4.13 –
4.37

4.38 –
4.62

4.63 –
4.87

18
16
14
12
10
8
6
4
2
4.88 –
5.12

Number of participants

2020
18
16
14
12
10
8
6
4
2
1.88 –
2.12

2.13 –
2.37

2.38 –
2.62

2.63 –
2.87

2.88 –
3.12

3.13 –
3.38 –
3.63 –
3.37
3.62
3.87
Percent range

3.88 –
4.12

4.13 –
4.37

4.38 –
4.62

4.63 –
4.87

4.88 –
5.12

Number of participants

2021
18
16
14
12
10
8
6
4
2
1.88 –
2.12

2.13 –
2.37

2.38 –
2.62

2.63 –
2.87

2.88 –
3.12

3.13 –
3.38 –
3.63 –
3.37
3.62
3.87
Percent range

3.88 –
4.12

4.13 –
4.37

4.38 –
4.62

4.63 –
4.87

4.88 –
5.12

Number of participants

Longer run
18
16
14
12
10
8
6
4
2
1.88 –
2.12

2.13 –
2.37

2.38 –
2.62

2.63 –
2.87

2.88 –
3.12

3.13 –
3.38 –
3.63 –
3.37
3.62
3.87
Percent range

Note: Definitions of variables and other explanations are in the notes to table 1.

3.88 –
4.12

4.13 –
4.37

4.38 –
4.62

4.63 –
4.87

4.88 –
5.12

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106th Annual Report | 2019

Table 2. Average historical projection error ranges
Percentage points
Variable
Change in real GDP1
Unemployment rate1
Total consumer prices2
Short-term interest rates3

2019

2020

2021

±1.4
±0.5
±0.9
±0.9

±1.9
±1.3
±1.0
±2.0

±1.9
±1.7
±1.1
±2.5

jections shifted down slightly relative to December.
Two more participants than in December saw the
risks to the inflation projections as weighted to the
downside, and no participant judged the risks as
weighted to the upside.

Note: Error ranges shown are measured as plus or minus the root mean squared
error of projections for 1999 through 2018 that were released in the spring by
various private and government forecasters. As described in the box “Forecast
Uncertainty,” under certain assumptions, there is about a 70 percent probability
that actual outcomes for real GDP, unemployment, consumer prices, and the
federal funds rate will be in ranges implied by the average size of projection
errors made in the past. For more information, see David Reifschneider and Peter
Tulip (2017), “Gauging the Uncertainty of the Economic Outlook Using Historical
Forecasting Errors: The Federal Reserve’s Approach,” Finance and Economics
Discussion Series 2017-020 (Washington: Board of Governors of the Federal
Reserve System, February), https://dx.doi.org/10.17016/FEDS.2017.020.
1
Definitions of variables are in the general note to table 1.
2
Measure is the overall consumer price index, the price measure that has been
most widely used in government and private economic forecasts. Projections
are percent changes on a fourth quarter to fourth quarter basis.
3
For Federal Reserve staff forecasts, measure is the federal funds rate. For other
forecasts, measure is the rate on 3-month Treasury bills. Projection errors are
calculated using average levels, in percent, in the fourth quarter.

In discussing the uncertainty and risks surrounding
their economic projections, trade tensions as well as
developments abroad were mentioned by participants
as sources of uncertainty or downside risk to the economic growth outlook. For the inflation outlook, the
effect of trade restrictions was cited as an upside risk,
while the concern that inflation expectations could be
drifting below the FOMC’s objective and the potential for a stronger dollar and weaker domestic
demand to put downward pressure on inflation were
viewed as downside risks. A number of participants
mentioned that their assessments of risks remained
roughly balanced in part as a result of their downward revisions to the appropriate federal funds rate
path.

current economic projections are shown in the
bottom-right panels of figures 4.A, 4.B, and 4.C. A
majority of participants judged the risks to the outlook for real GDP growth, the unemployment rate,
total inflation, and core inflation as broadly balanced—in other words, as broadly consistent with a
symmetric fan chart. The balance of risks to the projection for real GDP growth shifted a bit lower, with
four participants assessing the risks as weighted to
the downside and no participant seeing it weighted to
the upside. The balance of risks to the projection for
the unemployment rate moved a touch higher, with
three participants judging the risks to the unemployment rate as weighted to the upside and two participants viewing the risks as weighted to the downside.
In addition, the balance of risks to the inflation pro-

Participants’ assessments of the appropriate future
path of the federal funds rate are also subject to considerable uncertainty. Because the Committee adjusts
the federal funds rate in response to actual and prospective developments over time in key economic
variables such as real GDP growth, the unemployment rate, and inflation, uncertainty surrounding the
projected path for the federal funds rate importantly
reflects the uncertainties about the paths for these
economic variables along with other factors. Figure 5
provides a graphical representation of this uncertainty, plotting the SEP median for the federal funds
rate surrounded by confidence intervals derived from
the results presented in table 2. As with the macroeconomic variables, the forecast uncertainty surrounding the appropriate path of the federal funds
rate is substantial and increases for longer horizons.

Minutes of Federal Open Market Committee Meetings | March

169

Figure 4.A. Uncertainty and risks in projections of GDP growth

Median projection and confidence interval based on historical forecast errors

Percent

Change in real GDP
Median of projections
70% confidence interval

Actual

2014

2015

2016

2017

2018

2019

2020

2021

FOMC participants’ assessments of uncertainty and risks around their economic projections
Number of participants

Number of participants

Uncertainty about GDP growth

Risks to GDP growth

March projections
December projections

Lower

18
16
14
12
10
8
6
4
2
Broadly
similar

Higher

March projections
December projections

Weighted to
downside

18
16
14
12
10
8
6
4
2
Broadly
balanced

Weighted to
upside

Note: The blue and red lines in the top panel show actual values and median projected values, respectively, of the percent change in real gross domestic product (GDP) from the
fourth quarter of the previous year to the fourth quarter of the year indicated. The confidence interval around the median projected values is assumed to be symmetric and is
based on root mean squared errors of various private and government forecasts made over the previous 20 years; more information about these data is available in table 2.
Because current conditions may differ from those that prevailed, on average, over the previous 20 years, the width and shape of the confidence interval estimated on the basis
of the historical forecast errors may not reflect FOMC participants’ current assessments of the uncertainty and risks around their projections; these current assessments are
summarized in the lower panels. Generally speaking, participants who judge the uncertainty about their projections as “broadly similar” to the average levels of the past
20 years would view the width of the confidence interval shown in the historical fan chart as largely consistent with their assessments of the uncertainty about their projections.
Likewise, participants who judge the risks to their projections as “broadly balanced” would view the confidence interval around their projections as approximately symmetric.
For definitions of uncertainty and risks in economic projections, see the box “Forecast Uncertainty.”

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106th Annual Report | 2019

Figure 4.B. Uncertainty and risks in projections of the unemployment rate

Median projection and confidence interval based on historical forecast errors

Percent

Unemployment rate
10

Median of projections
70% confidence interval

9
8
7
6
5

Actual

4
3
2
1
2014

2015

2016

2017

2018

2019

2020

2021

FOMC participants’ assessments of uncertainty and risks around their economic projections
Number of participants

Number of participants

Uncertainty about the unemployment rate

Risks to the unemployment rate

March projections
December projections

Lower

18
16
14
12
10
8
6
4
2
Broadly
similar

Higher

March projections
December projections

Weighted to
downside

18
16
14
12
10
8
6
4
2
Broadly
balanced

Weighted to
upside

Note: The blue and red lines in the top panel show actual values and median projected values, respectively, of the average civilian unemployment rate in the fourth quarter of
the year indicated. The confidence interval around the median projected values is assumed to be symmetric and is based on root mean squared errors of various private and
government forecasts made over the previous 20 years; more information about these data is available in table 2. Because current conditions may differ from those that prevailed, on average, over the previous 20 years, the width and shape of the confidence interval estimated on the basis of the historical forecast errors may not reflect FOMC participants’ current assessments of the uncertainty and risks around their projections; these current assessments are summarized in the lower panels. Generally speaking, participants who judge the uncertainty about their projections as “broadly similar” to the average levels of the past 20 years would view the width of the confidence interval shown in
the historical fan chart as largely consistent with their assessments of the uncertainty about their projections. Likewise, participants who judge the risks to their projections as
“broadly balanced” would view the confidence interval around their projections as approximately symmetric. For definitions of uncertainty and risks in economic projections, see
the box “Forecast Uncertainty.”

Minutes of Federal Open Market Committee Meetings | March

171

Figure 4.C. Uncertainty and risks in projections of PCE inflation

Median projection and confidence interval based on historical forecast errors

Percent

PCE inflation
Median of projections
70% confidence interval

1
Actual

2014

2015

2016

2017

2018

2019

2020

2021

FOMC participants’ assessments of uncertainty and risks around their economic projections
Number of participants

Number of participants

Uncertainty about PCE inflation

Risks to PCE inflation

March projections
December projections

Lower

18
16
14
12
10
8
6
4
2
Broadly
similar

March projections
December projections

Weighted to
downside

Higher

18
16
14
12
10
8
6
4
2
Broadly
balanced

Number of participants

Uncertainty about core PCE inflation

Risks to core PCE inflation

March projections
December projections

Lower

18
16
14
12
10
8
6
4
2
Broadly
similar

Weighted to
upside

Higher

March projections
December projections

Weighted to
downside

18
16
14
12
10
8
6
4
2
Broadly
balanced

Weighted to
upside

Note: The blue and red lines in the top panel show actual values and median projected values, respectively, of the percent change in the price index for personal consumption
expenditures (PCE) from the fourth quarter of the previous year to the fourth quarter of the year indicated. The confidence interval around the median projected values is
assumed to be symmetric and is based on root mean squared errors of various private and government forecasts made over the previous 20 years; more information about
these data is available in table 2. Because current conditions may differ from those that prevailed, on average, over the previous 20 years, the width and shape of the confidence interval estimated on the basis of the historical forecast errors may not reflect FOMC participants’ current assessments of the uncertainty and risks around their projections; these current assessments are summarized in the lower panels. Generally speaking, participants who judge the uncertainty about their projections as “broadly similar” to
the average levels of the past 20 years would view the width of the confidence interval shown in the historical fan chart as largely consistent with their assessments of the
uncertainty about their projections. Likewise, participants who judge the risks to their projections as “broadly balanced” would view the confidence interval around their projections as approximately symmetric. For definitions of uncertainty and risks in economic projections, see the box “Forecast Uncertainty.”

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106th Annual Report | 2019

Figure 5. Uncertainty in projections of the federal funds rate

Median projection and confidence interval based on historical forecast errors

Percent

Federal funds rate
Midpoint of target range
Median of projections
70% confidence interval*

6
5
4
3
2
1

Actual

2014

2015

2016

2017

2018

2019

2020

2021

Note: The blue and red lines are based on actual values and median projected values, respectively, of the Committee’s target for the federal funds rate at the end of the year
indicated. The actual values are the midpoint of the target range; the median projected values are based on either the midpoint of the target range or the target level. The confidence interval around the median projected values is based on root mean squared errors of various private and government forecasts made over the previous 20 years. The
confidence interval is not strictly consistent with the projections for the federal funds rate, primarily because these projections are not forecasts of the likeliest outcomes for the
federal funds rate, but rather projections of participants’ individual assessments of appropriate monetary policy. Still, historical forecast errors provide a broad sense of the
uncertainty around the future path of the federal funds rate generated by the uncertainty about the macroeconomic variables as well as additional adjustments to monetary
policy that may be appropriate to offset the effects of shocks to the economy.
The confidence interval is assumed to be symmetric except when it is truncated at zero—the bottom of the lowest target range for the federal funds rate that has been adopted
in the past by the Committee. This truncation would not be intended to indicate the likelihood of the use of negative interest rates to provide additional monetary policy accommodation if doing so was judged appropriate. In such situations, the Committee could also employ other tools, including forward guidance and large-scale asset purchases, to
provide additional accommodation. Because current conditions may differ from those that prevailed, on average, over the previous 20 years, the width and shape of the confidence interval estimated on the basis of the historical forecast errors may not reflect FOMC participants’ current assessments of the uncertainty and risks around their
projections.
* The confidence interval is derived from forecasts of the average level of short-term interest rates in the fourth quarter of the year indicated; more information about these data
is available in table 2. The shaded area encompasses less than a 70 percent confidence interval if the confidence interval has been truncated at zero.

Minutes of Federal Open Market Committee Meetings | March

173

Forecast Uncertainty
The economic projections provided by the members
of the Board of Governors and the presidents of the
Federal Reserve Banks inform discussions of monetary policy among policymakers and can aid public
understanding of the basis for policy actions. Considerable uncertainty attends these projections, however. The economic and statistical models and relationships used to help produce economic forecasts
are necessarily imperfect descriptions of the real
world, and the future path of the economy can be
affected by myriad unforeseen developments and
events. Thus, in setting the stance of monetary
policy, participants consider not only what appears to
be the most likely economic outcome as embodied in
their projections, but also the range of alternative
possibilities, the likelihood of their occurring, and the
potential costs to the economy should they occur.
Table 2 summarizes the average historical accuracy
of a range of forecasts, including those reported in
past Monetary Policy Reports and those prepared by
the Federal Reserve Board’s staff in advance of
meetings of the Federal Open Market Committee
(FOMC). The projection error ranges shown in the
table illustrate the considerable uncertainty associated with economic forecasts. For example, suppose
a participant projects that real gross domestic product (GDP) and total consumer prices will rise steadily
at annual rates of, respectively, 3 percent and 2 percent. If the uncertainty attending those projections is
similar to that experienced in the past and the risks
around the projections are broadly balanced, the
numbers reported in table 2 would imply a probability
of about 70 percent that actual GDP would expand
within a range of 1.6 to 4.4 percent in the current year
and 1.1 to 4.9 percent in the second and third years.
The corresponding 70 percent confidence intervals
for overall inflation would be 1.1 to 2.9 percent in the
current year, 1.0 to 3.0 percent in the second year,
and 0.9 to 3.1 percent in the third year. Figures 4.A
through 4.C illustrate these confidence bounds in
“fan charts” that are symmetric and centered on the
medians of FOMC participants’ projections for GDP
growth, the unemployment rate, and inflation. However, in some instances, the risks around the projections may not be symmetric. In particular, the unemployment rate cannot be negative; furthermore, the
risks around a particular projection might be tilted to
either the upside or the downside, in which case the
corresponding fan chart would be asymmetrically
positioned around the median projection.
Because current conditions may differ from those
that prevailed, on average, over history, participants
provide judgments as to whether the uncertainty
attached to their projections of each economic variable is greater than, smaller than, or broadly similar
to typical levels of forecast uncertainty seen in the
past 20 years, as presented in table 2 and reflected
in the widths of the confidence intervals shown in the
top panels of figures 4.A through 4.C. Participants’
current assessments of the uncertainty surrounding
their projections are summarized in the bottom-left

panels of those figures. Participants also provide
judgments as to whether the risks to their projections
are weighted to the upside, are weighted to the
downside, or are broadly balanced. That is, while the
symmetric historical fan charts shown in the top panels of figures 4.A through 4.C imply that the risks to
participants’ projections are balanced, participants
may judge that there is a greater risk that a given
variable will be above rather than below their projections. These judgments are summarized in the lowerright panels of figures 4.A through 4.C.
As with real activity and inflation, the outlook for the
future path of the federal funds rate is subject to considerable uncertainty. This uncertainty arises primarily
because each participant’s assessment of the appropriate stance of monetary policy depends importantly
on the evolution of real activity and inflation over
time. If economic conditions evolve in an unexpected
manner, then assessments of the appropriate setting
of the federal funds rate would change from that
point forward. The final line in table 2 shows the error
ranges for forecasts of short-term interest rates. They
suggest that the historical confidence intervals associated with projections of the federal funds rate are
quite wide. It should be noted, however, that these
confidence intervals are not strictly consistent with
the projections for the federal funds rate, as these
projections are not forecasts of the most likely quarterly outcomes but rather are projections of participants’ individual assessments of appropriate monetary policy and are on an end-of-year basis. However, the forecast errors should provide a sense of
the uncertainty around the future path of the federal
funds rate generated by the uncertainty about the
macroeconomic variables as well as additional
adjustments to monetary policy that would be appropriate to offset the effects of shocks to the economy.
If at some point in the future the confidence interval
around the federal funds rate were to extend below
zero, it would be truncated at zero for purposes of
the fan chart shown in figure 5; zero is the bottom of
the lowest target range for the federal funds rate that
has been adopted by the Committee in the past. This
approach to the construction of the federal funds rate
fan chart would be merely a convention; it would not
have any implications for possible future policy decisions regarding the use of negative interest rates to
provide additional monetary policy accommodation if
doing so were appropriate. In such situations, the
Committee could also employ other tools, including
forward guidance and asset purchases, to provide
additional accommodation.
While figures 4.A through 4.C provide information on
the uncertainty around the economic projections, figure 1 provides information on the range of views
across FOMC participants. A comparison of figure 1
with figures 4.A through 4.C shows that the dispersion of the projections across participants is much
smaller than the average forecast errors over the past
20 years.

174

106th Annual Report | 2019

Meeting Held
on April 30–May 1, 2019
A joint meeting of the Federal Open Market Committee and the Board of Governors was held in the
offices of the Board of Governors of the Federal
Reserve System in Washington, D.C., on Tuesday,
April 30, 2019, at 10:00 a.m. and continued on
Wednesday, May 1, 2019, at 9:00 a.m.1

Michael Held
Deputy General Counsel
Steven B. Kamin
Economist
Thomas Laubach
Economist
Stacey Tevlin
Economist

Jerome H. Powell
Chair

Rochelle M. Edge, Eric M. Engen, Anna Paulson,
Geoffrey Tootell, William Wascher, Jonathan L.
Willis, and Beth Anne Wilson
Associate Economists

John C. Williams
Vice Chair

Simon Potter
Manager, System Open Market Account

Michelle W. Bowman

Lorie K. Logan
Deputy Manager, System Open Market Account

Present

Ann E. Misback
Secretary, Office of the Secretary,
Board of Governors
Matthew J. Eichner2
Director, Division of Reserve Bank Operations and
Payment Systems, Board of Governors
Michael S. Gibson
Director, Division of Supervision and Regulation,
Board of Governors
Andreas Lehnert
Director, Division of Financial Stability,
Board of Governors
Michael T. Kiley
Deputy Director, Division of Financial Stability,
Board of Governors
Trevor A. Reeve
Deputy Director, Division of Monetary Affairs,
Board of Governors
Jon Faust
Senior Special Adviser to the Chair, Office of Board
Members, Board of Governors
Antulio N. Bomfim
Special Adviser to the Chair, Office of Board
Members, Board of Governors

Mark E. Van Der Weide
General Counsel
1

The Federal Open Market Committee is referenced as the
“FOMC” and the “Committee” in these minutes.

Attended through the discussion of developments in financial
markets and open market operations.

Minutes of Federal Open Market Committee Meetings | April–May

Brian M. Doyle,3 Wendy E. Dunn, Ellen E. Meade,
and John M. Roberts
Special Advisers to the Board, Office of Board
Members, Board of Governors
Linda Robertson
Assistant to the Board, Office of Board Members,
Board of Governors
Shaghil Ahmed and Christopher J. Erceg4
Senior Associate Directors, Division of International
Finance, Board of Governors
William F. Bassett
Senior Associate Director, Division of Financial
Stability, Board of Governors
Joshua Gallin and David E. Lebow
Senior Associate Directors, Division of Research and
Statistics, Board of Governors
Robert J. Tetlow
Senior Adviser, Division of Monetary Affairs,
Board of Governors
Marnie Gillis DeBoer
Associate Director, Division of Monetary Affairs,
Board of Governors
John J. Stevens
Associate Director, Division of Research and
Statistics, Board of Governors

175

Penelope A. Beattie5
Assistant to the Secretary, Office of the Secretary,
Board of Governors
David H. Small
Project Manager, Division of Monetary Affairs,
Board of Governors
Juan M. Londono
Principal Economist, Division of International
Finance, Board of Governors
Camelia Minoiu and Bernd Schlusche
Principal Economists, Division of Monetary Affairs,
Board of Governors
Brian J. Bonis2
Lead Financial Institution and Policy Analyst,
Division of Monetary Affairs, Board of Governors
Randall A. Williams
Senior Information Manager, Division of Monetary
Affairs, Board of Governors
James M. Trevino2
Senior Technology Analyst, Division of Monetary
Affairs, Board of Governors
Ron Feldman
First Vice President, Federal Reserve Bank of
Minneapolis

Jeffrey D. Walker2
Deputy Associate Director, Division of Reserve
Bank Operations and Payment Systems,
Board of Governors

Kartik B. Athreya, Michael Dotsey, Sylvain Leduc,
and Ellis W. Tallman
Executive Vice Presidents, Federal Reserve
Banks of Richmond, Philadelphia, San Francisco,
and Cleveland, respectively

Eric C. Engstrom
Deputy Associate Director, Division of
Monetary Affairs,
and
Adviser, Division of Research and Statistics,
Board of Governors

Evan F. Koenig, Antoine Martin,2 Samuel
Schulhofer-Wohl, Mark L. J. Wright,
and Nathaniel Wuerffel2
Senior Vice Presidents, Federal Reserve Banks of
Dallas, New York, Chicago, Minneapolis,
and New York, respectively

Glenn Follette
Assistant Director, Division of Research and
Statistics, Board of Governors

David C. Wheelock
Group Vice President, Federal Reserve Bank of
St. Louis

Laura Lipscomb2 and Zeynep Senyuz2
Assistant Directors, Division of Monetary Affairs,
Board of Governors

Patricia Zobel2
Vice President, Federal Reserve Bank of New York

Dana L. Burnett, Michele Cavallo,
and Matthew Malloy2
Section Chiefs, Division of Monetary Affairs,
Board of Governors
3
4

Attended Wednesday session only.
Attended opening remarks for Tuesday session only.

Mary Amiti and William E. Riordan2
Assistant Vice Presidents, Federal Reserve Banks of
New York and New York, respectively
John Robertson
Research Economist and Senior Advisor, Federal
Reserve Bank of Atlanta
5

Attended Tuesday session only.

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106th Annual Report | 2019

Justin Meyer2
Markets Manager, Federal Reserve Bank of
New York

Selection of Committee Officer
By unanimous vote, the Committee selected Anna
Paulson to serve as Associate Economist, effective
April 30, 2019, until the selection of her successor at
the first regularly scheduled meeting of the Committee in 2020.

Balance Sheet Normalization
Participants resumed their discussion of issues
related to balance sheet normalization with a focus
on the long-run maturity composition of the System
Open Market Account (SOMA) portfolio. The staff
presented two illustrative scenarios as a way of highlighting a range of implications of different long-run
target portfolio compositions. In the first scenario,
the maturity composition of the U.S. Treasury securities in the target portfolio was similar to that of the
universe of currently outstanding U.S. Treasury securities (a “proportional” portfolio). In the second, the
target portfolio contained only shorter-term securities with maturities of three years or less (a “shorter
maturity” portfolio). The staff provided estimates of
the capacity that the Committee would have under
each scenario to provide economic stimulus through
a maturity extension program (MEP). The staff also
provided estimates of the extent to which term premiums embedded in longer-term Treasury yields
might be affected under the two different scenarios.
Based on the staff’s standard modeling framework,
all else equal, a move to the illustrative shorter maturity portfolio would put significant upward pressure
on term premiums and imply that the path of the
federal funds rate would need to be correspondingly
lower to achieve the same macroeconomic outcomes
as in the baseline outlook. However, the staff noted
the uncertainties inherent in the analysis, including
the difficulties in estimating the effects of changes in
SOMA holdings on longer-term interest rates and the
economy more generally.
The staff presentation also considered illustrative
gradual and accelerated transition paths to each
long-run target portfolio. Under the illustrative
“gradual” transition, reinvestments of maturing
Treasury holdings, principal payments on agency
mortgage-backed securities (MBS), and purchases to
accommodate growth in Federal Reserve liabilities
would be directed to Treasury securities with maturi-

ties in the long-run target portfolio. Under the illustrative “accelerated” transition, the reinvestment of
principal payments on agency MBS and purchases to
accommodate growth in Federal Reserve liabilities
would be directed to Treasury bills until the weighted
average maturity (WAM) of the SOMA portfolio
reached the WAM associated with the target portfolio. Depending on the combination of long-run target composition and the transition plan for arriving
at that composition, the staff reported that, in the
illustrative scenarios, it could take from 5 years to
more than 15 years for the WAM of the SOMA portfolio to reach its long-run level.
In its Statement Regarding Monetary Policy Implementation and Balance Sheet Normalization, the
Committee noted that it is prepared to adjust the size
and composition of the balance sheet to achieve its
macroeconomic objectives in a scenario in which the
federal funds rate is constrained by the effective lower
bound. Against this backdrop, participants discussed
the benefits and costs of alternative long-run target
portfolio compositions in supporting the use of balance sheet policies in such scenarios.
In their discussion of a shorter maturity portfolio,
many participants noted the advantage of increased
capacity for the Federal Reserve to conduct an MEP,
which could be helpful in providing policy accommodation in a future economic downturn given the secular decline in neutral real interest rates and the associated reduced scope for lowering the federal funds rate
in response to negative economic shocks. Several participants viewed an MEP as a useful initial option to
address a future downturn in which the Committee
judged that it needed to employ balance sheet actions
to provide appropriate policy accommodation. Participants acknowledged the staff analysis suggesting
that creating space to conduct an MEP by moving to
a shorter maturity portfolio composition could boost
term premiums and result in a lower path for the federal funds rate, reducing the capacity to ease financial
conditions with adjustments in short-term rates. A
number of participants noted, however, that the estimates of the effect of a move to a shorter-maturity
portfolio composition on the long-run neutral federal
funds rate are subject to substantial uncertainty and
are based on a number of strong modeling assumptions. For example, estimates of term premium
effects based on experience during the crisis could
overstate the effects that would be associated with a
gradual evolution of the composition of the SOMA
portfolio. In addition, a shift in the composition of
the SOMA portfolio could result in changes in the

Minutes of Federal Open Market Committee Meetings | April–May

supply of securities that would tend to offset upward
pressure on term premiums. Nonetheless, other participants expressed concern about the potential that a
shorter maturity portfolio composition could result
in a lower long-run neutral federal funds rate. Moreover, while a shorter maturity portfolio would provide substantial capacity to conduct an MEP, some
participants raised questions about the effectiveness
of MEPs as a policy tool relative to that of the federal funds rate or other unconventional policy tools.
These participants noted that, in a situation in which
it would be appropriate to employ unconventional
policy tools, they likely would prefer to employ forward guidance or large-scale purchases of assets
ahead of an MEP. In the view of these participants,
the potential benefit of transitioning to a shorter
maturity SOMA composition in terms of increased
ability to conduct an MEP might not be worth the
potential costs.
In their discussion of a proportional portfolio composition, participants observed that moving to this
target SOMA composition would not be expected to
have much effect on current staff estimates of term
premiums and thus would likely not reduce the scope
for lowering the target range for the federal funds
rate target in response to adverse economic shocks.
As a result, several participants judged the proportional target composition to be well aligned with the
Committee’s previous statements that changes in the
target range for the federal funds rate are the primary
means by which the Committee adjusts the stance of
monetary policy. In addition, several participants
noted that while the staff analysis suggested a proportional portfolio would not contain as much
capacity to conduct an MEP as a shorter maturity
portfolio, it still would contain meaningful capacity
along these lines. Some participants noted that a proportional portfolio would also help maintain the traditional separation between the Federal Reserve’s
decisions regarding the composition of the SOMA
portfolio and the maturity composition of Treasury
debt held by the private sector. However, a number of
participants judged that it would be desirable to
structure the SOMA portfolio in a way that would
provide more capacity to conduct an MEP than in
the proportional portfolio. In addition, a couple of
participants noted that a shorter maturity portfolio
would maintain a narrow gap between the average
maturity of the assets in the SOMA portfolio and the
short average maturity of the Federal Reserve’s primary liabilities.

177

Participants also discussed the financial stability
implications that could be associated with alternative
long-run target portfolio compositions. A couple of
participants noted that a proportional portfolio
could imply a relatively flat yield curve, which could
result in greater incentives for “reach for yield”
behavior in the financial system. That said, a few participants noted that a shorter maturity portfolio
could affect financial stability risks by increasing the
incentives for the private sector to issue short-term
debt. A couple of participants judged that financial
market functioning might be adversely affected if the
holdings in the shorter maturity portfolio accounted
for too large a share of total shorter maturity Treasury securities outstanding.
In discussing the transition to the desired long-run
SOMA portfolio composition, several participants
noted that a gradual pace of transition could help
avoid unwanted effects on financial conditions. However, participants observed that the gradual transition
paths described in the staff presentation would take
many years to complete. Against this backdrop, a few
participants discussed the possibility of following
some type of accelerated transition, perhaps including sales of the SOMA’s residual holdings of agency
MBS. In addition, several participants suggested that
the Committee could communicate its plans about
the SOMA portfolio composition in terms of a
desired change over an intermediate horizon rather
than a specific long-run target.
Several participants expressed the view that a decision regarding the long-run composition of the portfolio would not need to be made for some time, and a
couple of participants highlighted the importance of
making such a decision in the context of the ongoing
review of the Federal Reserve’s monetary policy
strategies, tools, and communications practices. Some
participants noted the importance of developing an
effective communication plan to describe the Committee’s decisions regarding the long-run target composition for the SOMA portfolio and the transition
to that target composition.

Developments in Financial Markets and
Open Market Operations
The manager of the SOMA reviewed developments
in financial markets over the intermeeting period. In
the United States, prices for equities and other risk
assets reportedly were buoyed by perceptions of an

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106th Annual Report | 2019

accommodative stance of monetary policy, incoming
economic data pointing to continued solid economic
expansion, and some signs of receding downside
risks to the global outlook. Treasury yields declined
over the period, adding to their substantial drop since
September, and the expected path of the federal
funds rate as implied by futures prices shifted down
as well. Market participants attributed these moves in
part to FOMC communications indicating that the
Committee would continue to be patient in evaluating the need for any further adjustments of the target
range for the federal funds rate. Softer incoming data
on inflation may also have contributed to the downward revision in the expected path of policy. Nearly
all respondents on the Open Market Desk’s latest
surveys of primary dealers and market participants
anticipated that the federal funds target range would
be unchanged for the remainder of the year. In
reviewing global developments, the manager noted
that market prices appeared to reflect perceptions of
improved economic prospects in China. However,
investors reportedly remained concerned about the
economic outlook for Europe and the United
Kingdom.

tion of liabilities, predominantly related to the
increase in the Treasury General Account (TGA).
The TGA was volatile during the intermeeting
period. In early April, the Treasury reduced bill issuance and allowed the TGA balance to fall in anticipation of individual tax receipts. As tax receipts arrived
after the tax date, the TGA rose to more than
$400 billion, resulting in a sharp decline in reserves
over the last two weeks of April. Against this backdrop, the distribution of rates on traded volumes in
overnight unsecured markets shifted higher. The
effective federal funds rate (EFFR) moved up to
2.45 percent by the end of the intermeeting period,
5 basis points above the interest on excess reserves
(IOER) rate.

The manager also reported on developments related
to open market operations. In light of the declines in
interest rates since November last year, principal payments on the Federal Reserve’s holdings of agency
MBS were projected to exceed the $20 billion
redemption cap by a modest amount sometime this
summer. As directed by the Committee, any principal
payments received on agency MBS in excess of the
cap would be reinvested in agency MBS. The Desk
planned to conduct any such operations by purchasing uniform MBS rather than Fannie Mae and Freddie Mac securities. Consistent with the Balance Sheet
Normalization Principles and Plans released following the March meeting, reinvestments of maturing
Treasury securities beginning on May 2 would be
based on a cap on monthly Treasury redemptions of
$15 billion—down from the $30 billion monthly
redemption cap that had been in place since October
of last year.

Several factors appeared to spur this upward pressure. Tax-related runoffs in deposits at banks reportedly led banks to increase short-term borrowing, particularly through Federal Home Loan Bank (FHLB)
advances and in the federal funds market. Although
some banks continued to hold large quantities of
reserves, other banks were operating with reserve balances closer to their lowest comfortable levels as
reported in the most recent Senior Financial Officer
Survey. This distribution of reserves may have contributed to somewhat more sustained upward pressure on the federal funds rate than had been experienced in recent years around tax-payment dates. In
addition, rates on Treasury repurchase agreements
(repo), were, in part, pushed higher by tax-related
outflows from government-only money market
mutual funds and a corresponding decline in repo
lending by those funds. Elevated repo rates contributed to upward pressure on the federal funds rate, as
FHLBs reportedly shifted some of their liquidity
investments out of federal funds and into the repo
market. In addition, some market participants
pointed to heightened demand for federal funds at
month end by some banks in connection with their
efforts to meet liquidity coverage ratio requirements
as contributing to upward pressure on the federal
funds rate.

The deputy manager reviewed developments in
domestic money markets. Reserve balances declined
by $150 billion over the intermeeting period and
reached a low point of just below $1.5 trillion on
April 23. The decline in reserves stemmed from a
reduction in the SOMA’s agency MBS and Treasury
holdings of $46 billion, reducing the SOMA portfolio to $3.92 trillion, and from a shift in the composi-

The deputy manager also discussed a staff proposal
in which the Board would implement a 5 basis point
technical adjustment to the Interest on Required
Reserves (IORR) and IOER rates. The proposed
action would bring these rates to 15 basis points
below the top of the target range for the federal
funds rate and 10 basis points above the bottom of
the range and the overnight reverse repurchase agree-

Minutes of Federal Open Market Committee Meetings | April–May

ment (ON RRP) offer rate. As with the previous
technical adjustments in June and December 2018,
the proposed adjustment was intended to foster trading in the federal funds market well within the target
range established by the FOMC.
A technical adjustment would reduce the spread
between the IOER rate and the ON RRP offering
rate to 10 basis points, the smallest since the introduction of the ON RRP facility. The staff judged
that the narrower spread did not pose a significant
risk of increased take-up at the ON RRP facility
because repo rates had been trading well above the
ON RRP offer rate for some time. However, if it
became appropriate in the future to further lower the
IOER rate, the staff noted that the Committee might
wish to first consider where to set the ON RRP offer
rate relative to the target range for the federal funds
rate to mitigate this risk.
The manager concluded the briefing on financial
market developments and open market operations
with a review of the role of standing swap lines in
supporting financial stability. He recommended that
the Committee vote to renew these swap lines at this
meeting following the usual annual schedule.
The Committee voted unanimously to renew the
reciprocal currency arrangements with the Bank of
Canada and the Bank of Mexico; these arrangements
are associated with the Federal Reserve’s participation in the North American Framework Agreement
of 1994. In addition, the Committee voted unanimously to renew the dollar and foreign currency
liquidity swap arrangements with the Bank of
Canada, the Bank of England, the Bank of Japan,
the European Central Bank, and the Swiss National
Bank. The votes to renew the Federal Reserve’s participation in these standing arrangements occur
annually at the April or May FOMC meeting.
By unanimous vote, the Committee ratified the
Desk’s domestic transactions over the intermeeting
period. There were no intervention operations in foreign currencies for the System’s account during the
intermeeting period.

Staff Review of the Economic Situation
The information available for the April 30–May 1
meeting indicated that labor market conditions
remained strong and that real gross domestic product
(GDP) increased at a solid rate in the first quarter
even as household spending and business fixed

179

investment rose more slowly in the first quarter than
in the fourth quarter of last year. Consumer price
inflation, as measured by the 12-month percentage
change in the price index for personal consumption
expenditures (PCE), declined, on net, in recent
months and was somewhat below 2 percent in
March. Survey-based measures of longer-run inflation expectations were little changed.
Total nonfarm payroll employment recorded a strong
gain in March, and the unemployment rate held
steady at 3.8 percent. The labor force participation
rate declined a little in March after having risen, on
balance, in the previous few months, and the
employment-to-population ratio edged down. The
unemployment rates for African Americans, Asians,
and Hispanics in March were at or below their levels
at the end of the previous economic expansion,
though persistent differentials in unemployment rates
across groups remained. The share of workers
employed part time for economic reasons edged up in
March but was still below the lows reached in late
2007. The rate of private-sector job openings in February declined slightly from the elevated level that
prevailed for much of the past year, while the rate of
quits was unchanged at a high level; the four-week
moving average of initial claims for unemployment
insurance benefits through mid-April was near historically low levels. Average hourly earnings for all
employees rose 3.2 percent over the 12 months ending in March, a somewhat faster pace than a year
earlier. The employment cost index for private-sector
workers increased 2.8 percent over the 12 months
ending in March, the same as a year earlier.
Industrial production edged down in March and for
the first quarter overall. Manufacturing output
declined moderately in the first quarter, primarily
reflecting a decrease in the output of motor vehicles
and parts; outside of motor vehicles and parts,
manufacturing production was little changed. Mining output declined, on net, over the three months
ending in March. Automakers’ assembly schedules
suggested that the production of light motor vehicles
would move up in the near term, and new orders
indexes from national and regional manufacturing
surveys pointed to modest gains in overall factory
output in the coming months. However, industry
news indicated that aircraft production would slow in
the second quarter.
Consumer expenditures slowed in the first quarter,
but monthly data suggested some improvement
toward the end of the quarter. Real PCE increased at

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106th Annual Report | 2019

a robust pace in March after having been unchanged
in February, perhaps partly reflecting a delay in tax
refunds from February into March that was due, in
part, to the partial government shutdown. Similarly,
sales of light motor vehicles rose sharply in March,
although the average pace of sales in the first quarter
was slower than in the fourth quarter. Key factors
that influence consumer spending—including a low
unemployment rate, ongoing gains in real labor compensation, and still elevated measures of households’
net worth—were supportive of solid near-term gains
in consumer expenditures. In addition, consumer sentiment, as measured by the University of Michigan
Surveys of Consumers, edged down in April but was
still upbeat. The staff reported preliminary analysis
of the levels of and trends in average household
wealth by racial and ethnic groups as measured by
the Federal Reserve Board’s Distributional Financial
Accounts initiative.
Real residential investment declined at a slower rate
in the first quarter than it did over the course of
2018. After an appreciable uptick in January, starts of
new single-family homes fell in February and were
little changed in March. Meanwhile, starts of multifamily units rose in February and stayed at that level
in March. Building permit issuance for new singlefamily homes—which tends to be a good indicator of
the underlying trend in construction of such
homes—declined a little in February and March.
Sales of both new and existing homes increased, on
net, over the February-and-March period.
Growth in real private expenditures for business
equipment and intellectual property slowed in the
first quarter, reflecting both a slower increase in
transportation equipment spending after a strong
fourth-quarter gain and a decline in spending on
other types of equipment outside of high tech.
Nominal shipments of nondefense capital goods
excluding aircraft were little changed, on net, in February and March, but they rose for the quarter as a
whole. Forward-looking indicators of business equipment spending pointed to sluggish increases in the
near term. Orders for nondefense capital goods
excluding aircraft increased noticeably in March but
were only a little above the level of shipments, and
readings on business sentiment improved a bit but
were still softer than last year. Real business expenditures for nonresidential structures outside of the
drilling and mining sector increased somewhat in the
first quarter after having declined for several quarters. Investment in drilling and mining structures
moved down in the first quarter, and the number of

crude oil and natural gas rigs in operation—an indicator of business spending for structures in the drilling and mining sector—declined, on net, from midMarch through late April.
Total real government purchases increased in the first
quarter. Real purchases by the federal government
were unchanged, as a relatively strong increase in
defense purchases was offset by a decline in nondefense purchases stemming from the effects of the partial federal government shutdown. Real purchases by
state and local governments increased briskly; payrolls of those governments expanded solidly in the
first quarter, and nominal state and local construction spending rose markedly.
The nominal U.S. international trade deficit narrowed significantly in January and a touch more in
February. After declining in December, the value of
U.S. exports rose in January and February. However,
the average dollar value of exports in the first two
months of the year was only slightly above its fourthquarter value. Imports fell in January before edging a
touch higher in February, with the average of the two
months declining relative to the fourth quarter. The
Bureau of Economic Analysis estimated that the contribution of net exports to real GDP growth in the
first quarter was about 1 percentage point.
Total U.S. consumer prices, as measured by the PCE
price index, increased 1.5 percent over the 12 months
ending in March. This increase was somewhat slower
than a year earlier, as core PCE price inflation (which
excludes changes in consumer food and energy
prices) slowed to 1.6 percent, consumer food price
inflation was a bit below core inflation, and consumer energy prices were little changed. The
trimmed-mean measure of PCE price inflation constructed by the Federal Reserve Bank of Dallas was
2.0 percent over that 12-month period. The consumer
price index (CPI) rose 1.9 percent over the 12 months
ending in March, while core CPI inflation was
2.0 percent. Recent readings on survey-based measures of longer-run inflation expectations—including
those from the Michigan survey, the Survey of Professional Forecasters, and the Desk’s Survey of Primary Dealers and Survey of Market Participants—
were little changed.
Foreign economic growth in the first quarter was
mixed. Among the emerging market economies
(EMEs), real GDP contracted in South Korea and
Mexico, but activity in China strengthened, supported by tax cuts and the easing of credit condi-

Minutes of Federal Open Market Committee Meetings | April–May

tions. In the advanced foreign economies, economic
indicators were downbeat in Japan but elsewhere
pointed to some improvement from a weak fourth
quarter; GDP growth rebounded in the euro area and
also appeared to pick up in Canada and the United
Kingdom. Foreign inflation slowed further early this
year, partly reflecting lower retail energy prices.

Staff Review of the Financial Situation
Investor sentiment continued to improve over the
intermeeting period. Broad equity price indexes rose
notably and corporate bond spreads narrowed amid
a decline in market volatility, and financing conditions for businesses and households also eased. Market participants cited more accommodative than
expected monetary policy communications coupled
with strong U.S. and Chinese data releases and positive sentiment about trade negotiations between the
United States and China as factors that contributed
to these developments.
Communications following the March FOMC meeting were generally viewed by investors as having a
more accommodative tone than expected. The
market-implied path for the federal funds rate shifted
downward modestly, on net, resulting in a flat to
slightly downward sloping expected path of the
policy rate over the next few FOMC meetings. Market participants assigned greater probability to a
lower target range of the federal funds rate than to a
higher one beyond the next few meetings.
Yields on nominal Treasury securities declined modestly, on net, during the intermeeting period. Investors cited larger-than-expected downward revisions
in FOMC participants’ assessments of the future
path of the policy rate in the Summary of Economic
Projections, recent communications suggesting a
patient approach to monetary policy, and weakerthan-expected euro-area data releases early in the
period among factors that contributed to this
decrease. These factors reportedly outweighed
stronger-than-expected economic data releases for
the United States and China and optimism related to
trade negotiations between the two countries later in
the period. Measures of inflation compensation
based on Treasury Inflation Protected Securities were
changed little, on net, and remained below their early
fall 2018 levels.
Major U.S. equity price indexes increased over the
intermeeting period, with the S&P 500 equity index
returning to the levels it reached before its decline in

181

the last quarter of 2018. Following the March
FOMC meeting, bank stock prices declined, reportedly on concerns about the potential effects of a flat
or inverted yield curve on bank profits; bank stocks
subsequently retraced this decline partly in response
to strong first-quarter earnings at some of the largest
U.S. banks, ending the period a bit higher, on net.
Option-implied volatility on the S&P 500—the
VIX—decreased to a low level last seen in September 2018. Yields on corporate bonds continued to
decline and spreads over yields of comparablematurity Treasury securities narrowed.
Conditions in short-term funding markets remained
stable during the intermeeting period. The EFFR
rose to 5 basis points above the IOER rate after the
federal income tax deadline on April 15. While a
similar dynamic occurred around previous tax dates,
the magnitude of the change was larger than in previous years. Spreads on commercial paper and negotiable certificates of deposits changed little across the
maturity spectrum.
Global sovereign yields declined along with U.S.
Treasury yields following the March FOMC meeting.
Foreign equity prices increased, on balance, amid
optimism around trade negotiations between the
United States and China, stronger-than-expected
Chinese data, and accommodative communications
from some foreign central banks. Pronounced political and policy uncertainties led to a significant tightening of financial conditions in Turkey, Argentina,
and, to a lesser extent, Brazil, but spillovers to other
EMEs were limited, and EME credit spreads were
generally little changed on net.
The broad dollar index increased modestly, supported by the strength of U.S. economic data relative
to foreign data and the accommodative tone from
foreign central banks. The British pound declined
over the intermeeting period amid protracted discussions ahead of the original Brexit deadline, which
was extended to October 31.
Financing conditions for nonfinancial businesses
remained generally accommodative during the intermeeting period. Gross issuance of corporate bonds
was strong against a backdrop of narrower corporate
spreads and improved risk sentiment. Issuance of
institutional leveraged loans increased, but refinancing volumes were low and loans spreads remained
somewhat elevated. Respondents to the April 2019
Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) reported easing some key

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106th Annual Report | 2019

terms for commercial and industrial (C&I) loans to
large and middle-market firms. For instance, banks
reported narrowing loan rate spreads, easing loan
covenants, and increasing the maximum size and
reducing the costs of credit lines to these firms. C&I
loans on banks’ balance sheets grew at a robust pace
in the first quarter of 2019. Gross equity issuance
edged up later in the period and the volume of corporate bond upgrades slightly outpaced that of
downgrades, suggesting that credit quality of nonfinancial corporations, on balance, improved.
Financing conditions for the commercial real estate
(CRE) sector remained accommodative, and issuance
of agency and non-agency commercial mortgage
backed securities grew steadily. CRE loans on banks’
balance sheets continued to grow in the first quarter,
albeit at a slower pace than in previous quarters.
Banks in the April SLOOS reported weaker demand
across all major types of CRE loans. However, they
also reported tightening lending standards for these
loans.
Financing conditions in the residential mortgage
market also remained supportive over the intermeeting period. Home mortgage rates decreased about
5 basis points, to levels comparable with 2017. Consistent with lower mortgage rates, home-purchase
mortgage originations increased, reversing a yearlong
decline.
Consumer credit conditions remained broadly supportive of growth in household spending, with all
categories of consumer loans recording steady
growth in the first quarter. According to the April
SLOOS, commercial banks left lending standards for
auto loans and other consumer loans unchanged in
the first quarter. However, credit card interest rates
rose and standards reportedly tightened for some
borrowers.
The staff provided an update on its assessments of
potential risks to financial stability. The staff judged
asset valuation pressures in equity and corporate debt
markets to have increased significantly this year,
though not quite to the elevated levels that prevailed
for much of last year. The staff also reported that in
the leveraged loan market risk spreads had narrowed
and nonprice terms had loosened further. The
build-up in overall nonfinancial business debt to levels close to historical highs relative to GDP was
viewed as a factor that could amplify adverse shocks
to the business sector and the economy more broadly.
The staff continued to judge risks associated with

household-sector debt as moderate. Both the risks
associated with financial leverage and the vulnerabilities related to maturity transformation were viewed
as being low, as they have been for some time. The
staff also noted that the sustained growth of lending
by banks to nonbank financial firms represented an
increase in financial interconnectedness.

Staff Economic Outlook
The projection for U.S. economic activity prepared
by the staff for the April–May FOMC meeting was
revised up on net. Real GDP growth was forecast to
slow in the near term from its solid first-quarter pace,
as sizable contributions from inventory investment
and net exports were not expected to persist. The
projection for real GDP growth over the medium
term was revised up, primarily reflecting a lower
assumed path for interest rates, a slightly higher trajectory for equity prices, and somewhat less appreciation of the broad real dollar. The staff’s lower path
for interest rates reflected a methodological change in
how the staff sets its assumptions about the future
path for the federal funds rate in its forecast. Real
GDP was forecast to expand at a rate above the
staff’s estimate of potential output growth in 2019
and 2020 and then slow to a pace below potential
output growth in 2021. The unemployment rate was
projected to decline a little further below the staff’s
estimate of its longer-run natural rate and to bottom
out in late 2020. With labor market conditions still
judged to be tight, the staff continued to assume that
projected employment gains would manifest in
smaller-than-usual downward pressure on the unemployment rate and in larger-than-usual upward pressure on the labor force participation rate.
The staff’s forecast for inflation was revised down
slightly, reflecting some recent softer-than-expected
readings on consumer price inflation that were not
expected to persist along with the staff’s assessment
that the level to which inflation would tend to move
in the absence of resource slack or supply shocks was
a bit lower in the medium term than previously
assumed. As a result, core PCE price inflation was
expected to move up in the near term but nevertheless to run just below 2 percent over the medium
term. Total PCE price inflation was forecast to run a
bit below core inflation in 2020 and 2021, reflecting
projected declines in energy prices.
The staff viewed the uncertainty around its projections for real GDP growth, the unemployment rate,
and inflation as generally similar to the average of

Minutes of Federal Open Market Committee Meetings | April–May

the past 20 years. The staff also saw the risks to the
forecasts for real GDP growth and the unemployment rate as roughly balanced. On the upside, household spending and business investment could expand
faster than the staff projected, supported by the tax
cuts enacted at the end of 2017, still strong overall
labor market conditions, favorable financial conditions, and upbeat consumer sentiment. On the downside, the softening in some economic indicators since
late last year could be the leading edge of a significant slowing in the pace of economic growth. Moreover, trade policies and foreign economic developments could move in directions that have significant
negative effects on U.S. economic growth. Risks to
the inflation projection also were seen as balanced.
The upside risk that inflation could increase more
than expected in an economy that was still projected
to be operating notably above potential for an
extended period was counterbalanced by the downside risks that recent soft data on consumer prices
could persist and that longer-term inflation expectations may be lower than was assumed in the staff
forecast, as well as the possibility that the dollar
could appreciate if foreign economic conditions
deteriorated.

Participants’ Views on Current Conditions
and the Economic Outlook
Participants agreed that labor markets had remained
strong over the intermeeting period and that economic activity had risen at a solid rate. Job gains had
been solid, on average, in recent months, and the
unemployment rate had stayed low. Participants also
observed that growth in household spending and
business fixed investment had slowed in the first
quarter. Overall inflation and inflation for items
other than food and energy, both measured on a
12-month basis, had declined and were running
below 2 percent. On balance, market-based measures
of inflation compensation had remained low in
recent months, and survey-based measures of longerterm inflation expectations were little changed.
Participants continued to view sustained expansion
of economic activity, with strong labor market conditions, and inflation near the Committee’s symmetric
2 percent objective as the most likely outcomes. Participants noted the unexpected strength in firstquarter GDP growth, but some observed that the
composition of growth, with large contributions
from inventories and net exports and more modest
contributions from consumption and investment,
suggested that GDP growth in the near term would

183

likely moderate from its strong pace of last year. For
this year as a whole, a number of participants mentioned that they had marked up their projections for
real GDP growth, reflecting, in part, the strong firstquarter reading. Participants cited continuing
strength in labor market conditions, improvements in
consumer confidence and in financial conditions, or
diminished downside risks both domestically and
abroad, as factors likely to support solid growth over
the remainder of the year. Some participants
observed that, in part because of the waning impetus
from fiscal policy and past removal of monetary
policy accommodation, they expected real GDP
growth to slow over the medium term, moving back
toward their estimates of trend output growth.
In their discussion of the household sector, participants discussed recent indicators, including retail
sales and light motor vehicle sales for March, which
rose from relatively weak readings in some previous
months. Taken together, these developments suggested that the first-quarter softness in household
spending was likely to prove temporary. With the
strong jobs market, rising incomes, and upbeat consumer sentiment, growth in PCE in coming months
was expected to be solid. Several participants also
noted that while the housing sector had been a drag
on GDP growth for some time, recent data pointed
to some signs of stabilization. With mortgage rates at
their lowest levels in more than a year, a few participants thought that residential construction could
begin to make positive contributions to GDP growth
in the near term; a few others were less optimistic.
Participants noted that growth of business fixed
investment had moderated in the first quarter relative
to the average pace recorded last year and discussed
whether this more moderate growth was likely to persist. A number of participants expressed optimism
that there would be continued growth in capital
expenditures this year, albeit probably at a slower
pace than in 2018. Several participants observed that
financial conditions and business sentiment had continued to improve, consistent with reports from business contacts in a number of Districts; however, a
few others reported less buoyant business sentiment.
Many participants suggested that their own concerns
from earlier in the year about downside risks from
slowing global economic growth and the deterioration in financial conditions or similar concerns
expressed by their business contacts had abated to
some extent. However, a few participants noted that
ongoing challenges in the agricultural sector, including those associated with trade uncertainty and low

184

106th Annual Report | 2019

prices, had been exacerbated by severe flooding in
recent weeks.
Participants observed that inflation pressures
remained muted and that the most recent data on
overall inflation, and inflation for items other than
food and energy, had come in lower than expected.
At least part of the recent softness in inflation could
be attributed to idiosyncratic factors that seemed
likely to have only transitory effects on inflation,
including unusually sharp declines in the prices of
apparel and of portfolio management services. Some
research suggests that idiosyncratic factors that
largely affected acyclical sectors in the economy had
accounted for a substantial portion of the fluctuations in inflation over the past couple of years. Consistent with the view that recent lower inflation readings could be temporary, a number of participants
mentioned the trimmed mean measure of PCE price
inflation, produced by the Federal Reserve Bank of
Dallas, which removes the influence of unusually
large changes in the prices of individual items in
either direction; these participants observed that the
trimmed mean measure had been stable at or close to
2 percent over recent months. Participants continued
to view inflation near the Committee’s symmetric
2 percent objective as the most likely outcome, but, in
light of recent, softer inflation readings, some viewed
the downside risks to inflation as having increased.
Some participants also expressed concerns that longterm inflation expectations could be below levels consistent with the Committee’s 2 percent target or at
risk of falling below that level.
Participants agreed that labor market conditions
remained strong. Job gains in the March employment
report were solid, the unemployment rate remained
low, and, while the labor force participation rate
moved down a touch, it remained high relative to
estimates of its underlying demographically driven,
downward trend. Contacts in a number of Districts
continued to report shortages of qualified workers, in
some cases inducing businesses to find novel ways to
attract new workers. A few participants commented
that labor market conditions in their Districts were
putting upward pressure on compensation levels for
lower-wage jobs, although there were few reports of a
broad-based pickup in wage growth. Several participants noted that business contacts expressed optimism that despite tight labor markets they would be
able to find workers or would find technological solutions for labor shortage problems.

Participants commented on risks associated with
their outlook for economic activity over the medium
term. Some participants viewed risks to the downside
for real GDP growth as having decreased, partly
because prospects for a sharp slowdown in global
economic growth, particularly in China and Europe,
had diminished. These improvements notwithstanding, most participants observed that downside risks
to the outlook for growth remain.
In discussing developments in financial markets, a
number of participants noted that financial market
conditions had improved following the period of
stress observed over the fourth quarter of last year
and that the volatility in prices and financial conditions had subsided. These factors were thought to
have helped buoy consumer and business confidence
or to have mitigated short-term downside risks to the
real economy. More generally, the improvement in
financial conditions was regarded by many participants as providing support for the outlook for economic growth and employment.
Among those participants who commented on financial stability, most highlighted recent developments
related to leveraged loans and corporate bonds as
well as the current high level of nonfinancial corporate indebtedness. A few participants suggested that
heightened leverage and associated debt burdens
could render the business sector more sensitive to
economic downturns than would otherwise be the
case. A couple of participants suggested that
increases in bank capital in current circumstances
with solid economic growth and strong profits could
help support financial and macroeconomic stability
over the longer run. A couple of participants
observed that asset valuations in some markets
appeared high, relative to fundamentals. A few participants commented on the positive role that the
Board’s semi-annual Financial Stability Report could
play in facilitating public discussion of risks that
could be present in some segments of the financial
system.
In their discussion of monetary policy, participants
agreed that it would be appropriate to maintain the
current target range for the federal funds rate at 2¼
to 2½ percent. Participants judged that the labor
market remained strong, and that information
received over the intermeeting period showed that
economic activity grew at a solid rate. However, both
overall inflation and inflation for items other than

Minutes of Federal Open Market Committee Meetings | April–May

food and energy had declined and were running
below the Committee’s 2 percent objective. A number
of participants observed that some of the risks and
uncertainties that had surrounded their outlooks earlier in the year had moderated, including those
related to the global economic outlook, Brexit, and
trade negotiations. That said, these and other sources
of uncertainty remained. In light of global economic
and financial developments as well as muted inflation
pressures, participants generally agreed that a patient
approach to determining future adjustments to the
target range for the federal funds rate remained
appropriate. Participants noted that even if global
economic and financial conditions continued to
improve, a patient approach would likely remain warranted, especially in an environment of continued
moderate economic growth and muted inflation
pressures.
Participants discussed the potential policy implications of continued low inflation readings. Many participants viewed the recent dip in PCE inflation as
likely to be transitory, and participants generally
anticipated that a patient approach to policy adjustments was likely to be consistent with sustained
expansion of economic activity, strong labor market
conditions, and inflation near the Committee’s symmetric 2 percent objective. Several participants also
judged that patience in adjusting policy was consistent with the Committee’s balanced approach to
achieving its objectives in current circumstances in
which resource utilization appeared to be high while
inflation continued to run below the Committee’s
symmetric 2 percent objective. However, a few participants noted that if the economy evolved as they
expected, the Committee would likely need to firm
the stance of monetary policy to sustain the economic expansion and keep inflation at levels consistent with the Committee’s objective, or that the Committee would need to be attentive to the possibility
that inflation pressures could build quickly in an
environment of tight resource utilization. In contrast,
a few other participants observed that subdued inflation coupled with real wage gains roughly in line with
productivity growth might indicate that resource utilization was not as high as the recent low readings of
the unemployment rate by themselves would suggest.
Several participants commented that if inflation did
not show signs of moving up over coming quarters,
there was a risk that inflation expectations could
become anchored at levels below those consistent
with the Committee’s symmetric 2 percent objective—a development that could make it more difficult
to achieve the 2 percent inflation objective on a sus-

185

tainable basis over the longer run. Participants
emphasized that their monetary policy decisions
would continue to depend on their assessments of the
economic outlook and risks to the outlook, as
informed by a wide range of data.

Committee Policy Action
In their discussion of monetary policy for the period
ahead, members judged that the information received
since the Committee met in March indicated that the
labor market remained strong and that economic
activity had risen at a solid rate. Job gains had been
solid, on average, in recent months, and the unemployment rate had remained low. Growth of household spending and business fixed investment had
slowed in the first quarter. On a 12-month basis,
overall inflation and inflation for items other than
food and energy had declined and were running
below 2 percent. On balance, market-based measures
of inflation compensation had remained low in
recent months, and survey-based measures of longerterm inflation expectations were little changed.
In their consideration of the economic outlook,
members noted that financial conditions had
improved since the turn of the year, and many uncertainties affecting the U.S. and global economic outlooks had receded, though some risks remained.
Despite solid economic growth and a strong labor
market, inflation pressures remained muted. Members continued to view sustained expansion of economic activity, strong labor market conditions, and
inflation near the Committee’s symmetric 2 percent
objective as the most likely outcomes for the U.S.
economy. In light of global economic and financial
developments and muted inflation pressures, members concurred that the Committee could be patient
as it determined what future adjustments to the target range for the federal funds rate may be appropriate to support those outcomes.
After assessing current conditions and the outlook
for economic activity, the labor market, and inflation,
members decided to maintain the target range for the
federal funds rate at 2¼ to 2½ percent. Members
agreed that in determining the timing and size of
future adjustments to the target range for the federal
funds rate, the Committee would assess realized and
expected economic conditions relative to the Committee’s maximum-employment and symmetric 2 percent inflation objectives. They reiterated that this
assessment would take into account a wide range of
information, including measures of labor market

186

106th Annual Report | 2019

conditions, indicators of inflation pressures and
inflation expectations, and readings on financial and
international developments. More generally, members
noted that decisions regarding near-term adjustments
of the stance of monetary policy would appropriately
remain dependent on the evolution of the outlook as
informed by incoming data.
With regard to the postmeeting statement, members
agreed to remove references to a slowing in the pace
of economic growth and little-changed payroll
employment, consistent with stronger incoming
information on these indicators. The description of
growth in household spending and business fixed
investment in the first quarter was revised to recognize that incoming data had confirmed earlier information that suggested these aspects of economic
activity had slowed at that time. Members also agreed
to revise the description of inflation to note that
inflation for items other than food and energy had
declined and was now running below 2 percent.
Members observed that a patient approach to determining future adjustments to the target range for the
federal funds rate would likely remain appropriate for
some time, especially in an environment of moderate
economic growth and muted inflation pressures, even
if global economic and financial conditions continued to improve.
At the conclusion of the discussion, the Committee
voted to authorize and direct the Federal Reserve
Bank of New York, until instructed otherwise, to
execute transactions in the SOMA in accordance
with the following domestic policy directive, to be
released at 2:00 p.m.:
“Effective May 2, 2019, the Federal Open Market Committee directs the Desk to undertake
open market operations as necessary to maintain the federal funds rate in a target range of
2¼ to 2½ percent, including overnight reverse
repurchase operations (and reverse repurchase
operations with maturities of more than one day
when necessary to accommodate weekend, holiday, or similar trading conventions) at an offering rate of 2.25 percent, in amounts limited only
by the value of Treasury securities held outright
in the System Open Market Account that are
available for such operations and by a percounterparty limit of $30 billion per day.
Effective May 2, 2019, the Committee directs the
Desk to roll over at auction the amount of prin-

cipal payments from the Federal Reserve’s holdings of Treasury securities maturing during each
calendar month that exceeds $15 billion. The
Committee directs the Desk to continue reinvesting in agency mortgage-backed securities the
amount of principal payments from the Federal
Reserve’s holdings of agency debt and agency
mortgage-backed securities received during each
calendar month that exceeds $20 billion. Small
deviations from these amounts for operational
reasons are acceptable.
The Committee also directs the Desk to engage
in dollar roll and coupon swap transactions as
necessary to facilitate settlement of the Federal
Reserve’s agency mortgage-backed securities
transactions.”
The vote also encompassed approval of the statement
below to be released at 2:00 p.m.:
“Information received since the Federal Open
Market Committee met in March indicates that
the labor market remains strong and that economic activity rose at a solid rate. Job gains have
been solid, on average, in recent months, and the
unemployment rate has remained low. Growth
of household spending and business fixed investment slowed in the first quarter. On a 12-month
basis, overall inflation and inflation for items
other than food and energy have declined and
are running below 2 percent. On balance,
market-based measures of inflation compensation have remained low in recent months, and
survey-based measures of longer-term inflation
expectations are little changed.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment
and price stability. In support of these goals, the
Committee decided to maintain the target range
for the federal funds rate at 2¼ to 2½ percent.
The Committee continues to view sustained
expansion of economic activity, strong labor
market conditions, and inflation near the Committee’s symmetric 2 percent objective as the
most likely outcomes. In light of global economic and financial developments and muted
inflation pressures, the Committee will be
patient as it determines what future adjustments
to the target range for the federal funds rate may
be appropriate to support these outcomes.

Minutes of Federal Open Market Committee Meetings | April–May

In determining the timing and size of future
adjustments to the target range for the federal
funds rate, the Committee will assess realized
and expected economic conditions relative to its
maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of
information, including measures of labor market
conditions, indicators of inflation pressures and
inflation expectations, and readings on financial
and international developments.”
Voting for this action: Jerome H. Powell, John C.
Williams, Michelle W. Bowman, Lael Brainard,
James Bullard, Richard H. Clarida, Charles L.
Evans, Esther L. George, Randal K. Quarles, and
Eric Rosengren.
Voting against this action: None.
Consistent with the Committee’s decision to maintain the federal funds rate in a target range of 2¼ to
2½ percent, the Board of Governors voted unanimously to lower the interest rates on required and
excess reserve balances to 2.35 percent, effective
May 2, 2019. Setting the interest rate paid on
required and excess reserve balances 15 basis points
below the top of the target range for the federal
funds rate was intended to foster trading in the federal funds market at rates well within the FOMC’s
target range. The Board of Governors also voted
unanimously to approve establishment of the primary credit rate at the existing level of 3.00 percent,
effective May 2, 2019.

187

Update from Subcommittee on
Communications
Governor Clarida reported on the progress of the
review of the Federal Reserve’s strategic framework
for monetary policy. Fed Listens events to hear stakeholders’ views on the strategy, tools, and communications that would best enable the Federal Reserve to
meet its statutory objectives of maximum employment and price stability had already taken place in
two Federal Reserve Districts. Numerous additional
events were planned, including a research conference
scheduled for June at the Federal Reserve Bank of
Chicago. Following these public activities, the Committee was on course to begin its deliberations about
the strategic framework at meetings in the second
half of 2019.
It was agreed that the next meeting of the Committee
would be held on Tuesday–Wednesday, June 18–19,
2019. The meeting adjourned at 9:50 a.m. on May 1,
2019.

Notation Vote
By notation vote completed on April 9, 2019, the
Committee unanimously approved the minutes of the
Committee meeting held on March 19–20, 2019.
James A. Clouse
Secretary

188

106th Annual Report | 2019

Meeting Held on June 18–19, 2019

Steven B. Kamin
Economist

A joint meeting of the Federal Open Market Committee and the Board of Governors was held in the
offices of the Board of Governors of the Federal
Reserve System in Washington, D.C., on Tuesday,
June 18, 2019, at 10:30 a.m. and continued on
Wednesday, June 19, 2019, at 9:00 a.m.1

Thomas Laubach
Economist

Stacey Tevlin
Economist
Rochelle M. Edge, Eric M. Engen, Anna Paulson,
Christopher J. Waller, William Wascher,
and Beth Anne Wilson2
Associate Economists
Lorie K. Logan
Manager pro tem,3 System Open Market Account
Ann E. Misback
Secretary, Office of the Secretary,
Board of Governors
Matthew J. Eichner4
Director, Division of Reserve Bank Operations and
Payment Systems, Board of Governors
Andreas Lehnert
Director, Division of Financial Stability,
Board of Governors
Jennifer J. Burns
Deputy Director, Division of Supervision and
Regulation, Board of Governors
Michael T. Kiley
Deputy Director, Division of Financial Stability,
Board of Governors

Thomas I. Barkin, Raphael W. Bostic,
and Mary C. Daly
Presidents of the Federal Reserve Banks of
Richmond, Atlanta, and San Francisco, respectively

Trevor A. Reeve
Deputy Director, Division of Monetary Affairs,
Board of Governors

James A. Clouse
Secretary

Jon Faust
Senior Special Adviser to the Chair, Office of Board
Members, Board of Governors

Matthew M. Luecke
Deputy Secretary
David W. Skidmore
Assistant Secretary
Michelle A. Smith
Assistant Secretary
Mark E. Van Der Weide
General Counsel
Michael Held
Deputy General Counsel
1

The Federal Open Market Committee is referenced as the
“FOMC” and the “Committee” in these minutes.

Joshua Gallin
Special Adviser to the Chair, Office of Board
Members, Board of Governors
Brian M. Doyle, Wendy E. Dunn,2 Joseph W. Gruber,
Ellen E. Meade, and John M. Roberts
Special Advisers to the Board, Office of Board
Members, Board of Governors
2
3

Attended Tuesday session only.
In the absence of the manager, the Committee’s Rules of Organization provide that the deputy manager acts as manager
pro tem.
Attended through the discussion of developments in financial
markets and open market operations.

Minutes of Federal Open Market Committee Meetings | June

189

Linda Robertson
Assistant to the Board, Office of Board Members,
Board of Governors

David H. Small
Project Manager, Division of Monetary Affairs,
Board of Governors

Shaghil Ahmed
Senior Associate Director, Division of International
Finance, Board of Governors

Heather A. Wiggins4
Group Manager, Division of Monetary Affairs,
Board of Governors

Jane E. Ihrig and Don H. Kim
Senior Advisers, Division of Monetary Affairs,
Board of Governors

Maria Otoo
Principal Economist, Division of Research and
Statistics, Board of Governors

Jeremy B. Rudd
Senior Adviser, Division of Research and Statistics,
Board of Governors

Lubomir Petrasek, Marcelo Rezende,
and Francisco Vazquez-Grande
Principal Economists, Division of Monetary Affairs,
Board of Governors

Marnie Gillis DeBoer and Min Wei
Associate Directors, Division of Monetary Affairs,
Board of Governors
Christopher J. Gust4
Deputy Associate Director, Division of Monetary
Affairs, Board of Governors
Matteo Iacoviello and Paul R. Wood2
Deputy Associate Directors, Division of International
Finance, Board of Governors
Jeffrey D. Walker4
Deputy Associate Director, Division of Reserve
Bank Operations and Payment Systems,
Board of Governors
Burcu Duygan-Bump, Andrew Figura, Glenn Follette,
Patrick E. McCabe, and Paul A. Smith
Assistant Directors, Division of Research and
Statistics, Board of Governors
Laura Lipscomb,4 Zeynep Senyuz,4
and Rebecca Zarutskie
Assistant Directors, Division of Monetary Affairs,
Board of Governors
Steve Spurry4
Assistant Director, Division of Supervision and
Regulation, Board of Governors
Matthew Malloy4
Section Chief, Division of Monetary Affairs,
Board of Governors
Penelope A. Beattie2
Assistant to the Secretary, Office of the Secretary,
Board of Governors
Mark A. Carlson4
Senior Economic Project Manager, Division of
Monetary Affairs, Board of Governors
Sean Savage
Senior Project Manager, Division of Monetary
Affairs, Board of Governors

Patrice Robitaille2
Principal Economist, Division of International
Finance, Board of Governors
Donielle A. Winford
Information Management Analyst, Division of
Monetary Affairs, Board of Governors
Andre Anderson
First Vice President, Federal Reserve Bank of Atlanta
David Altig and Kartik B. Athreya
Executive Vice Presidents, Federal Reserve
Banks of Atlanta and Richmond, respectively
Edward S. Knotek II, Paolo A. Pesenti, Mark L. J.
Wright, and Nathaniel Wuerffel4
Senior Vice Presidents, Federal Reserve Banks of
Cleveland, New York, Minneapolis, and
New York, respectively
Roc Armenter, Patrick Dwyer,4 George A. Kahn,
Giovanni Olivei, Rania Perry,4 Benedict Wensley,4
and Patricia Zobel
Vice Presidents, Federal Reserve Banks of
Philadelphia, New York, Kansas City, Boston,
New York, New York, and New York, respectively
Gara Afonso4 and Scott Sherman4
Assistant Vice Presidents, Federal Reserve Bank of
New York
Nicolas Petrosky-Nadeau
Senior Research Advisor, Federal Reserve Bank of
San Francisco
Jim Dolmas
Senior Research Economist, Federal Reserve
Bank of Dallas

190

106th Annual Report | 2019

Standing Repurchase Facility
The staff briefed the Committee on the possible role
of a standing fixed-rate repurchase agreement (repo)
facility as part of the monetary policy implementation framework; a facility of this type would allow
counterparties to obtain temporary liquidity at a
fixed rate of interest through repurchase transactions
with the Federal Reserve involving their holdings of
select securities eligible for open market operations.
The staff presentation noted how such a facility
could provide a backstop against unusual spikes in
the federal funds rate and other money market rates
and might also provide incentives for banks to shift
the composition of their portfolios of liquid assets
away from reserves and toward high-quality securities. Key design features for such a facility, including
the fixed rate offered to counterparties, the set of eligible counterparties, and the range of securities eligible to be placed at the facility, would influence the
effectiveness of a facility in achieving either of these
objectives. The staff noted a number of considerations that could arise in setting these design parameters, including potential repercussions in unsecured
and secured funding markets, the eligibility of counterparties in weak financial condition, the potential
that turning to such a facility could become stigmatized, and issues of a level playing field across different classes of counterparties.
Participants commented on a number of issues in
connection with key design parameters for a repo
facility. In terms of the setting of the facility’s fixed
rate, many participants acknowledged a tradeoff in
determining the level of the rate relative to other
money market rates. On the one hand, establishing
the rate at a narrow spread above money market rates
would likely provide better interest rate control and
could also be helpful in avoiding stigma that can be
associated with the use of standing lending facilities
with fixed rates set well above the level of money
market rates. On the other hand, setting the rate close
to the level of money market rates could result in
very sizable Federal Reserve operations on a daily
basis that could be viewed as disintermediating the
activity of private entities in money markets.
In considering the eligible set of counterparties for a
repo facility, a number of participants noted that
making the facility available only to primary dealers
would likely imply that the effects of the facility
would be most direct on repo markets, while the
influence on the federal funds market would be only
indirect. A couple of participants noted that, particu-

larly if banks were eligible counterparties, it would be
important for counterparties of all sizes to have
access to funding through the facility on the same
terms. A few participants noted that a facility could
enhance financial stability by providing a means by
which nonbank counterparties can readily obtain
liquidity against their high-quality assets. A couple of
other participants noted ways that a repo facility
could have unintended effects on financial stability;
for example, if reserves help support overall financial
stability, a facility that significantly reduced the
demand for reserves might not be beneficial.
Many participants commented on issues associated
with the availability of such a facility to firms in different states of financial condition. Several thought
there should not be a guarantee of access to such a
facility regardless of a firm’s financial condition,
while a number of others were willing to consider
how such a facility could be structured to work effectively in a stressed environment where high-quality
liquid assets were used as collateral. A few participants noted that the availability of the facility to
banks during periods of stress, particularly when
they might be in weak financial condition, could be
an important factor determining whether a facility
would significantly reduce banks’ demand for
reserves in normal times.
In their discussion of key objectives for establishing a
repo facility, some participants raised questions
about whether such a facility is needed in an amplereserves framework, noting that the current amplereserves regime has provided good interest rate control. Other participants commented on the potential
benefits of such a facility as a way to enhance interest rate control in the current implementation regime
or as a means to operate in the current implementation framework but with a significantly smaller quantity of reserves than at present. A couple of participants noted that a facility could damp volatility in
repo rates. Several participants noted that a facility
could possibly aid with multiple policy objectives.
A number of participants noted that the policy
objectives for a fixed-rate standing repo facility
would have implications for the appropriate design
for the facility. Several participants recognized the
need to carefully evaluate possible parameter settings
to guard against unintended consequences, including
the potential for moral hazard or a more volatile Federal Reserve balance sheet. In addition, several participants highlighted the importance of evaluating
whether other tools or initiatives could better achieve

Minutes of Federal Open Market Committee Meetings | June

the desired goals. Overall, no decisions were reached
at this meeting; participants stated that additional
work would be necessary to clearly define the objectives of such a facility and to evaluate its potential
net benefits.

Developments in Financial Markets and
Open Market Operations
The manager pro tem discussed developments in
global financial markets over the intermeeting
period. Trade-related developments reportedly led
many market participants to take a more pessimistic
view of the U.S. economic outlook. Equity prices
and interest rates fell noticeably after the announcement of higher tariffs on Chinese imports in early
May and then again after news that tariffs might be
imposed on Mexican imports. In response to these
developments, markets appeared to become more
sensitive to incoming news about the outlook for
global growth and inflation, including data that
pointed to a continued subdued inflation environment and to slower economic growth in the United
States and abroad.
Treasury yields fell sharply and far-forward measures
of inflation compensation dropped significantly in
the United States and abroad. Against this backdrop,
market participants reportedly viewed communications by Federal Reserve officials as signaling a
greater likelihood of a cut in the target range for the
federal funds rate later in the year. The expected path
of the federal funds rate embedded in futures prices
shifted down significantly over the period.
In the euro area, far-forward measures of inflation
compensation fell noticeably, and market participants
reportedly increasingly came to believe that further
monetary policy accommodation would be needed.
Late in the intermeeting period, remarks by European Central Bank (ECB) President Draghi were
interpreted as suggesting increased odds of further
asset purchases by the ECB. Euro-area peripheral
spreads to German equivalents moved sharply lower,
and far-forward inflation compensation recovered
modestly.
The manager pro tem turned next to a review of
money market developments and Open Market Desk
operations. Money market rates generally stabilized
at modestly lower levels over the intermeeting period,
likely reflecting both the technical adjustment in the
interest on excess reserves (IOER) rate following the
May FOMC meeting and a sizable increase in reserve

191

balances associated with a decline in balances held by
the Treasury in its account at the Federal Reserve.
Market participants reported seeing slightly more
pass-through from repo rates to the federal funds rate
on days with heightened firmness in repo rates. Market participants attributed recent increases in repo
rates on month-end and mid-month Treasury auction
settlement dates in part to elevated net dealer inventories of Treasury securities, which dealers finance in
the repo market.
Regarding open market operations over the period,
given the substantial decline in mortgage rates over
recent months and an associated increase in refinancing activity, principal payments on the Federal
Reserve’s holdings of agency mortgage-backed securities (MBS) had recently moved somewhat above the
$20 billion monthly redemption cap. As a result, the
Desk began in May to reinvest agency MBS principal
payments in excess of the cap. Based on current market rates and prepayment forecasts, the Desk
expected to reinvest modest amounts of agency MBS
over the coming months and possibly again in 2020,
particularly during the summer months.
By unanimous vote, the Committee ratified the
Desk’s domestic transactions over the intermeeting
period. There were no intervention operations in foreign currencies for the System’s account during the
intermeeting period.

Staff Review of the Economic Situation
The information available for the June 18–19 meeting
indicated that labor market conditions remained
strong. Real gross domestic product (GDP) appeared
to be rising at a moderate rate in the second quarter,
as household spending growth picked up from the
weak first quarter while business fixed investment
was soft. Consumer price inflation, as measured by
the 12-month percentage change in the price index
for personal consumption expenditures (PCE), was
below 2 percent in April. Survey-based measures of
longer-run inflation expectations were little changed.
Total nonfarm payroll employment expanded solidly,
on average, in April and May; however, job gains
slowed sharply in May after a strong increase in
April. The unemployment rate declined to 3.6 percent in April and remained there in May, its lowest
level in 50 years. The labor force participation rate
moved down somewhat in April and held steady in
May, remaining close to its average over the previous
few years; the employment-to-population ratio stayed

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106th Annual Report | 2019

flat in April and May. The unemployment rates for
African Americans, Asians, and Hispanics decreased,
on net, over April and May and were below their levels at the end of the previous economic expansion,
though persistent differentials in unemployment rates
across groups remained. The average share of workers employed part time for economic reasons over
April and May continued to be below the lows
reached in late 2007. The rate of private-sector job
openings moved up in March and held steady in
April, while the rate of quits was unchanged at a high
level; the four-week moving average of initial claims
for unemployment insurance benefits through early
June was near historically low levels. Average hourly
earnings for all employees rose 3.1 percent over the
12 months ending in May, slightly lower than in April
but somewhat faster than a year earlier. Total labor
compensation per hour in the business sector
increased 1.6 percent over the four quarters ending in
the first quarter, slower than a year earlier.
Total consumer prices, as measured by the PCE price
index, increased 1.5 percent over the 12 months ending in April. This increase was slower than a year earlier, as core PCE price inflation (which excludes
changes in consumer food and energy prices) moved
down to 1.6 percent, consumer food price inflation
remained well below core inflation, and consumer
energy price inflation slowed considerably to about
the same rate as core inflation. The trimmed mean
measure of PCE price inflation constructed by the
Federal Reserve Bank of Dallas was 2.0 percent over
that 12-month period. The consumer price index
(CPI) rose 1.8 percent over the 12 months ending in
May, while core CPI inflation was 2.0 percent. The
monthly change in core PCE prices in April and the
staff’s estimate of the change in May—based on the
CPI data and the relevant prices from the producer
price index—were higher in both of these months
than the very low readings seen in January through
March. Recent survey-based measures of longer-run
inflation expectations were little changed on balance.
While measures from the Desk’s Survey of Primary
Dealers and Survey of Market Participants were little
changed, the preliminary June reading from the University of Michigan Surveys of Consumers dropped
significantly to below its range in recent years.
Growth in real consumer expenditures appeared to
pick up to a solid rate in the second quarter from its
weak first-quarter pace. The components of the
nominal retail sales data used by the Bureau of Economic Analysis to estimate PCE increased in May,
and the retail sales data for the previous two months

were revised up notably. Sales of light motor vehicles
rose sharply in May after stepping down in April.
Key factors that influence consumer spending—including a low unemployment rate, further gains in
real disposable income, and still elevated measures of
households’ net worth—were supportive of solid real
PCE growth in the near term. In addition, the Michigan survey measure of consumer sentiment edged
down in the preliminary June reading but was still at
an upbeat level.
Real residential investment in the second quarter
looked to be continuing the decline seen earlier in the
year, albeit at a slower rate. Starts of new singlefamily homes rose in April but fell back in May, while
starts of multifamily units increased over both
months. Building permit issuance for new singlefamily homes—which tends to be a good indicator of
the underlying trend in construction of such
homes—was at roughly the same level in May as its
first-quarter average. Sales of new homes fell notably
in April after a marked gain in March, and existing
home sales edged down in April.
Real nonresidential private fixed investment appeared
soft in the second quarter. Real private expenditures
for business equipment and intellectual property
looked to be roughly flat, as nominal shipments of
nondefense capital goods excluding aircraft moved
sideways in April. Forward-looking indicators of
business equipment spending pointed to possible
decreases in the near term. Orders for nondefense
capital goods excluding aircraft declined notably in
April and continued to be below the level of shipments, readings on business sentiment deteriorated
further, and analysts’ expectations of firms’ longerterm profit growth moved down sharply. Nominal
business expenditures for nonresidential structures
outside of the drilling and mining sector decreased in
April, and the number of crude oil and natural gas
rigs in operation—an indicator of business spending
for structures in the drilling and mining sector—continued to decline through mid-June.
Industrial production moved down in April and
picked up in May, leaving output about flat over
those two months, but production was lower than at
the beginning of the year. Manufacturing output
declined, on net, over April and May, although mining output expanded. Automakers’ assembly schedules suggested that the production of light motor
vehicles would move up in the near term, but new
orders indexes from national and regional manufacturing surveys pointed to continued soft total factory

Minutes of Federal Open Market Committee Meetings | June

output in the coming months. Moreover, industry
news indicated that aircraft production would continue to be slow in the near term.
Total real government purchases appeared to be rising solidly in the second quarter. Federal government
purchases were being boosted by strong increases in
defense spending through May and the return of
nondefense purchases to more typical levels after the
partial federal government shutdown in the first
quarter. Real purchases by state and local governments seemed to be rising modestly; total payrolls of
these governments edged down over April and May,
but nominal state and local construction spending
expanded notably in April.
Net exports added substantially to real GDP growth
in the first quarter, as exports increased robustly and
imports fell. After widening in March, the nominal
trade deficit narrowed in April; even though exports
declined, imports declined by more. The available
data suggested that net exports would be a small drag
on real GDP growth in the second quarter.
Growth in the foreign economies remained subdued
in the first quarter, as soft growth in the Canadian
economy and weakness in several emerging market
economies (EMEs) offset somewhat stronger growth
in other advanced foreign economies (AFEs) and in
China’s economy. Recent indicators suggested that
the pace of economic activity picked up in Canada in
the second quarter but slowed in some other AFEs.
Economic growth also appeared to have slowed in
China. Foreign inflation remained subdued but rose
a bit from lows earlier in the year, in part reflecting
higher retail energy prices in many economies.

Staff Review of the Financial Situation
Investors’ concerns about downside risks to the economic outlook weighed on financial markets over the
intermeeting period. Market participants cited negative news about international trade tensions and, to a
lesser extent, soft U.S. and foreign economic data as
factors that contributed to these developments.
Nominal Treasury yields posted notable declines and
the expected path of policy shifted down considerably over the period. Equity prices declined, on net,
and corporate bond spreads widened. However,
financing conditions for businesses and households
generally remained supportive of economic growth.
FOMC communications following the May meeting
had little net effect on yields, though they rose modestly following the Chair’s press conference. Later in

193

the period, the expected path of policy moved down,
partly in response to incoming information pointing
to a weaker economic outlook. The market-implied
probability for a 25 basis point cut in the target range
for the federal funds rate by the July FOMC meeting
rose to about 85 percent. The market-implied path
for the federal funds rate for 2019 and 2020 shifted
down markedly. Based on overnight index swap rates,
investors expected the federal funds rate to decline
about 60 basis points by the end of this year—a
downward revision of 40 basis points over the intermeeting period.
Longer-term Treasury yields fell considerably over
the period, with the declines driven primarily by
negative headlines about trade tensions between the
United States and two major trading partners, China
and Mexico. Softer-than-expected domestic economic news, such as the weaker-than-expected
employment data, also contributed to the declines.
The spread between 10-year and 3-month Treasury
yields fell to the bottom decile of its distribution
since 1971. Measures of inflation compensation
derived from Treasury Inflation-Protected Securities
also decreased notably over the period along with
declines in oil prices.
Major U.S. equity price indexes declined, on net, over
the intermeeting period. Equity prices fell notably
over the first few weeks of the period, primarily in
response to the escalation of trade tensions with
China and Mexico. Firms with high China exposure
and those in cyclical sectors—such as energy, information technology, industrials, communication services, and banks—posted particularly large losses.
However, later in the period, stock prices regained a
significant portion of their losses amid an easing of
trade tensions with Mexico and expectations of a
more accommodative stance of policy. One-month
option-implied volatility on the S&P 500 index—the
VIX—increased over the period, and corporate credit
spreads widened.
Conditions in short-term funding markets remained
stable over the intermeeting period. Overnight interest rates in short-term funding markets declined in
response to the technical adjustment that reduced the
IOER rate 5 basis points to 2.35 percent after the
May FOMC meeting. The average of the effective
federal funds rate over the period was about 6 basis
points below the level just before the May FOMC
meeting, well within the FOMC’s target range. Rates
on commercial paper and negotiable certificates of
deposit also declined somewhat.

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106th Annual Report | 2019

Escalation of trade tensions and soft economic data
also weighed on foreign financial markets. Most
major global equity price indexes declined, on net,
and EME sovereign spreads widened modestly. In the
AFEs, policy expectations and sovereign yields
declined notably, in part reflecting moreaccommodative monetary policy communications by
major central banks.
The broad dollar index rose a bit over the intermeeting period. The Japanese yen and Swiss franc, which
are viewed as safe-haven currencies, appreciated
against the dollar. The British pound depreciated
amid increased uncertainty around Brexit. Increased
trade tensions contributed to some depreciation of
the Chinese renminbi. The value of the Mexican peso
against the dollar fluctuated in response to
announcements related to potential tariffs on imports
from Mexico but ended the period only slightly
lower.
Financing conditions for nonfinancial businesses
continued to be accommodative overall. Gross issuance of corporate bonds was strong in May following
a spell of seasonal weakness in April. The credit quality of nonfinancial corporations remained solid, as
the volume of nonfinancial corporate bond upgrades
outpaced that of downgrades in May. Issuance in the
institutional syndicated leveraged loan market was
subdued in April but rebounded in May, reflecting
strong issuance beyond that associated with refinancing of maturing leveraged loans. Meanwhile, commercial and industrial lending slowed somewhat in
April and May after a period of stronger growth in
the first quarter. Small business credit market conditions were little changed, and credit conditions in
municipal bond markets stayed accommodative
on net.
In the commercial real estate (CRE) sector, financing
conditions continued to be generally accommodative.
Commercial mortgage-backed securities (CMBS)
spreads widened slightly over the intermeeting period
but remained near the low end of their post-crisis
range. Issuance of agency and non-agency CMBS
was solid in May, and CRE lending by banks
expanded in April and May at a slower rate than in
the first quarter.
Financing conditions in the residential mortgage
market also remained supportive over the intermeeting period. Home mortgage rates decreased about
40 basis points. Since last November, mortgage rates

had declined more than 1 percentage point, contributing to an increase in home-purchase mortgage
originations to the solid levels seen in 2017.
Financing conditions in consumer credit markets
were little changed in recent months and remained
generally supportive of household spending,
although the supply of credit to consumers with subprime credit scores continued to be tight. Consumer
credit expanded at a moderate pace in the first quarter, with bank credit data pointing to a pickup in
April and May. Conditions in the consumer assetbacked securities market remained stable over the
intermeeting period, with robust issuance and
spreads that were little changed at low levels.

Staff Economic Outlook
The projection for U.S. economic activity prepared
by the staff for the June FOMC meeting was revised
down somewhat on balance. Real GDP growth was
forecast to slow to a moderate rate in the second
quarter and move down to a more modest pace in the
second half of the year, primarily reflecting a more
downbeat near-term outlook for business fixed
investment. The projection for real GDP growth over
the medium term was little changed, as the effects of
a higher projected path for the broad real dollar and
lower trajectory for foreign economic growth were
largely counterbalanced by a lower projected path for
interest rates. Real GDP was forecast to expand at a
rate a little above the staff’s estimate of potential output growth in 2019 and 2020 and then slow to a pace
slightly below potential output growth in 2021. The
unemployment rate was projected to be roughly flat
through 2021 and remain below the staff’s estimate
of its longer-run natural rate. With labor market conditions judged to be tight, the staff continued to
assume that projected employment gains would
manifest in smaller-than-usual downward pressure on
the unemployment rate and in larger-than-usual
upward pressure on the labor force participation rate.
The staff’s forecast for inflation was little changed on
balance. The forecast for total PCE price inflation
this year was revised down somewhat, reflecting a
lower near-term projection for energy prices. The
core inflation forecast for this year was unchanged at
a level below 2 percent. Both total and core inflation
were projected to move up slightly next year, as the
low readings early this year were expected to be transitory, but nevertheless to continue to run below
2 percent.

Minutes of Federal Open Market Committee Meetings | June

The staff viewed the uncertainty around its projections for real GDP growth, the unemployment rate,
and inflation as generally similar to the average of
the past 20 years, although uncertainty was seen to
have increased since the previous forecast. Moreover,
the staff also judged that the risks to the forecast for
real GDP growth had tilted to the downside, with a
skew to the upside for the unemployment rate. The
increased uncertainty and shift to downside risks
around the projection reflected the staff’s assessment
that international trade tensions and foreign economic developments seemed more likely to move in
directions that could have significant negative effects
on the U.S. economy than to resolve more favorably
than assumed. With the risks to the forecast for economic activity tilted to the downside, the risks to the
inflation projection were also viewed as having a
downward skew.

Participants’ Views on Current Conditions
and the Economic Outlook
Participants judged that uncertainties and downside
risks surrounding the economic outlook had
increased significantly over recent weeks. While they
continued to view a sustained expansion of economic
activity, strong labor market conditions, and inflation
near the Committee’s symmetric 2 percent objective
as the most likely outcomes, many participants
attached significant odds to scenarios with less favorable outcomes.5 Moreover, nearly all participants in
their submissions to the Summary of Economic Projections (SEP), had revised down their assessment of
the appropriate path of the federal funds rate over
the projection period that would be consistent with
their modal economic outlook. Many participants
noted that, since the Committee’s previous meeting,
the economy appeared to have lost some momentum
and pointed to a number of factors supporting that
view including recent weak indicators for business
confidence, business spending and manufacturing
activity; trade developments; and signs of slowing
global economic growth. Many participants noted
5

In conjunction with this FOMC meeting, members of the
Board of Governors and Federal Reserve Bank presidents submitted their projections of the most likely outcomes for real
GDP growth, the unemployment rate, and inflation for each
year from 2019 through 2021 and over the longer run, based on
their individual assessments of the appropriate path for the federal funds rate. The longer-run projections represented each participant’s assessment of the rate to which each variable would
be expected to converge, over time, under appropriate monetary
policy and in the absence of further shocks to the economy.
These projections and policy assessments are described in the
Summary of Economic Projections, which is an addendum to
these minutes.

195

that they viewed the risks to their growth and inflation projections, such as those emanating from
greater uncertainty about trade, as shifting notably
over recent weeks and that risks were now weighted
to the downside.
Participants discussed at some length the softness in
various indicators of business fixed investment in the
second quarter. Incoming data on shipments and
orders of new capital goods looked weak and recent
readings from some manufacturing surveys had
dropped sharply. Private sector analysts had marked
down their forecasts for longer-term corporate profit
growth. Manufacturing production had posted
declines so far this year. In addition, contacts
reported that softer export sales, weaker economic
activity abroad, and elevated levels of uncertainty
regarding the global outlook were weighing on business sentiment and leading firms to reassess plans for
investment spending. Several participants noted comments from business contacts reporting that their
base case now assumed that uncertainties about the
global outlook would remain prominent over the
medium term and would continue to act as a drag on
investment. Several participants also noted reports
from some business contacts in the manufacturing
sector suggesting that they were putting capital
expenditures or hiring plans on hold and were
reevaluating their global supply chains in light of
trade uncertainties. A couple of participants, however, pointed to signs that investment might pick up,
including reports from some contacts that their
orders and shipments remained strong and that some
contacts planned to hire more workers. A few participants also noted ongoing challenges in the agricultural sector, including those associated with increased
trade uncertainty, weak export markets, wet weather,
and severe flooding. A few participants remarked on
the decline in energy prices and the associated reduction in activity in the energy sector.
In their discussion of the household sector, participants noted that available data on consumer spending had been solid, supported by a strong labor market and rising incomes. Several participants also
noted that measures of consumer sentiment
remained upbeat, and a couple noted that their business contacts confirmed the view that consumer
spending had rebounded from the weak patch earlier
in the year. Several participants, however, noted that
tariffs could eventually become a drag on consumer
durables spending, especially if additional tariffs on
consumer goods were imposed, and that they would
be monitoring incoming data for signs of this effect.

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106th Annual Report | 2019

A couple of participants noted that the continued
softness in the housing sector was a concern, even
though the decline in mortgage rates since last fall
was expected to provide stronger impetus for activity;
a couple of participants were somewhat optimistic
that residential investment would pick up.
In their discussion of the labor market, participants
cited evidence that conditions remained strong,
including the very low unemployment rate and the
fact that job gains had been solid, on average, in
recent months. That said, job gains in May were
weaker than expected and, in light of other developments, participants judged that it would be important
to closely monitor incoming data for any signs of
softening in labor market conditions. Reports from
business contacts pointed to continued strong labor
demand, with many firms planning to hire more
workers. Economy-wide wage growth was seen as
being broadly consistent with modest average rates of
labor productivity growth in recent years. However, a
few participants noted that there were limited signs
of upward pressure on wage inflation. A few participants cited the combination of muted inflation pressures, moderate wage growth, and expanding
employment as a possible indication that some slack
remained in the labor market. Partly reflecting that
combination of developments, several participants
had revised down their SEP estimates of the longerrun normal rate of unemployment.
Participants noted that readings on overall inflation
and inflation for items other than food and energy
had come in lower than expected over recent months.
In light of recent softer inflation readings, perceptions of downside risks to growth, and global disinflationary pressures, many participants viewed the
risks to the outlook for inflation as weighted to the
downside. Several participants indicated that, while
headline inflation had been close to 2 percent last
year, it was noteworthy that inflation had softened
this year despite continued strong labor market conditions. Participants generally noted that they revised
down their SEP projections of inflation for the current year in light of recent data. They still anticipated
that the overall rate of inflation would firm somewhat and move up to the Committee’s longer-run
symmetric objective of 2 percent over the next few
years. Consistent with that view, several participants
commented that alternative measures of inflation
that removed the influence of unusually large
changes in the prices of individual items in either
direction were running around 2 percent. However, a
number of participants anticipated that the return to

2 percent would take longer than previously projected even with an assumed path for the federal
funds rate that was lower than in their previous
projections.
In their discussion of indicators of inflation expectations, participants generally observed that marketbased measures of inflation compensation had
declined and were at low levels. Some participants
also noted that recent readings on some survey measures of consumers’ inflation expectations had
declined or stood at historically low levels. Many participants further noted that longer-term inflation
expectations could be somewhat below levels consistent with the Committee’s 2 percent inflation objective, or that the continued weakness in inflation could
prompt expectations to slip further. These developments might make it more difficult to achieve their
inflation objective on a sustained basis. However, several participants remarked that inflation expectations
appeared to be at levels consistent with the Committee’s 2 percent inflation objective.
Participants generally agreed that downside risks to
the outlook for economic activity had risen materially since their May meeting, particularly those associated with ongoing trade negotiations and slowing
economic growth abroad. Other downside risks cited
by several participants included the possibility that
federal budget negotiations could result in a sharp
reduction in government spending or that negotiations to raise the federal debt limit could be prolonged. A couple of participants observed that an
economic deterioration in the United States, if it
occurred, might be amplified by significant debt burdens for many firms. A few participants remarked
that an upside risk to the outlook for economic activity and inflation included a scenario in which trade
negotiations were resolved favorably and business
sentiment rebounded sharply.
In their discussion of financial developments, participants observed that the increase in uncertainty surrounding the global outlook had affected risk sentiment in financial markets. While overall financial
conditions remained supportive of growth, those
conditions appeared to be premised importantly on
expectations that the Federal Reserve would ease
policy in the near term to help offset the drag on economic growth stemming from uncertainties about the
global outlook and other downside risks. Participants
also discussed the decline in yields on longer-term
Treasury securities in recent months. Many participants noted that the spread between the 10-year and

Minutes of Federal Open Market Committee Meetings | June

3-month Treasury yields was now negative, and several noted that their assessment of the risk of a slowing in the economic expansion had increased based
on either the shape of the yield curve or other financial and economic indicators. A few participants
pointed to the growth in debt issuance by nonfinancial corporations and still generally high asset valuations as developments that warranted continued
monitoring.
In their discussion of monetary policy decisions at
this meeting, participants noted that, under their
baseline outlook, the labor market was likely to
remain strong with economic activity growing at a
moderate pace. However, they judged that the risks
and uncertainties surrounding their outlooks, particularly those related to the global economic outlook, had intensified in recent weeks. Moreover,
inflation continued to run below the Committee’s
2 percent objective; similarly, inflation for items other
than food and energy had remained below 2 percent
as well. In addition, some readings on inflation
expectations had been low. The increase in risks and
uncertainties surrounding the outlook was quite
recent and nearly all participants agreed that it would
be appropriate to maintain the current target range
for the federal funds rate at 2¼ to 2½ percent at this
meeting. However, they noted that it would be important to monitor the implications of incoming information and global economic developments for the
U.S. economic outlook. A couple of participants
favored a cut in the target range at this meeting, judging that a prolonged period with inflation running
below 2 percent warranted a more accommodative
policy response to firmly center inflation and inflation expectations around the Committee’s symmetric
2 percent objective.
With regard to the outlook for monetary policy
beyond this meeting, nearly all participants had
revised down their assessment of the appropriate
path for the federal funds rate over the projection
period in their SEP submissions, and some had
marked down their estimates of the longer-run normal level of the funds rate as well. Many participants
indicated that the case for somewhat more accommodative policy had strengthened. Participants widely
noted that the global developments that led to the
heightened uncertainties about the economic outlook
were quite recent. Many judged additional monetary
policy accommodation would be warranted in the
near term should these recent developments prove to
be sustained and continue to weigh on the economic
outlook. Several others noted that additional mon-

197

etary policy accommodation could well be appropriate if incoming information showed further deterioration in the outlook. Participants stated a variety of
reasons that would call for a lower path of the federal
funds rate. Several participants noted that a nearterm cut in the target range for the federal funds rate
could help cushion the effects of possible future
adverse shocks to the economy and, hence, was
appropriate policy from a risk-management perspective. Some participants also noted that the continued
shortfall in inflation risked a softening of inflation
expectations that could slow the sustained return of
inflation to the Committee’s 2 percent objective. Several participants pointed out that they had revised
down their estimates of the longer-run normal rate of
unemployment and, as a result, saw a smaller upward
contribution to inflation pressures from tight
resource utilization than they had earlier. A few participants were concerned that inflation expectations
had already moved below levels consistent with the
Committee’s symmetric 2 percent objective and that
it was important to provide additional accommodation in the near term to bolster inflation expectations.
A few participants judged that allowing inflation to
run above 2 percent for some time could help
strengthen the credibility of the Committee’s commitment to its symmetric 2 percent inflation
objective.
Some participants suggested that although they now
judged that the appropriate path of the federal funds
rate would follow a flatter trajectory than they had
previously assumed, there was not yet a strong case
for a rate cut from current levels. They preferred to
gather more information on the trajectory of the
economy before concluding that a change in policy
stance is warranted. A few participants expressed the
view that with the economy still in a favorable position in terms of the dual mandate, an easing of
policy in an attempt to increase inflation a few tenths
of a percentage point risked overheating the labor
markets and fueling financial imbalances. Several
participants observed that the trimmed mean measure of PCE price inflation constructed by the Federal
Reserve Bank of Dallas had stayed near 2 percent
recently, underscoring the view that the recent low
readings on inflation will prove transitory.

Committee Policy Action
In their discussion of monetary policy for the period
ahead, members noted the significant increase in
risks and uncertainties attending the economic outlook. There were signs of weakness in U.S. business

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106th Annual Report | 2019

spending, and foreign economic data were generally
disappointing, raising concerns about the strength of
global economic growth.While strong labor markets
and rising incomes continued to support the outlook
for consumer spending, uncertainties and risks
regarding the global outlook appeared to be contributing to a deterioration in risk sentiment in financial
markets and a decline in business confidence that
pointed to a weaker outlook for business investment
in the United States. Inflation pressures remained
muted and some readings on inflation expectations
were at low levels. Although nearly all members
agreed to maintain the target range for the federal
funds rate at 2¼ to 2½ percent at this meeting, they
generally agreed that risks and uncertainties surrounding the economic outlook had intensified and
many judged that additional policy accommodation
would be warranted if they continued to weigh on
the economic outlook. One member preferred to
lower the target range for the federal funds rate by
25 basis points at this meeting, stating that the Committee should ease policy at this meeting to re-center
inflation and inflation expectations at the Committee’s symmetric 2 percent objective.
Members agreed that in determining the timing and
size of future adjustments to the target range for the
federal funds rate, the Committee would assess realized and expected economic conditions relative to the
Committee’s maximum-employment and symmetric
2 percent inflation objectives. They reiterated that
this assessment would take into account a wide range
of information, including measures of labor market
conditions, indicators of inflation pressures and
inflation expectations, and readings on financial and
international developments. More generally, members
noted that decisions regarding near-term adjustments
of the stance of monetary policy would appropriately
remain dependent on the implications of incoming
information for the economic outlook.
With regard to the postmeeting statement, members
agreed to several adjustments in the description of
the economic situation, including a revision in the
description of market-based measures of inflation
compensation to recognize the recent fall in inflation
compensation. The Committee retained the characterization of the most likely outcomes as “sustained
expansion of economic activity, strong labor market
conditions, and inflation near the Committee’s symmetric 2 percent objective” but added a clause to
emphasize that uncertainties about this outlook had
increased. In describing the monetary policy outlook,
members agreed to remove the “patient” language

and to emphasize instead that, in light of these
uncertainties and muted inflation pressures, the
Committee would closely monitor the implications of
incoming information for the economic outlook and
would act as appropriate to sustain the expansion,
with a strong labor market and inflation near its symmetric 2 percent objective.
At the conclusion of the discussion, the Committee
voted to authorize and direct the Federal Reserve
Bank of New York, until instructed otherwise, to
execute transactions in the System Open Market
Account in accordance with the following domestic
policy directive, to be released at 2:00 p.m.:
“Effective June 20, 2019, the Federal Open Market Committee directs the Desk to undertake
open market operations as necessary to maintain the federal funds rate in a target range of
2¼ to 2½ percent, including overnight reverse
repurchase operations (and reverse repurchase
operations with maturities of more than one day
when necessary to accommodate weekend, holiday, or similar trading conventions) at an offering rate of 2.25 percent, in amounts limited only
by the value of Treasury securities held outright
in the System Open Market Account that are
available for such operations and by a percounterparty limit of $30 billion per day.
The Committee directs the Desk to continue
rolling over at auction the amount of principal
payments from the Federal Reserve’s holdings of
Treasury securities maturing during each calendar month that exceeds $15 billion, and to continue reinvesting in agency mortgage-backed
securities the amount of principal payments
from the Federal Reserve’s holdings of agency
debt and agency mortgage-backed securities
received during each calendar month that
exceeds $20 billion. Small deviations from these
amounts for operational reasons are acceptable.
The Committee also directs the Desk to engage
in dollar roll and coupon swap transactions as
necessary to facilitate settlement of the Federal
Reserve’s agency mortgage-backed securities
transactions.”
The vote also encompassed approval of the statement
below to be released at 2:00 p.m.:
“Information received since the Federal Open
Market Committee met in May indicates that

Minutes of Federal Open Market Committee Meetings | June

the labor market remains strong and that economic activity is rising at a moderate rate. Job
gains have been solid, on average, in recent
months, and the unemployment rate has
remained low. Although growth of household
spending appears to have picked up from earlier
in the year, indicators of business fixed investment have been soft. On a 12-month basis, overall inflation and inflation for items other than
food and energy are running below 2 percent.
Market-based measures of inflation compensation have declined; survey-based measures of
longer-term inflation expectations are little
changed.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment
and price stability. In support of these goals, the
Committee decided to maintain the target range
for the federal funds rate at 2¼ to 2½ percent.
The Committee continues to view sustained
expansion of economic activity, strong labor
market conditions, and inflation near the Committee’s symmetric 2 percent objective as the
most likely outcomes, but uncertainties about
this outlook have increased. In light of these
uncertainties and muted inflation pressures, the
Committee will closely monitor the implications
of incoming information for the economic outlook and will act as appropriate to sustain the
expansion, with a strong labor market and inflation near its symmetric 2 percent objective.
In determining the timing and size of future
adjustments to the target range for the federal
funds rate, the Committee will assess realized
and expected economic conditions relative to its
maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of
information, including measures of labor market
conditions, indicators of inflation pressures and
inflation expectations, and readings on financial
and international developments.”
Voting for this action: Jerome H. Powell, John C.
Williams, Michelle W. Bowman, Lael Brainard,
Richard H. Clarida, Charles L. Evans, Esther L.
George, Randal K. Quarles, and Eric Rosengren.
Voting against this action: James Bullard.
Mr. Bullard dissented because he believed that the
current stance of monetary policy could be better

199

positioned to foster progress toward the Committee’s
statutory objectives of maximum employment and
stable prices. Particularly in light of persistent low
readings on inflation and from indicators of inflation
expectations along with the risks to the U.S. outlook
associated with global economic developments, he
noted that a policy rate reduction at the current
meeting would help re-center inflation and inflation
expectations at levels consistent with the Committee’s
symmetric 2 percent inflation objective and simultaneously provide some insurance against unexpected
developments that could slow U.S. economic growth.
Consistent with the Committee’s decision to leave
the target range for the federal funds rate unchanged,
the Board of Governors voted unanimously to leave
the interest rates on required and excess reserve balances unchanged at 2.35 percent and voted unanimously to approve establishment of the primary
credit rate at the existing level of 3.00 percent, effective June 20, 2019.

Update from Subcommittee on
Communications
Governor Clarida provided a brief update on the
work of the subcommittee on communications. The
Fed Listens conferences conducted to date were
viewed as successful in identifying many important
issues for the strategic review of monetary policy
strategy, tools, and communications. Additional Fed
Listens events were planned over the remainder of
the year. The Committee was likely to begin internal
deliberations on aspects of the strategic review over
coming FOMC meetings.
It was agreed that the next meeting of the Committee
would be held on Tuesday–Wednesday, July 30–31,
2019. The meeting adjourned at 10:05 a.m. on
June 19, 2019.

Notation Vote
By notation vote completed on May 21, 2019, the
Committee unanimously approved the minutes of the
Committee meeting held on April 30–May 1, 2019.
James A. Clouse
Secretary

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106th Annual Report | 2019

Addendum:
Summary of Economic Projections
In conjunction with the Federal Open Market Committee (FOMC) meeting held on June 18–19, 2019,
meeting participants submitted their projections of
the most likely outcomes for real gross domestic
product (GDP) growth, the unemployment rate, and
inflation for each year from 2019 to 2021 and over
the longer run. Each participant’s projections were
based on information available at the time of the
meeting, together with his or her assessment of
appropriate monetary policy—including a path for
the federal funds rate and its longer-run value—and
assumptions about other factors likely to affect economic outcomes. The longer-run projections represent each participant’s assessment of the value to
which each variable would be expected to converge,
over time, under appropriate monetary policy and in
the absence of further shocks to the economy.1
“Appropriate monetary policy” is defined as the
future path of policy that each participant deems
most likely to foster outcomes for economic activity
and inflation that best satisfy his or her individual
interpretation of the statutory mandate to promote
maximum employment and price stability.
Participants who submitted longer-run projections
generally expected that, under appropriate monetary
policy, growth of real GDP in 2019 would run at or
somewhat above their individual estimates of its
longer-run rate. Thereafter, almost all participants
expected real GDP growth to edge down, with the
vast majority of participants projecting growth in
2021 to be at or below their estimates of its longerrun rate. All participants who submitted longer-run
projections continued to expect that the unemployment rate would run at or below their estimates of its
longer-run level through 2021. Compared with the
Summary of Economic Projections (SEP) from
March 2019, most participants revised down slightly
their projections for the unemployment rate from
2019 through 2021. All participants marked down
somewhat their projections for 2019 for total inflation, as measured by the four-quarter percent change
in the price index for personal consumption expenditures (PCE), and almost all did so for their projections for core inflation. All participants projected
that inflation would increase in 2020, from 2019, and
a majority expected another slight increase in 2021.
1

One participant did not submit longer-run projections for real
GDP growth, the unemployment rate, or the federal funds rate.

The vast majority of participants expected that inflation would be at or slightly above the Committee’s
2 percent objective in 2021. Core PCE price inflation
was also expected to increase over the projection
period, rising to 2.0 percent in 2021. Table 1 and
figure 1 provide summary statistics for the
projections.
As shown in figure 2, just over half of the participants expected that the evolution of the economy,
relative to their objectives of maximum employment
and 2 percent inflation, would likely warrant keeping
the federal funds rate at or slightly above its current
level through the end of 2019; almost half projected
that a lower level for the federal funds rate would be
appropriate by year-end. The median of participants’
assessments of the appropriate level of the federal
funds rate at the end of the projection period was
close to the median of their assessments of the
longer-run federal funds rate level. Nearly all participants lowered their projections for the appropriate
level of the federal funds rate, relative to March, at
some point in the forecast period. The medians for
the federal funds rate for 2020 and 2021 were 50 basis
points and 25 basis points lower than in March,
respectively. The median of projections for the longrun normal level of the federal funds rate was
25 basis points lower than in the March projections.
Most participants regarded the uncertainties around
their forecasts for GDP growth, total inflation, and
core inflation as broadly similar to the average of the
past 20 years. About half of the participants viewed
the level of uncertainty around their unemployment
rate projections as being similar to the average of the
past 20 years, and about the same number viewed
uncertainty as higher. Participants’ assessments of
risks to their outlooks for output growth and the
unemployment rate shifted notably relative to their
assessments in March. As a result, most participants
viewed the risks for GDP growth as weighted to the
downside and for the unemployment rate as weighted
to the upside. About half of participants viewed the
risks to inflation as being broadly balanced, with a
similar number viewing inflation risks as being
weighted to the downside.

Minutes of Federal Open Market Committee Meetings | June

201

Central tendency2

Variable
2019

2020

2021

Change in real GDP
March projection
Unemployment rate
March projection
PCE inflation
March projection
Core PCE inflation4
March projection

2.1
2.1
3.6
3.7
1.5
1.8
1.8
2.0

2.0
1.9
3.7
3.8
1.9
2.0
1.9
2.0

1.8
1.8
3.8
3.9
2.0
2.0
2.0
2.0

Memo: Projected
appropriate
policy path
Federal funds rate
March projection

2.4
2.4

2.1
2.6

2.4
2.6

Longer
run

2019

2020

2021

1.9
1.9
4.2
4.3
2.0
2.0

2.0–2.2
1.9–2.2
3.6–3.7
3.6–3.8
1.5–1.6
1.8–1.9
1.7–1.8
1.9–2.0

1.8–2.2
1.8–2.0
3.5–3.9
3.6–3.9
1.9–2.0
2.0–2.1
1.9–2.0
2.0–2.1

1.8–2.0
1.7–2.0
3.6–4.0
3.7–4.1
2.0–2.1
2.0–2.1
2.0–2.1
2.0–2.1

2.5
2.8

1.9–2.4
2.4–2.6

1.9–2.4
2.4–2.9

1.9–2.6
2.4–2.9

Range3
Longer
run

Longer
run

2019

2020

2021

1.8–2.0
1.8–2.0
4.0–4.4
4.1–4.5
2.0
2.0

2.0–2.4
1.6–2.4
3.5–3.8
3.5–4.0
1.4–1.7
1.6–2.1
1.4–1.8
1.8–2.2

1.5–2.3
1.7–2.2
3.3–4.0
3.4–4.1
1.8–2.1
1.9–2.2
1.8–2.1
1.8–2.2

1.5–2.1
1.5–2.2
3.3–4.2
3.4–4.2
1.9–2.2
2.0–2.2
1.8–2.2
1.9–2.2

1.7–2.1
1.7–2.2
3.6–4.5
4.0–4.6
2.0
2.0

2.5–3.0
2.5–3.0

1.9–2.6
2.4–2.9

1.9–3.1
2.4–3.4

1.9–3.1
2.4–3.6

2.4–3.3
2.5–3.5

Note: Projections of change in real gross domestic product (GDP) and projections for both measures of inflation are percent changes from the fourth quarter of the previous year
to the fourth quarter of the year indicated. PCE inflation and core PCE inflation are the percentage rates of change in, respectively, the price index for personal consumption
expenditures (PCE) and the price index for PCE excluding food and energy. Projections for the unemployment rate are for the average civilian unemployment rate in the fourth
quarter of the year indicated. Each participant’s projections are based on his or her assessment of appropriate monetary policy. Longer-run projections represent each
participant’s assessment of the rate to which each variable would be expected to converge under appropriate monetary policy and in the absence of further shocks to the
economy. The projections for the federal funds rate are the value of the midpoint of the projected appropriate target range for the federal funds rate or the projected appropriate
target level for the federal funds rate at the end of the specified calendar year or over the longer run. The March projections were made in conjunction with the meeting of the
Federal Open Market Committee on March 19–20, 2019. One participant did not submit longer-run projections for the change in real GDP, the unemployment rate, or the federal
funds rate in conjunction with the March 19–20, 2019, meeting, and one participant did not submit such projections in conjunction with the June 18–19, 2019, meeting.
1
For each period, the median is the middle projection when the projections are arranged from lowest to highest. When the number of projections is even, the median is the
average of the two middle projections.
2
The central tendency excludes the three highest and three lowest projections for each variable in each year.
3
The range for a variable in a given year includes all participants’ projections, from lowest to highest, for that variable in that year.
4
Longer-run projections for core PCE inflation are not collected.

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106th Annual Report | 2019

Figure 1. Medians, central tendencies, and ranges of economic projections, 2019–21 and over the longer run
Percent

Change in real GDP
Median of projections
Central tendency of projections
Range of projections

Actual

2
1

2014

2015

2016

2017

2018

2019

2020

2021

Longer
run

Percent

Unemployment rate
7
6
5
4
3

2014

2015

2016

2017

2018

2019

2020

2021

Longer
run Percent

PCE inflation
3

2014

2015

2016

2017

2018

2019

2020

2021

Longer
run

Percent

Core PCE inflation
3

2014

2015

2016

2017

2018

2019

2020

2021

Note: Definitions of variables and other explanations are in the notes to table 1. The data for the actual values of the variables are annual.

Longer
run

Minutes of Federal Open Market Committee Meetings | June

203

Figure 2. FOMC participants’ assessments of appropriate monetary policy: Midpoint of target range or target level for the
federal funds rate
Percent

5.0

4.5

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

2019

2020

2021

Longer run

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106th Annual Report | 2019

median estimate of its longer-run rate of 1.9 percent.
Almost all participants continued to expect GDP
growth to slow over the projection period, with the
median projection at 2.0 percent in 2020 and at
1.8 percent in 2021. Relative to the March SEP, the
medians of the projections for real GDP growth in
2019, 2020, 2021, and the longer run were little
changed.

total PCE price inflation and core PCE price inflation in 2019 shifted down notably from the March
SEP, while those for 2020 and 2021 changed more
modestly. Beyond the current year, for which projections also reflect data in hand, almost all participants
expected total and core PCE price inflation to be
between 1.9 and 2.2 percent.

Appropriate Monetary Policy
The median of projections for the unemployment
rate in the fourth quarter of 2019 was 3.6 percent,
about ½ percentage point below the median assessment of its longer-run level of 4.2 percent. The medians of projections for 2020 and 2021 were 3.7 percent
and 3.8 percent, respectively. These median unemployment rates, along with the median for the unemployment rate in the longer run, were a little lower
than those from the March SEP. As was the case in
March, almost all participants who submitted longerrun projections expected that the unemployment rate
in 2021 would be below their estimates of its longerrun level.
Figures 3.A and 3.B show the distributions of participants’ projections for real GDP growth and the
unemployment rate from 2019 to 2021 and in the longer run. The distribution of individual projections for
real GDP growth for 2019 through 2021 all shifted up
modestly relative to that in the March SEP. The distribution for the longer-run growth rate was little
changed. The distributions of individual projections
for the unemployment rate in 2019 and 2020 moved
lower relative to those in March, and the distribution
in 2021 edged down as well. Meanwhile, the distribution for the longer-run unemployment rate shifted
down a touch.

The Outlook for Inflation
As shown in table 1, the median of projections for
total PCE price inflation was 1.5 percent in 2019,
notably lower than in the March SEP, while the
median for 2020, at 1.9 percent, was a touch lower
than in March. The median for total inflation for
2021 was unchanged from March at 2.0 percent. The
medians of projections for core PCE price inflation
for 2019 and 2020 were 1.8 percent and 1.9 percent,
respectively, both a little lower relative to the March
SEP. The median for 2021 was 2.0 percent,
unchanged from the March SEP.
Figures 3.C and 3.D provide information on the distributions of participants’ views about the outlook
for inflation. The distributions of projections for

Figure 3.E shows distributions of participants’ judgments regarding the appropriate target—or midpoint
of the target range—for the federal funds rate at the
end of each year from 2019 to 2021 and over the longer run. On the whole, the distributions for 2019
through 2021 shifted toward lower values. Almost all
participants viewed the appropriate levels of the federal funds rate at the end of 2019, 2020, and 2021 as
lower than those that they deemed appropriate in
March. Nearly all participants lowered their projections for the appropriate level of the federal funds
rate, relative to March, at some point in the projection period, and none raised their projections for the
federal funds rate for any year. Compared with the
projections prepared for the March SEP, the median
federal funds rate was 50 basis points lower in 2020,
25 basis points lower in 2021, and 25 basis points
lower in the longer-run. While the median of federal
funds rate projections at the end of 2019 remained at
2.38 percent, almost half of participants projected an
appropriate level of the target range for the federal
funds rate at the end of 2019 that was 25 basis points
or 50 basis points lower than at present. In subsequent years, the medians of the projections were
2.13 percent at the end of 2020 and 2.38 percent at
the end of 2021, slightly lower than the median of
the longer-run projections of the federal funds rate of
2.50 percent. Muted inflation pressures and concerns
about declining inflation expectations, trade developments, and foreign economic growth, as well as
weaker business fixed investment, were cited as factors contributing to the downward revisions in participants’ assessments of the appropriate path for the
policy rate.

Minutes of Federal Open Market Committee Meetings | June

205

Figure 3.A. Distribution of participants’ projections for the change in real GDP, 2019–21 and over the longer run
Number of participants

2019
June projections
March projections

1.4 –
1.5

18
16
14
12
10
8
6
4
2
1.6 –
1.7

1.8 –
1.9

2.0 –
2.1

2.2 –
2.3

Percent range

2.4 –
2.5
Number of participants

2020
18
16
14
12
10
8
6
4
2
1.4 –
1.5

1.6 –
1.7

1.8 –
1.9

2.0 –
2.1

2.2 –
2.3

Percent range

2.4 –
2.5
Number of participants

2021
18
16
14
12
10
8
6
4
2
1.4 –
1.5

1.6 –
1.7

1.8 –
1.9

2.0 –
2.1

2.2 –
2.3

Percent range

2.4 –
2.5
Number of participants

Longer run
18
16
14
12
10
8
6
4
2
1.4 –
1.5

1.6 –
1.7

1.8 –
1.9

2.0 –
2.1
Percent range

Note: Definitions of variables and other explanations are in the notes to table 1.

2.2 –
2.3

2.4 –
2.5

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106th Annual Report | 2019

Figure 3.B. Distribution of participants’ projections for the unemployment rate, 2019–21 and over the longer run
Number of participants

2019
June projections
March projections

3.0 –
3.1

3.2 –
3.3

18
16
14
12
10
8
6
4
2
3.4 –
3.5

3.6 –
3.7

3.8 –
3.9

4.0 –
4.1
Percent range

4.2 –
4.3

4.4 –
4.5

4.6 –
4.7

4.8 –
4.9

5.0 –
5.1

Number of participants

2020
18
16
14
12
10
8
6
4
2
3.0 –
3.1

3.2 –
3.3

3.4 –
3.5

3.6 –
3.7

3.8 –
3.9

4.0 –
4.1
Percent range

4.2 –
4.3

4.4 –
4.5

4.6 –
4.7

4.8 –
4.9

5.0 –
5.1

Number of participants

2021
18
16
14
12
10
8
6
4
2
3.0 –
3.1

3.2 –
3.3

3.4 –
3.5

3.6 –
3.7

3.8 –
3.9

4.0 –
4.1
Percent range

4.2 –
4.3

4.4 –
4.5

4.6 –
4.7

4.8 –
4.9

5.0 –
5.1

Number of participants

Longer run
18
16
14
12
10
8
6
4
2
3.0 –
3.1

3.2 –
3.3

3.4 –
3.5

3.6 –
3.7

3.8 –
3.9

4.0 –
4.1
Percent range

Note: Definitions of variables and other explanations are in the notes to table 1.

4.2 –
4.3

4.4 –
4.5

4.6 –
4.7

4.8 –
4.9

5.0 –
5.1

Minutes of Federal Open Market Committee Meetings | June

207

Figure 3.C. Distribution of participants’ projections for PCE inflation, 2019–21 and over the longer run
Number of participants

2019
June projections
March projections

1.3 –
1.4

18
16
14
12
10
8
6
4
2
1.5 –
1.6

1.7–
1.8
Percent range

1.9 –
2.0

2.1–
2.2
Number of participants

2020
18
16
14
12
10
8
6
4
2
1.3 –
1.4

1.5 –
1.6

1.7–
1.8
Percent range

1.9 –
2.0

2.1–
2.2
Number of participants

2021
18
16
14
12
10
8
6
4
2
1.3 –
1.4

1.5 –
1.6

1.7–
1.8
Percent range

1.9 –
2.0

2.1–
2.2
Number of participants

Longer run
18
16
14
12
10
8
6
4
2
1.3 –
1.4

1.5 –
1.6

1.7–
1.8
Percent range

Note: Definitions of variables and other explanations are in the notes to table 1.

1.9 –
2.0

2.1–
2.2

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106th Annual Report | 2019

Figure 3.D. Distribution of participants’ projections for core PCE inflation, 2019–21
Number of participants

2019
June projections
March projections

18
16
14
12
10
8
6
4
2

1.3 –
1.4

1.5 –
1.6

1.7–
1.8
Percent range

1.9 –
2.0

2.1–
2.2
Number of participants

2020
18
16
14
12
10
8
6
4
2
1.3 –
1.4

1.5 –
1.6

1.7–
1.8
Percent range

1.9 –
2.0

2.1–
2.2
Number of participants

2021
18
16
14
12
10
8
6
4
2
1.3 –
1.4

1.5 –
1.6

1.7–
1.8

Percent range
Note: Definitions of variables and other explanations are in the notes to table 1.

1.9 –
2.0

2.1–
2.2

Minutes of Federal Open Market Committee Meetings | June

209

2019
June projections
March projections

1.88 –
2.12

2.13 –
2.37

2.38 –
2.62

2.63 –
2.87

2.88 –
3.12

3.13 –
3.38 –
3.63 –
3.37
3.62
3.87
Percent range

3.88 –
4.12

4.13 –
4.37

4.38 –
4.62

18
16
14
12
10
8
6
4
2
4.63 –
4.87

4.88 –
5.12

Number of participants

2020
18
16
14
12
10
8
6
4
2
1.88 –
2.12

2.13 –
2.37

2.38 –
2.62

2.63 –
2.87

2.88 –
3.12

3.63 –
3.13 –
3.38 –
3.87
3.37
3.62
Percent range

3.88 –
4.12

4.13 –
4.37

4.38 –
4.62

4.63 –
4.87

4.88 –
5.12

Number of participants

2021
18
16
14
12
10
8
6
4
2
1.88 –
2.12

2.13 –
2.37

2.38 –
2.62

2.63 –
2.87

2.88 –
3.12

3.13 –
3.38 –
3.63 –
3.37
3.62
3.87
Percent range

3.88 –
4.12

4.13 –
4.37

4.38 –
4.62

4.63 –
4.87

4.88 –
5.12

Number of participants

Longer run
18
16
14
12
10
8
6
4
2
1.88 –
2.12

2.13 –
2.37

2.38 –
2.62

2.63 –
2.87

2.88 –
3.12

3.38 –
3.63 –
3.13 –
3.37
3.62
3.87
Percent range

Note: Definitions of variables and other explanations are in the notes to table 1.

3.88 –
4.12

4.13 –
4.37

4.38 –
4.62

4.63 –
4.87

4.88 –
5.12

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106th Annual Report | 2019

similar levels of uncertainty relative to the historical
average and those who saw higher uncertainty.2

Table 2. Average historical projection error ranges
Percentage points
Variable
Change in real GDP1
Unemployment rate1
Total consumer prices2
Short-term interest rates3

2019

2020

2021

±1.3
±0.4
±0.7
±0.7

±1.8
±1.2
±1.0
±1.9

±2.0
±1.8
±1.0
±2.2

Note: Error ranges shown are measured as plus or minus the root mean squared
error of projections for 1999 through 2018 that were released in the summer by
various private and government forecasters. As described in the box “Forecast
Uncertainty,” under certain assumptions, there is about a 70 percent probability
that actual outcomes for real GDP, unemployment, consumer prices, and the
federal funds rate will be in ranges implied by the average size of projection
errors made in the past. For more information, see David Reifschneider and Peter
Tulip (2017), “Gauging the Uncertainty of the Economic Outlook Using Historical
Forecasting Errors: The Federal Reserve’s Approach,” Finance and Economics
Discussion Series 2017-020 (Washington: Board of Governors of the Federal
Reserve System, February), https://dx.doi.org/10.17016/FEDS.2017.020.
1
Definitions of variables are in the general note to table 1.
2
Measure is the overall consumer price index, the price measure that has been
most widely used in government and private economic forecasts. Projections
are percent changes on a fourth quarter to fourth quarter basis.
3
For Federal Reserve staff forecasts, measure is the federal funds rate. For other
forecasts, measure is the rate on 3-month Treasury bills. Projection errors are
calculated using average levels, in percent, in the fourth quarter.

casts over the past 20 years—for real GDP growth,
the unemployment rate, and total PCE price inflation. Those measures are represented graphically in
the “fan charts” shown in the top panels of figures
4.A, 4.B, and 4.C. The fan charts display the SEP
medians for the three variables surrounded by symmetric confidence intervals derived from the forecast
errors reported in table 2. If the degree of uncertainty attending these projections is similar to the
typical magnitude of past forecast errors and the
risks around the projections are broadly balanced,
then future outcomes of these variables would have
about a 70 percent probability of being within these
confidence intervals. For all three variables, this
measure of uncertainty is substantial and generally
increases as the forecast horizon lengthens.
Participants’ assessments of the level of uncertainty
surrounding their individual economic projections
are shown in the bottom-left panels of figures 4.A,
4.B, and 4.C. The vast majority of participants continued to view the uncertainty around their projections for inflation as broadly similar to the average of
the past 20 years; most also viewed uncertainty
around their projections for GDP growth as similar
to the average of the past 20 years. Views on uncertainty around unemployment rate projections were
roughly evenly distributed between those who saw

Because the fan charts are constructed to be symmetric around the median projections, they do not reflect
any asymmetries in the balance of risks that participants may see in their economic projections. Participants’ assessments of the balance of risks to their
current economic projections are shown in the
bottom-right panels of figures 4.A, 4.B, and 4.C. The
balance of risks to the projection for real GDP
growth shifted lower, with 14 participants assessing
the risks as weighted to the downside, 3 assessing
them to be broadly balanced, and no participant seeing them as weighted to the upside. Similarly, the balance of risks to the projection for the unemployment
rate moved higher, with 12 participants judging the
risks to the unemployment rate as weighted to the
upside and 5 participants viewing the risks as broadly
balanced. In addition, the balance of risks to the
inflation projections shifted down relative to March.
Six more participants than in March saw the risks to
the inflation projections as weighted to the downside,
and no participant judged the risks as weighted to
the upside.
In discussing the uncertainty and risks surrounding
their economic projections, trade developments, concerns about global economic growth, and weaker
business fixed investment were mentioned by participants as sources of uncertainty or downside risk to
the U.S. economic growth outlook. For the inflation
outlook, the effect of trade developments was cited
as a source of upside risk, while the possibility that
inflation expectations could be drifting below levels
consistent with the FOMC’s 2 percent inflation
objective or the potential for a stronger dollar or
weaker domestic demand to put downward pressure
on inflation were viewed as downside risks. A number of participants mentioned that their assessments
of risks remained roughly balanced in part because
the downward revisions to their appropriate path for
the federal funds rate were offsetting factors that
would otherwise contribute to asymmetric risks.
Participants’ assessments of the appropriate future
path of the federal funds rate are also subject to considerable uncertainty. Because the Committee adjusts
the federal funds rate in response to actual and pro2

Minutes of Federal Open Market Committee Meetings | June

211

Figure 4.A. Uncertainty and risks in projections of GDP growth

Median projection and confidence interval based on historical forecast errors

Percent

Change in real GDP
Median of projections
70% confidence interval

Actual

2014

2015

2016

2017

2018

2019

2020

2021

FOMC participants’ assessments of uncertainty and risks around their economic projections
Number of participants

Number of participants

Uncertainty about GDP growth

Risks to GDP growth

June projections
March projections

Lower

18
16
14
12
10
8
6
4
2
Broadly
similar

Higher

June projections
March projections

Weighted to
downside

18
16
14
12
10
8
6
4
2
Broadly
balanced

Weighted to
upside

212

106th Annual Report | 2019

Figure 4.B. Uncertainty and risks in projections of the unemployment rate

Median projection and confidence interval based on historical forecast errors

Percent

Unemployment rate
10

Median of projections
70% confidence interval

9
8
7
6
5

Actual

4
3
2
1
2014

2015

2016

2017

2018

2019

2020

2021

FOMC participants’ assessments of uncertainty and risks around their economic projections
Number of participants

Number of participants

Uncertainty about the unemployment rate

Risks to the unemployment rate

June projections
March projections

Lower

18
16
14
12
10
8
6
4
2
Broadly
similar

Higher

June projections
March projections

Weighted to
downside

18
16
14
12
10
8
6
4
2
Broadly
balanced

Weighted to
upside

Minutes of Federal Open Market Committee Meetings | June

213

Figure 4.C. Uncertainty and risks in projections of PCE inflation

Median projection and confidence interval based on historical forecast errors

Percent

PCE inflation
Median of projections
70% confidence interval

1
Actual

2014

2015

2016

2017

2018

2019

2020

2021

FOMC participants’ assessments of uncertainty and risks around their economic projections
Number of participants

Number of participants

Uncertainty about PCE inflation

Risks to PCE inflation

June projections
March projections

Lower

18
16
14
12
10
8
6
4
2
Broadly
similar

Higher

June projections
March projections

Weighted to
downside

18
16
14
12
10
8
6
4
2
Broadly
balanced

Number of participants

Uncertainty about core PCE inflation

Risks to core PCE inflation

June projections
March projections

Lower

18
16
14
12
10
8
6
4
2
Broadly
similar

Weighted to
upside

Higher

June projections
March projections

Weighted to
downside

18
16
14
12
10
8
6
4
2
Broadly
balanced

Weighted to
upside

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106th Annual Report | 2019

spective developments over time in key economic
variables such as real GDP growth, the unemployment rate, and inflation, uncertainty surrounding the
projected path for the federal funds rate importantly
reflects the uncertainties about the paths for these
economic variables along with other factors. Figure 5
provides a graphical representation of this uncer-

tainty, plotting the SEP median for the federal funds
rate surrounded by confidence intervals derived from
the results presented in table 2. As with the macroeconomic variables, the forecast uncertainty surrounding the appropriate path of the federal funds
rate is substantial and increases for longer horizons.

Minutes of Federal Open Market Committee Meetings | June

215

Figure 5. Uncertainty in projections of the federal funds rate

Median projection and confidence interval based on historical forecast errors

Percent

Federal funds rate
Midpoint of target range
Median of projections
70% confidence interval*

6
5
4
3
2
1

Actual

2014

2015

2016

2017

2018

2019

2020

2021

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106th Annual Report | 2019

Forecast Uncertainty
The economic projections provided by the members
of the Board of Governors and the presidents of the
Federal Reserve Banks inform discussions of monetary policy among policymakers and can aid public
understanding of the basis for policy actions. Considerable uncertainty attends these projections, however. The economic and statistical models and relationships used to help produce economic forecasts
are necessarily imperfect descriptions of the real
world, and the future path of the economy can be
affected by myriad unforeseen developments and
events. Thus, in setting the stance of monetary
policy, participants consider not only what appears to
be the most likely economic outcome as embodied in
their projections, but also the range of alternative
possibilities, the likelihood of their occurring, and the
potential costs to the economy should they occur.
Table 2 summarizes the average historical accuracy
of a range of forecasts, including those reported in
past Monetary Policy Reports and those prepared by
the Federal Reserve Board’s staff in advance of
meetings of the Federal Open Market Committee
(FOMC). The projection error ranges shown in the
table illustrate the considerable uncertainty associated with economic forecasts. For example, suppose
a participant projects that real gross domestic product (GDP) and total consumer prices will rise steadily
at annual rates of, respectively, 3 percent and 2 percent. If the uncertainty attending those projections is
similar to that experienced in the past and the risks
around the projections are broadly balanced, the
numbers reported in table 2 would imply a probability
of about 70 percent that actual GDP would expand
within a range of 1.7 to 4.3 percent in the current
year, 1.2 to 4.8 percent in the second year, and 1.0 to
5.0 percent in the third year. The corresponding
70 percent confidence intervals for overall inflation
would be 1.3 to 2.7 percent in the current year and
1.0 to 3.0 percent in the second and third years.
Figures 4.A through 4.C illustrate these confidence
bounds in “fan charts” that are symmetric and centered on the medians of FOMC participants’ projections for GDP growth, the unemployment rate, and
inflation. However, in some instances, the risks
around the projections may not be symmetric. In particular, the unemployment rate cannot be negative;
furthermore, the risks around a particular projection
might be tilted to either the upside or the downside,
in which case the corresponding fan chart would be
asymmetrically positioned around the median
projection.
Because current conditions may differ from those
that prevailed, on average, over history, participants
provide judgments as to whether the uncertainty
attached to their projections of each economic variable is greater than, smaller than, or broadly similar
to typical levels of forecast uncertainty seen in the
past 20 years, as presented in table 2 and reflected
in the widths of the confidence intervals shown in the
top panels of figures 4.A through 4.C. Participants’
current assessments of the uncertainty surrounding
their projections are summarized in the bottom-left

panels of those figures. Participants also provide
judgments as to whether the risks to their projections
are weighted to the upside, are weighted to the
downside, or are broadly balanced. That is, while the
symmetric historical fan charts shown in the top panels of figures 4.A through 4.C imply that the risks to
participants’ projections are balanced, participants
may judge that there is a greater risk that a given
variable will be above rather than below their projections. These judgments are summarized in the lowerright panels of figures 4.A through 4.C.
As with real activity and inflation, the outlook for the
future path of the federal funds rate is subject to considerable uncertainty. This uncertainty arises primarily
because each participant’s assessment of the appropriate stance of monetary policy depends importantly
on the evolution of real activity and inflation over
time. If economic conditions evolve in an unexpected
manner, then assessments of the appropriate setting
of the federal funds rate would change from that
point forward. The final line in table 2 shows the error
ranges for forecasts of short-term interest rates. They
suggest that the historical confidence intervals associated with projections of the federal funds rate are
quite wide. It should be noted, however, that these
confidence intervals are not strictly consistent with
the projections for the federal funds rate, as these
projections are not forecasts of the most likely quarterly outcomes but rather are projections of participants’ individual assessments of appropriate monetary policy and are on an end-of-year basis. However, the forecast errors should provide a sense of
the uncertainty around the future path of the federal
funds rate generated by the uncertainty about the
macroeconomic variables as well as additional
adjustments to monetary policy that would be appropriate to offset the effects of shocks to the economy.
If at some point in the future the confidence interval
around the federal funds rate were to extend below
zero, it would be truncated at zero for purposes of
the fan chart shown in figure 5; zero is the bottom of
the lowest target range for the federal funds rate that
has been adopted by the Committee in the past. This
approach to the construction of the federal funds rate
fan chart would be merely a convention; it would not
have any implications for possible future policy decisions regarding the use of negative interest rates to
provide additional monetary policy accommodation if
doing so were appropriate. In such situations, the
Committee could also employ other tools, including
forward guidance and asset purchases, to provide
additional accommodation.
While figures 4.A through 4.C provide information on
the uncertainty around the economic projections,
figure 1 provides information on the range of views
across FOMC participants. A comparison of figure 1
with figures 4.A through 4.C shows that the dispersion of the projections across participants is much
smaller than the average forecast errors over the past
20 years.

Minutes of Federal Open Market Committee Meetings | July

Meeting Held on July 30–31, 2019

Steven B. Kamin
Economist

A joint meeting of the Federal Open Market Committee and the Board of Governors was held in the
offices of the Board of Governors of the Federal
Reserve System in Washington, D.C., on Tuesday,
July 30, 2019, at 10:00 a.m. and continued on
Wednesday, July 31, 2019, at 9:00 a.m.1

Thomas Laubach
Economist

Present
Jerome H. Powell
Chair
John C. Williams
Vice Chair
Michelle W. Bowman
Lael Brainard
James Bullard
Richard H. Clarida
Charles L. Evans
Esther L. George
Randal K. Quarles
Eric Rosengren
Patrick Harker, Robert S. Kaplan, Neel Kashkari,
Loretta J. Mester, and Michael Strine
Alternate Members of the Federal Open Market
Committee
Thomas I. Barkin, Raphael W. Bostic,
and Mary C. Daly
Presidents of the Federal Reserve Banks of
Richmond, Atlanta, and San Francisco, respectively
James A. Clouse
Secretary
Matthew M. Luecke
Deputy Secretary
David W. Skidmore
Assistant Secretary
Michelle A. Smith
Assistant Secretary
Mark E. Van Der Weide
General Counsel
Michael Held
Deputy General Counsel
1

The Federal Open Market Committee is referenced as the
“FOMC” and the “Committee” in these minutes.

217

Stacey Tevlin
Economist
Rochelle M. Edge, Beverly Hirtle, Christopher J.
Waller, William Wascher, and Beth Anne Wilson
Associate Economists
Lorie K. Logan
Manager pro tem, System Open Market Account
Ann E. Misback2
Secretary, Office of the Secretary,
Board of Governors
Eric Belsky3
Director, Division of Consumer and Community
Affairs, Board of Governors
Matthew J. Eichner4
Director, Division of Reserve Bank Operations and
Payment Systems, Board of Governors
Andreas Lehnert
Director, Division of Financial Stability,
Board of Governors
Margie Shanks5
Deputy Secretary, Office of the Secretary,
Board of Governors
Arthur Lindo
Deputy Director, Division of Supervision and
Regulation, Board of Governors
Trevor A. Reeve
Deputy Director, Division of Monetary Affairs,
Board of Governors
Jon Faust
Senior Special Adviser to the Chair, Office of Board
Members, Board of Governors
Joshua Gallin
Special Adviser to the Chair, Office of Board
Members, Board of Governors
2

Attended through the discussion of economic developments
and outlook.
Attended the discussion of the review of monetary policy
framework.
Attended through the discussion of developments in financial
markets and open market operations.
Attended the discussion of economic developments and outlook through discussion of monetary policy.

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106th Annual Report | 2019

Brian M. Doyle,6 Wendy E. Dunn, Joseph W. Gruber,
Ellen E. Meade, and John M. Roberts
Special Advisers to the Board, Office of Board
Members, Board of Governors
Linda Robertson
Assistant to the Board, Office of Board Members,
Board of Governors
Shaghil Ahmed
Senior Associate Director, Division of International
Finance, Board of Governors
David E. Lebow and Michael G. Palumbo
Senior Associate Directors, Division of Research and
Statistics, Board of Governors
Don Kim, Edward Nelson, and Robert J. Tetlow
Senior Advisers, Division of Monetary Affairs,
Board of Governors
S. Wayne Passmore
Senior Adviser, Division of Research and Statistics,
Board of Governors

David H. Small
Project Manager, Division of Monetary Affairs,
Board of Governors
Alyssa G. Anderson
Principal Economist, Division of Monetary Affairs,
Board of Governors
Dario Caldara3 and Albert Queralto3
Principal Economists, Division of International
Finance, Board of Governors
Isabel Cairó3
Senior Economist, Division of Research and
Statistics, Board of Governors
Randall A. Williams
Senior Information Manager, Division of Monetary
Affairs, Board of Governors
Ellen J. Bromagen
First Vice President, Federal Reserve Bank of
Chicago

Marnie Gillis DeBoer and Min Wei
Associate Directors, Division of Monetary Affairs,
Board of Governors

David Altig, Michael Dotsey, and Jeffrey Fuhrer
Executive Vice Presidents, Federal Reserve
Banks of Atlanta, Philadelphia, and Boston,
respectively

Elizabeth Klee
Associate Director, Division of Financial Stability,
Board of Governors

Marc Giannoni,3 Spencer Krane, and Paula Tkac3
Senior Vice Presidents, Federal Reserve Banks of
Dallas, Chicago, and Atlanta, respectively

John J. Stevens
Associate Director, Division of Research and
Statistics, Board of Governors

Robert G. Valletta
Group Vice President, Federal Reserve Bank of
San Francisco

Norman J. Morin
Deputy Associate Director, Division of Research and
Statistics, Board of Governors

Terry Fitzgerald, Christopher J. Neely,3 and
Patricia Zobel
Vice Presidents, Federal Reserve Banks of
Minneapolis, St. Louis, and New York, respectively

Andrea Raffo
Deputy Associate Director, Division of International
Finance, Board of Governors
Jeffrey D. Walker4
Deputy Associate Director, Division of Reserve
Bank Operations and Payment Systems,
Board of Governors
Etienne Gagnon
Section Chief, Division of Monetary Affairs,
Board of Governors
Penelope A. Beattie3
Assistant to the Secretary, Office of the Secretary,
Board of Governors
6

Attended Tuesday session only.

Andreas L. Hornstein
Senior Advisor, Federal Reserve Bank of Richmond
Karel Mertens
Senior Economic Policy Advisor, Federal Reserve
Bank of Dallas
Joseph G. Haubrich
Senior Economic and Policy Advisor, Federal Reserve
Bank of Cleveland
Brent Bundick
Research and Policy Advisor, Federal Reserve
Bank of Kansas City
Vasco Curdia3
Research Advisor, Federal Reserve Bank of
San Francisco

Minutes of Federal Open Market Committee Meetings | July

Review of Monetary Policy Strategy, Tools,
and Communication Practices
Committee participants began their discussions
related to the ongoing review of the Federal
Reserve’s monetary policy strategy, tools, and communication practices. Staff briefings provided a retrospective on the Federal Reserve’s monetary policy
actions since the financial crisis, together with background and analysis regarding some key issues. In its
policy response during the recession and the subsequent economic recovery, the Committee lowered the
federal funds rate to its effective lower bound (ELB)
and provided additional monetary policy accommodation through both forward guidance about the
expected path of the policy rate and balance sheet
policy. These actions eased financial conditions and
provided substantial support to economic activity;
they therefore figured importantly in helping promote the recovery in the labor market and in preventing inflation from falling substantially below the
Committee’s objective. The presentation noted, however, that over the past several years, inflation had
tended to run modestly below the Committee’s
longer-run goal of 2 percent, while some indicators
of longer-run inflation expectations currently stood
at low levels. The staff also provided results from
model simulations that illustrated possible challenges
to the achievement of the Committee’s dual-mandate
goals over the medium term. These challenges
included the proximity of the policy rate to the ELB,
imprecise knowledge about the neutral value of the
policy rate and the longer-run normal level of the
unemployment rate, the diminished response of
inflation to resource utilization, and uncertainty
about the relationship between inflation expectations
and inflation outcomes.
In their discussion, participants welcomed the review
of the monetary policy framework. They noted that
the inclusion of feedback from the public as part of
the review, via the Fed Listens events, had improved
the transparency of the review process, enhanced the
Federal Reserve’s public accountability, and provided
insights into the positive implications of strong labor
markets and high rates of employment for various
communities. Furthermore, participants agreed that
the review was timely and warranted, in light of the
use over the past decade of new policy tools and the
emergence of changes in the structure and operation
of the U.S. economy. These changes included the
long period during which the federal funds rate was
at the ELB, the probable recurrence of ELB episodes
if the neutral level of the policy rate remains at his-

219

torically low levels, and the challenges that policymakers face in influencing inflation and inflation
expectations when the response of inflation to
resource utilization has diminished. Participants generally agreed that the Committee’s consideration of
possible modifications to its policy strategy, tools,
and communication practices would take some time
and that the process would be careful, deliberate, and
patient.
With regard to the current monetary policy framework, participants agreed that this framework had
served the Committee and the U.S. economy well
over the past decade. They judged that forward guidance and balance sheet actions had provided policy
accommodation during the ELB period and had supported economic activity and a return to strong labor
market conditions while also bringing inflation closer
to the Committee’s longer-run goal of 2 percent than
would otherwise have been the case. In addition, participants noted that the Committee’s balanced
approach to promoting its dual mandate of maximum employment and price stability had facilitated
Committee policy actions aimed at supporting the
labor market and economic activity even during
times when the provision of accommodation was
potentially associated with the risk of inflation running persistently above 2 percent. Participants further
observed that such inflation risks—along with several
of the other perceived risks of providing substantial
accommodation through nontraditional policy tools,
including possible adverse implications for financial
stability—had not been realized. In particular, a
number of participants commented that, as many of
the potential costs of the Committee’s asset purchases had failed to materialize, the Federal Reserve
might have been able to make use of balance sheet
tools even more aggressively over the past decade in
providing appropriate levels of accommodation.
However, several participants remarked that considerable uncertainties remained about the costs and
efficacy of asset purchases, and a couple of participants suggested that, taking account of the uncertainties and the perceived constraints facing policymakers in the years following the recession, the Committee’s decisions on the amount of policy
accommodation to provide through asset purchases
had been appropriate.
In their discussion of policy tools, participants noted
that the experience acquired by the Committee with
the use of forward guidance and asset purchases has
led to an improved understanding of how these tools
operate; as a result, the Committee could proceed

220

106th Annual Report | 2019

more confidently and preemptively in using these
tools in the future if economic circumstances warranted. Participants discussed the extent to which
forward guidance and balance sheet actions could
substitute for reductions in the policy rate when the
policy rate is constrained by the ELB. Overall, participants judged that the Federal Reserve’s ability to
provide monetary policy accommodation at the ELB
through the use of forward guidance and balance
sheet tools, while helpful in mitigating the effects of
the constraint on monetary policy arising from the
lower bound, did not eliminate the risk of protracted
periods in which the ELB hinders the conduct of
policy. If policymakers are not able to provide sufficient accommodation at the ELB through the use of
forward guidance or balance sheet actions, the constraints posed by the ELB could be an impediment to
the attainment of the Federal Reserve’s dualmandate objectives over time and put at risk the
anchoring of inflation expectations at the Committee’s longer-run inflation objective.
Participants looked forward to a detailed discussion
over coming meetings of alternative strategies for
monetary policy. Some participants offered remarks
on general features of some of the monetary policy
strategies that they would be discussing and on the
relationship between those strategies and the current
framework. A few of the options mentioned were
“makeup strategies,” in which the realization of inflation below the 2 percent objective would give rise to
policy actions designed to deliver inflation above the
objective for a time. In principle, such makeup strategies could be designed to promote a 2 percent inflation rate, on average, over some period. In such circumstances, market expectations that the central
bank would seek to “make up” inflation shortfalls
following periods during which the ELB was binding
could help ease overall financial conditions and thus
help support economic activity during ELB episodes.
However, many participants noted that the benefits
of makeup strategies in supporting economic activity
and stabilizing inflation depended heavily on the private sector’s understanding of those strategies and
confidence that future policymakers would take
actions consistent with those strategies. A few participants suggested that an alternative means of delivering average inflation equal to the Committee’s
longer-run objective might involve aiming for inflation somewhat in excess of 2 percent when the policy
rate was away from the ELB, recognizing that inflation would tend to move lower when the policy rate
was constrained by the ELB. Another possibility
might be for the Committee to express the inflation

goal as a range centered on 2 percent and aim to
achieve inflation outcomes in the upper end of the
range in periods when resource utilization was high.
A couple of participants noted that an adoption of a
target range would be consistent with the practice of
some other central banks. A few other participants
suggested that the adoption of a range could convey
a message that small deviations of inflation from
2 percent were unlikely to give rise to sizable policy
responses. A couple of participants expressed concern that if policymakers regularly failed to respond
appropriately to persistent, relatively small shortfalls
of inflation below the 2 percent longer-run objective,
inflation expectations and average observed inflation
could drift below that objective.
Participants also discussed the Committee’s Statement on Longer-Run Goals and Monetary Policy
Strategy. Participants noted that this statement had
been helpful in articulating and clarifying the Federal
Reserve’s approach to monetary policy. The Committee first released this document in January 2012 and
had renewed it, with a few modifications, every year
since then. On the basis of the monetary policy and
economic experience of the past decade, participants
cited a number of topics that they would likely discuss in detail in their deliberations during the review
and that might motivate possible modifications to the
statement. These topics included the conduct of
monetary policy in the presence of the ELB constraint, the role of inflation expectations in monetary
policy, the best means of conveying the Committee’s
balanced approach to monetary policy and the symmetry of its inflation goal, the relationship between
the Committee’s strategy and its decisions about the
settings of its policy tools, the implications of the low
value of the neutral policy rate and of uncertainty
about the values of the neutral policy rate and the
longer-run normal rate of unemployment, the potential benefits and costs of unemployment running
below its longer-run normal rate in conditions of
muted inflation pressures, and the time frame over
which policymakers aimed to achieve their dualmandate goals. A couple of participants emphasized
the availability to policymakers of other communication tools through which the Committee could elaborate on its policy strategy and the challenges that
monetary policy faced in the current environment,
while also indicating that the Committee retains flexibility and optionality to achieve its objectives. Participants highlighted the importance of the Summary
of Economic Projections (SEP) in conveying participants’ modal outlooks, with several participants suggesting that modifications to the SEP’s format might

Minutes of Federal Open Market Committee Meetings | July

enhance policy communications. Participants also
commented on the importance of considering the
connections between monetary policy and financial
stability.
Participants expected that, at upcoming meetings,
they would continue their deliberations on the review
of the Federal Reserve’s monetary policy strategy,
tools, and communication practices. These additional
discussions would consider various topics, such as
alternative policy strategies, options for enhanced use
of existing monetary policy tools, possible additions
to the policy toolkit, potential changes to communication practices, the relationship between monetary
policy and financial stability, and the distributional
effects of monetary policy.

Developments in Financial Market
Developments and Open Market
Operations
The manager pro tem discussed developments in
financial markets over the intermeeting period.
Regarding market participants’ views about the July
FOMC meeting, nearly all respondents from the July
Open Market Desk surveys of dealers and market
participants expected a 25 basis point cut in the target range for the federal funds rate, a substantial shift
from the June surveys when a significant majority
had a modal forecast for no change. Survey responses
also suggested that expectations had coalesced
around a modal forecast for a total of two 25 basis
point cuts in the target range in 2019 and no change
thereafter through year-end 2021. Regarding balance
sheet policy, survey respondents that expected a rate
cut at this meeting were almost evenly split on
whether the Committee would also choose to end
balance runoff immediately after the meeting or to
maintain the existing plan to halt runoff at the end of
September. Market participants generally judged that
a two-month change in the timing of the end of the
balance sheet runoff would have only a small effect
on the path of the balance sheet and thus very little,
if any, economic effect.
Expectations for near-term domestic policy easing had
occurred against the backdrop of a global shift toward
more accommodative monetary policy. Several central
banks had eased policy over the past month and a
number of others shifted to an easing bias. Market
participants were particularly attentive to a statement
after the European Central Bank’s Governing Council
meeting that was perceived as affirming expectations
for further easing and additional asset purchases.

221

These changes to the policy outlook in the United
States and across a number of countries appeared to
play an important role in supporting financial conditions and offsetting some of the drag on growth from
trade tensions and other risks.
Somewhat reduced concern among market participants about important risks to the global outlook
also appeared to support risk asset prices. Following
the G-20 (Group of Twenty) meeting in late June,
fewer Desk contacts and respondents to the Desk
surveys expected a significant escalation of U.S.China trade tensions. In addition, investor sentiment
was bolstered by news that the Administration and
Congress had reached a budget and debt ceiling
agreement that, if passed, would remove another
source of risk later this year. That said, contacts recognized that some potentially sizeable downside risks
remained. Many survey respondents still viewed U.S.China trade risks as skewed to the downside, and
many Desk contacts judged that the risks of a “nodeal” Brexit had increased.
The manager pro tem next discussed developments in
money markets and open market operations. The
spreads of the effective federal funds rate (EFFR)
and the median Eurodollar rate relative to the interest on excess reserves (IOER) rate had increased
some and become more variable over recent months,
with a notable pickup in daily changes in these
spreads since late March. Moreover, the range of
rates in unsecured markets each day had widened.
Market participants pointed to pressures in repurchase agreement (repo) markets as one factor contributing to the uptick in volatility in unsecured rates.
These pressures, in turn, seemed to stem partly from
elevated dealer inventories of Treasury securities and
dealers’ associated financing needs. Market participants also pointed to lower reserve balances as a factor affecting rates in unsecured money market rates.
Over the intermeeting period, the level of reserves
was little changed on net; however, some market participants noted the association between the gradual
increase in unsecured rates relative to the IOER rate
over recent months and the declining level of reserves
since System Open Market Account (SOMA)
redemptions began. The level of reserves was
expected to decline appreciably over coming months,
partly reflecting an anticipated sizable increase in the
Treasury’s balance at the Federal Reserve following
the agreement on the federal budget and debt ceiling.
The manager pro tem updated the Committee on
Desk plans to resume CUSIP (Committee on Uni-

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form Securities Identification Procedures) aggregation of SOMA holdings of Fannie Mae and Freddie
Mac agency mortgage-backed securities (MBS) to
reduce administrative costs and operational complexity, and the Desk expects to release a statement in
August with details on the aggregation strategy.
By unanimous vote, the Committee ratified the
Desk’s domestic transactions over the intermeeting
period. There were no intervention operations in foreign currencies for the System’s account during the
intermeeting period.

Staff Review of the Economic Situation
The information available for the July 30–31 meeting
indicated that labor market conditions remained
strong and that real gross domestic product (GDP)
increased at a moderate rate in the second quarter.
Consumer price inflation, as measured by the
12-month percentage change in the price index for
personal consumption expenditures (PCE), was
below 2 percent in June. Survey-based measures of
longer-run inflation expectations were little changed.
Total nonfarm payroll employment expanded at a
solid rate, on average, in recent months, supported by
a brisk gain in June. The unemployment rate edged
up to 3.7 percent in June but was still at a historically
low level. The labor force participation rate also
moved up somewhat but was close to its average over
the previous few years, and the employment-topopulation ratio stayed flat. The unemployment rates
for African Americans and Asians declined in June,
the rate for whites was unchanged, and the rate for
Hispanics edged up; the unemployment rate for each
group was below its level at the end of the previous
economic expansion, though persistent differentials
between these rates remained. The share of workers
employed part time for economic reasons in June
continued to be below the lows reached in late 2007.
The rate of private-sector job openings held steady in
May, while the rate of quits edged down but was still
at a high level; the four-week moving average of initial claims for unemployment insurance benefits
through mid-July was near historically low levels.
Average hourly earnings for all employees rose
3.1 percent over the 12 months ending in June, somewhat faster than a year earlier. The employment cost
index for private-sector workers increased 2.6 percent
over the 12 months ending in June, the same as a year
earlier. (Data on compensation per hour that
reflected the recent annual update of the national

income and product accounts by the Bureau of Economic Analysis (BEA) were not available at the time
of the meeting.)
Total consumer prices, as measured by the PCE price
index, increased 1.4 percent over the 12 months ending in June. This increase was slower than a year earlier, as core PCE price inflation (which excludes
changes in consumer food and energy prices) moved
down to 1.6 percent, consumer food price inflation
remained below core inflation, and consumer energy
prices declined. The average monthly change in the
core PCE price index during the second quarter was
faster than in the first quarter, suggesting that some
of the soft inflation readings early in the year were
transitory. The trimmed mean measure of 12-month
PCE price inflation constructed by the Federal
Reserve Bank of Dallas remained at or near 2 percent in recent months. The consumer price index
(CPI) rose 1.6 percent over the 12 months ending in
June, while core CPI inflation was 2.1 percent.
Recent survey-based measures of longer-run inflation expectations were little changed on balance. The
preliminary July reading from the University of
Michigan Surveys of Consumers moved back up
after dipping in June but was still at a relatively low
level; the measures from the Desk’s Survey of Primary Dealers and Survey of Market Participants
were little changed.
Real consumer expenditures rose briskly in the second quarter after a sluggish gain in the first quarter,
supported in part by a robust pace of light motor
vehicle sales in May and June. However, real PCE
rose more slowly in June than in the first five months
of the year, suggesting some deceleration in consumer spending going into the third quarter. Key factors that influence consumer spending—including a
low unemployment rate, further gains in real disposable income, and elevated measures of households’
net worth—were supportive of solid real PCE growth
in the near term. In addition, the preliminary July
reading on the Michigan survey measure of consumer sentiment remained at an upbeat level.
Real residential investment declined again in the second quarter. Although starts of new single-family
homes rose in June, the average in the second quarter
was lower than in the first quarter; starts of multifamily units fell back in June but rose for the second quarter as a whole. Building permit issuance for new singlefamily homes—which tends to be a good indicator of
the underlying trend in construction of such homes—

Minutes of Federal Open Market Committee Meetings | July

was at roughly the same level in June as its first-quarter
average. On net in May and June, sales of new homes
declined, while sales of existing homes rose.
Real nonresidential private fixed investment edged
down in the second quarter, as a decline in expenditures on nonresidential structures more than offset an
increase in expenditures for business equipment and
intellectual property. Forward-looking indicators of
fixed investment were mixed. Orders for nondefense
capital goods excluding aircraft increased in June,
and some measures of business sentiment improved.
However, analysts’ expectations of firms’ longer-term
profit growth remained soft, trade policy concerns
appeared to be weighing on investment, and the number of crude oil and natural gas rigs in operation—an
indicator of business spending for structures in the
drilling and mining sector—continued to decrease in
recent weeks.
Industrial production (IP) was unchanged in June, as
a decrease in the output of utilities offset increases in
the output of manufacturers and mines. For the second quarter as a whole, both total IP and manufacturing output declined, while mining output rose
notably, supported by a strong gain in crude oil
extraction. Automakers’ assembly schedules suggested that production of light motor vehicles would
move up somewhat in the third quarter. However,
new orders indexes from national and regional manufacturing surveys pointed toward continued softness
in manufacturing production in coming months.
Total real government purchases rose solidly in the
second quarter. Federal defense spending increased,
and nondefense purchases returned to more typical
levels after the partial federal government shutdown
in the first quarter. Real purchases by state and local
governments rose moderately, boosted by a strong
gain in spending on structures and an increase in the
payrolls of those governments.
The nominal U.S. international trade deficit widened
in May relative to April, as imports increased more
than exports. In June, preliminary data indicated
declining nominal goods exports and imports. Within
exports, declines were particularly notable for exports
of consumer goods and capital goods, the latter of
which had already been depressed by the suspension
of Boeing 737 MAX exports. All told, the BEA estimates that net exports, after adding moderately to
first-quarter GDP growth, subtracted a similar
amount from GDP growth in the second quarter on
declining exports and flat imports.

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Incoming data suggested that growth in the foreign
economies remained subdued in the second quarter.
In several key advanced foreign economies, including
the euro area, recent indicators pointed to slowing
economic growth amid continued weakness in manufacturing and persistent policy-related uncertainty.
Similarly, in China, real GDP growth slowed notably
in the second quarter after a first-quarter jump. In
contrast, growth in Canada and, to a lesser extent,
Latin America appeared to pick up from a weak firstquarter pace. Foreign inflation remained muted but
rose a bit from lows earlier in the year, largely reflecting higher energy prices.

Staff Review of the Financial Situation
Over the intermeeting period, financial market developments reflected noticeable shifts in expectations for
monetary policy in response to Federal Reserve communications, economic data releases, and trade policy
developments. Federal Reserve communications were
generally regarded as more accommodative than had
been anticipated, exerting downward pressure on
measures of the expected path for the federal funds
rate. However, some better-than-expected economic
data releases and a slight improvement in the outlook
regarding trade partially offset these declines. Yields
on nominal Treasury securities were little changed on
net. Equity prices increased, corporate bond spreads
narrowed, and inflation compensation rose modestly.
Financing conditions for businesses and households
were little changed over the intermeeting period and
remained generally supportive of spending.
Measures of expectations for near-term domestic
monetary policy exhibited notable shifts and reversals over the intermeeting period and ended the
period little changed, on net, with market participants still attaching high odds to a 25 basis point
reduction in the target range for the federal funds
rate at the July FOMC meeting. Consistent with significant variation in near-term expectations for monetary policy, market-based indicators of interest rate
uncertainty for shorter maturities over the near term
remained somewhat elevated. Over the intermeeting
period, market-based expectations for the federal
funds rate for the end of this year and beyond moved
down slightly on net. A straight read of OIS (overnight index swap) forward rates implied that the federal funds rate would decline about 60 basis points in
2019 and about 35 basis points in 2020.
The nominal U.S. Treasury yield curve was little
changed, on net, over the intermeeting period. Both

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the near-term forward spread and the spread between
10-year and 3-month Treasury yields are still in the
bottom decile of their respective distributions since
1971. On net, in the weeks following the June FOMC
meeting, 5-year and 5-to-10-year inflation compensation based on Treasury Inflation-Protected Securities
(TIPS) moved up modestly. More-accommodativethan-expected Federal Reserve communications,
stronger-than-expected inflation data releases, and
rising oil prices—amid increased geopolitical tensions
with Iran—contributed to the upward pressure on
inflation compensation.
Broad stock price indexes increased, on net, over the
intermeeting period, with notable increases following
the June FOMC communications, the Chair’s July
Monetary Policy Report testimony, and announcements regarding trade negotiations following the
G-20 meeting. Additionally, there was a slight positive reaction to news of an agreement on the federal
budget and debt limit. Equity price increases were
broad based across major sectors, with technology,
financial, and communication services firms outperforming broad indexes. One-month option-implied
volatility on the S&P 500 index—the VIX—
decreased slightly, on net, and corporate credit
spreads narrowed.
Conditions in domestic short-term funding markets
remained fairly stable. Overnight interest rates in
both unsecured and secured markets were somewhat
elevated over the period. In particular, repo rates
were elevated on and after the June quarter-end, with
the SOFR (Secured Overnight Financing Rate) averaging 8 basis points above the IOER rate over the
intermeeting period. However, the EFFR remained
well within the target range, averaging 5 basis points
above the IOER rate. Rates on commercial paper and
negotiable certificates of deposit declined somewhat.
Accommodative central bank communications, both
in the United States and abroad, and some easing of
trade tensions generally supported foreign risky
assets over the intermeeting period. Global equity
indexes increased modestly, while emerging market
sovereign spreads narrowed. On balance, the broad
dollar index ended the period modestly lower. Notably, the British pound depreciated significantly
against the U.S. dollar, reportedly as developments
led investors to raise the probability they attached to
a no-deal Brexit.
Most sovereign long-term bond yields edged lower,
on net, reflecting firming expectations for further

policy accommodation amid growing concerns about
the global economic outlook. Italian yields declined
notably, in part as the government passed some fiscal
consolidation measures. The European Central Bank
left its policy rate unchanged at its July meeting but
signaled possible rate cuts at coming meetings and
said it will explore options for additional asset purchases. Several emerging market central banks,
including South Korea, Turkey, and Indonesia, lowered policy rates over the period.
Financing conditions for nonfinancial businesses
remained accommodative. Gross issuance of corporate bonds remained robust in June, followed by a
typical seasonal decline in July. Issuance of institutional leveraged loans increased notably in May but
in June, it returned to the more moderate pace
observed earlier this year. Respondents to the
July 2019 Senior Loan Officer Opinion Survey on
Bank Lending Practices (SLOOS) reported that, on
net, banks continued to ease standards and terms on
commercial and industrial loans to large and middlemarket firms in the second quarter, with many citing
aggressive competition as the reason for doing so.
Gross equity issuance has been strong in recent
months. The credit quality of nonfinancial corporations continued to show signs of stabilization in June
following some deterioration earlier in the year.
Credit conditions for both small businesses and
municipalities remained accommodative on balance.
In the commercial real estate (CRE) sector, financing
conditions remained generally accommodative
despite a modest deceleration in bank loan growth.
Banks in the July SLOOS reported that standards
were about unchanged, on net, in the second quarter
for most CRE loan categories. Agency and nonagency commercial MBS issuance was strong in the
second quarter, as yield spreads ticked down.
Financing conditions in the residential mortgage
market remained accommodative over the intermeeting period. Mortgage rates were little changed since
the June FOMC meeting but remained about 1 percentage point below their late-2018 level. These conditions have supported a modest increase in homepurchase origination volume in recent months. Refinance originations have risen as well but remain near
historical lows.
In consumer credit markets, financing conditions
were little changed in recent months and remained
generally supportive of consumer spending. Growth
in consumer credit in April and May was up a bit

Minutes of Federal Open Market Committee Meetings | July

from earlier in the year due to a pickup in credit card
balances. Banks in the July SLOOS continued to
report tightened standards for credit cards over the
second quarter.
The staff provided an update on its assessments of
potential risks to financial stability. On balance, the
staff continued to view vulnerabilities as moderate.
The staff judged asset valuation pressures to be
notable in a number of markets, supported in part by
the low level of Treasury yields. In assessing vulnerabilities stemming from leverage in the household
and business sectors, the staff noted that business
leverage was high while household leverage was moderate. The staff viewed the buildup in nonfinancial
business-sector debt as a factor that could amplify
adverse shocks to the business sector and the
economy more generally. Within business debt, the
staff also reported that in the leveraged loan market,
the share of new loans to risky borrowers was at a
record high, and credit extended by private equity
firms had continued to grow. At the same time,
financial institutions were viewed as resilient, as the
risks associated with financial leverage and funding
risk were still viewed as low despite some signs of rising leverage and continued inflows into run-prone
funds. Separately, the staff noted that market liquidity was, overall, in good shape, although sudden price
drops had become more frequent in some markets.

Staff Economic Outlook
The projection for U.S. economic activity prepared
by the staff for the July FOMC meeting was revised
up somewhat in the near term, as an upward revision
to households’ real disposable income in the first half
of the year led to a slightly higher second-half forecast for consumer spending. Even so, real GDP
growth was still forecast to rise more slowly in the
second half of the year than in the first half, primarily reflecting continued soft business investment and
a slower increase in government spending. The projection for real GDP growth over the medium term
was a little stronger, supported by the effects of a
higher projected path for equity prices and a lower
trajectory for interest rates. Real GDP was forecast to
expand at a rate a little above the staff’s estimate of
potential output growth in 2019 and 2020 and then
slow to a pace slightly below potential output growth
in 2021. The unemployment rate was projected to be
roughly flat through 2021 and to remain below the
staff’s estimate of its longer-run natural rate. With
labor market conditions judged to be tight, the staff

225

continued to assume that projected employment
gains would manifest in smaller-than-usual downward pressure on the unemployment rate and in
larger-than-usual upward pressure on the labor force
participation rate.
The staff’s forecast of total PCE price inflation this
year was revised up a touch, reflecting a slightly
higher projected path for consumer energy prices,
while the forecast for core PCE price inflation was
unrevised at a level below 2 percent. Both total and
core inflation were projected to move up slightly next
year, as the low readings early this year were expected
to be transitory, but nevertheless to continue to run
below 2 percent.
The staff continued to view the uncertainty around
its projections for real GDP growth, the unemployment rate, and inflation as generally similar to the
average of the past 20 years. Moreover, the staff still
judged that the risks to the forecast for real GDP
growth were tilted to the downside, with a corresponding skew to the upside for the unemployment
rate. Important factors in that assessment were that
international trade tensions and foreign economic
developments seemed more likely to move in directions that could have significant negative effects on
the U.S. economy than to resolve more favorably
than assumed. In addition, softness in business
investment and manufacturing so far this year was
seen as pointing to the possibility of a more substantial slowing in economic growth than the staff projected. With the risks to the forecast for economic
activity tilted to the downside, the risks to the inflation projection were also viewed as having a downward skew.

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Participants continued to view a sustained expansion
of economic activity, strong labor market conditions,
and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes. This outlook was predicated on financial conditions that were
more accommodative than earlier this year. More
accommodative financial conditions, in turn, partly
reflected market reaction to the downward adjustment through the course of the year in the Committee’s assessment of the appropriate path for the target
range of the federal funds rate in light of weak global
economic growth, trade policy uncertainty, and
muted inflation pressures.

Participants also discussed developments across the
manufacturing, agriculture, and energy sectors of the
U.S. economy. Manufacturing production had
declined so far this year, dragged down in part by
weak real exports, the ongoing global slowdown, and
trade uncertainties. Several participants noted ongoing challenges in the agricultural sector, including
those associated with increased trade uncertainty,
weak export demand, and the effects of wet weather
and severe flooding. A couple of participants commented on the decline in energy prices since last fall
and the associated reduction in economic activity in
the energy sector.

Participants generally noted that incoming data over
the intermeeting period had been largely positive and
that the economy had been resilient in the face of
ongoing global developments. The economy continued to expand at a moderate pace, and participants
generally expected GDP growth to slow a bit to
around its estimated potential rate in the second half
of the year. However, participants also observed that
global economic growth had been disappointing,
especially in China and the euro area, and that trade
policy uncertainty, although waning some over the
intermeeting period, remained elevated and looked
likely to persist. Furthermore, inflation pressures
continued to be muted, notwithstanding the firming
in the overall and core PCE price indexes in the three
months ending in June relative to earlier in the year.

Participants commented on the robust pace of consumer spending. Noting the important role that
household spending was currently playing in supporting the expansion, participants judged that
household spending would likely continue to be supported by strong labor market conditions, rising
incomes, and upbeat consumer sentiment. A few participants noted that the continued softness in residential investment was a concern, and that the expected
boost to housing activity from the decline in mortgage rates since last fall had not yet materialized. In
contrast, a couple of participants reported that some
recent indicators of housing activity in their Districts
had been somewhat more positive of late.

In their discussion of the business sector, participants
generally saw uncertainty surrounding trade policy
and concerns about global growth as continuing to
weigh on business confidence and firms’ capital
expenditure plans. Participants generally judged that
the risks associated with trade uncertainty would
remain a persistent headwind for the outlook, with a
number of participants reporting that their business
contacts were making decisions based on their view
that uncertainties around trade were not likely to dissipate anytime soon. Some participants observed that
trade uncertainties had receded somewhat, especially
with the easing of trade tensions with Mexico and
China. Several participants noted that, over the intermeeting period, business sentiment seemed to
improve a bit and commented that the data for new
capital goods orders had improved. Some participants expressed the view that the effects of trade
uncertainty had so far been modest and referenced
reports from business contacts in their Districts that
investment plans were continuing, though with a
more cautious posture.

In their discussion of the labor market, participants
judged that conditions remained strong, with the
unemployment rate near historical lows and continued solid job gains, on average, in recent months. Job
gains in June were stronger than expected, following
a weak reading in May. Looking ahead, participants
expected the labor market to remain strong, with the
pace of job gains slower than last year but above
what is estimated to be necessary to hold labor utilization steady. Reports from business contacts
pointed to continued strong labor demand, with
many firms reporting difficulty finding workers to
meet current demand. Several participants reported
seeing notable wage pressures for lower-wage workers. However, participants viewed overall wage
growth as broadly consistent with the modest average
rates of labor productivity growth in recent years
and, consequently, as not exerting much upward
pressure on inflation. Several participants remarked
that there seemed to be little sign of overheating in
labor markets, citing the combination of muted inflation pressures and moderate wage growth.

Minutes of Federal Open Market Committee Meetings | July

Regarding inflation developments, some participants
stressed that, even with the firming of readings for
consumer prices in recent months, both overall and
core PCE price inflation rates continued to run below
the Committee’s symmetric 2 percent objective; the
latest reading on the 12-month change in the core
PCE price index was 1.6 percent. Furthermore, continued weakness in global economic growth and
ongoing trade tensions had the potential to slow U.S.
economic activity and thus further delay a sustained
return of inflation to the 2 percent objective. Many
other participants, however, saw the recent inflation
data as consistent with the view that the lower readings earlier this year were largely transitory, and
noted that the trimmed mean measure of PCE price
inflation constructed by the Federal Reserve Bank of
Dallas was running around 2 percent. A few participants noted differences in the behavior of measures
of cyclical and acyclical components of inflation. By
some estimates, the cyclical component of inflation
continued to firm; the acyclical component, which
appeared to be influenced by sectoral and technological changes, was largely responsible for the low level
of inflation and not likely to respond much to monetary policy actions.
In their discussion of the outlook for inflation, participants generally anticipated that with appropriate
policy, inflation would move up to the Committee’s
2 percent objective over the medium term. However,
market-based measures of inflation compensation
and some survey measures of consumers’ inflation
expectations remained low, although they had moved
up some of late. A few participants remarked that
inflation expectations appeared to be reasonably well
anchored at levels consistent with the Committee’s
2 percent inflation objective. However, some participants stressed that the prolonged shortfall in inflation from the long-run goal could cause inflation
expectations to drift down—a development that
might make it more difficult to achieve the Committee’s mandated goals on a sustained basis, especially
in the current environment of global disinflationary
pressures. A couple of participants observed that,
although some indicators of longer-term inflation
expectations, like TIPS-based inflation compensation
and the Michigan survey measure, had not changed
substantially this year, on net, they were notably
lower than their levels several years ago.
Participants generally judged that downside risks to
the outlook for economic activity had diminished
somewhat since their June meeting. The strong June
employment report suggested that the weak May

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payroll figures were not a precursor to a more material slowdown in job growth. The agreement between
the United States and China to resume negotiations
appeared to ease trade tensions somewhat. In addition, many participants noted that the recent agreement on the federal debt ceiling and budget appropriations substantially reduced near-term fiscal policy
uncertainty. Moreover, the possibility of favorable
outcomes of trade negotiations could be a factor that
would provide a boost to economic activity in the
future. Still, important downside risks persisted. In
particular, participants were mindful that trade tensions were far from settled and that trade uncertainties could intensify again. Continued weakness in
global economic growth remained a significant
downside risk, and some participants noted that the
likelihood of a no-deal Brexit had increased.
In their discussion of financial market developments,
participants observed that financial conditions
remained supportive of economic growth, with borrowing rates low and stock prices near all-time highs.
Participants observed that current financial conditions appeared to be premised importantly on expectations that the Federal Reserve would ease policy to
help offset the drag on economic growth stemming
from the weaker global outlook and uncertainties
associated with international trade as well as to provide some insurance to address various downside
risks. Participants also discussed the decline in yields
on longer-term nominal Treasury securities in recent
months. A few participants expressed the concern
that the inversion of the Treasury yield curve, as evidenced by the 10-year yield falling below the 3-month
yield, had persisted for about two months, which
could indicate that market participants anticipated
weaker economic conditions in the future and that
the Federal Reserve would soon need to lower the
federal funds rate substantially in response. The
longer-horizon real forward rate implied by TIPS had
also declined, suggesting that the longer-run normal
level of the real federal funds rate implicit in market
prices was lower.
Among those participants who commented on financial stability, most highlighted recent credit market
developments, the elevated valuations in some asset
markets, and the high level of nonfinancial corporate
indebtedness. Several participants noted that high
levels of corporate debt and leveraged lending posed
some risks to the outlook. A few participants discussed the fast growth of private credit markets—a
sector not subject to the same degree of regulatory
scrutiny and requirements that applies in the banking

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sector—and commented that it was important to
monitor this market. Several participants observed
that valuations in equity and corporate bond markets
were near all-time highs and that CRE valuations
were also elevated. A couple of participants noted
that the low level of Treasury yields—a factor seen as
supporting asset prices across a range of markets—
was a potential source of risk if yields moved sharply
higher. However, these participants judged that in the
near term, such risks were small in light of the monetary policy outlooks in the United States and
abroad and generally subdued inflation. A few participants expressed the concern that capital ratios at
the largest banks had continued to fall at a time when
they should ideally be rising and that capital ratios
were expected to decline further. Another view was
that financial stability risks at present are moderate
and that the largest banks would continue to maintain very substantial capital cushions in light of a
range of regulatory requirements, including rigorous
stress tests.
In their discussion of monetary policy decisions at
this meeting, those participants who favored a reduction in the target range for the federal funds rate
pointed to three broad categories of reasons for supporting that action.
• First, while the overall outlook remained favorable,
there had been signs of deceleration in economic
activity in recent quarters, particularly in business
fixed investment and manufacturing. A pronounced slowing in economic growth in overseas
economies—perhaps related in part to developments in, and uncertainties surrounding, international trade—appeared to be an important factor
in this deceleration. More generally, such developments were among those that had led most participants over recent quarters to revise down their estimates of the policy rate path that would be appropriate to promote maximum employment and
stable prices.
• Second, a policy easing at this meeting would be a
prudent step from a risk-management perspective.
Despite some encouraging signs over the intermeeting period, many of the risks and uncertainties surrounding the economic outlook that had been a
source of concern in June had remained elevated,
particularly those associated with the global economic outlook and international trade. On this
point, a number of participants observed that
policy authorities in many foreign countries had
only limited policy space to support aggregate

demand should the downside risks to global economic growth be realized.
• Third, there were concerns about the outlook for
inflation. A number of participants observed that
overall inflation had continued to run below the
Committee’s 2 percent objective, as had inflation
for items other than food and energy. Several of
these participants commented that the fact that
wage pressures had remained only moderate
despite the low unemployment rate could be a sign
that the longer-run normal level of the unemployment rate is appreciably lower than often assumed.
Participants discussed indicators for longer-term
inflation expectations and inflation compensation.
A number of them concluded that the modest
increase in market-based measures of inflation
compensation over the intermeeting period likely
reflected market participants’ expectation of more
accommodative monetary policy in the near future;
others observed that, while survey measures of
inflation expectations were little changed from
June, the level of expectations by at least some
measures was low. Most participants judged that
long-term inflation expectations either were already
below the Committee’s 2 percent goal or could
decline below the level consistent with that goal
should there be a continuation of the pattern of
inflation coming in persistently below 2 percent.
A couple of participants indicated that they would
have preferred a 50 basis point cut in the federal
funds rate at this meeting rather than a 25 basis point
reduction. They favored a stronger action to better
address the stubbornly low inflation rates of the past
several years, recognizing that the apparent low sensitivity of inflation to levels of resource utilization
meant that a notably stronger real economy might be
required to speed the return of inflation to the Committee’s inflation objective.
Several participants favored maintaining the same
target range at this meeting, judging that the real
economy continued to be in a good place, bolstered
by confident consumers, a strong job market, and a
low rate of unemployment. These participants
acknowledged that there were lingering risks and
uncertainties about the global economy in general,
and about international trade in particular, but they
viewed those risks as having diminished over the
intermeeting period. In addition, they viewed the
news on inflation over the intermeeting period as
consistent with their forecasts that inflation would

Minutes of Federal Open Market Committee Meetings | July

move up to the Committee’s 2 percent objective at an
acceptable pace without an adjustment in policy at
this meeting. Finally, a few participants expressed
concerns that further monetary accommodation presented a risk to financial stability in certain sectors of
the economy or that a reduction in the target range
for the federal funds rate at this meeting could be
misinterpreted as a negative signal about the state of
the economy.
Participants also discussed the timing of ending the
reduction in the Committee’s aggregate securities
holdings in the SOMA. Ending the reduction of
securities holdings in August had the advantage of
avoiding the appearance of inconsistency in continuing to allow the balance sheet to run off while simultaneously lowering the target range for the federal
funds rate. But ending balance sheet reduction earlier
than under its previous plan posed some risk of fostering the erroneous impression that the Committee
viewed the balance sheet as an active tool of policy.
Because the proposed change would end the reduction of its aggregate securities holdings only two
months earlier than previously indicated, policymakers concluded that there were only small differences
between the two options in their implications for the
balance sheet and thus also in their economic effects.
In their discussion of the outlook for monetary
policy beyond this meeting, participants generally
favored an approach in which policy would be guided
by incoming information and its implications for the
economic outlook and that avoided any appearance
of following a preset course. Most participants
viewed a proposed quarter-point policy easing at this
meeting as part of a recalibration of the stance of
policy, or mid-cycle adjustment, in response to the
evolution of the economic outlook over recent
months. A number of participants suggested that the
nature of many of the risks they judged to be weighing on the economy, and the absence of clarity
regarding when those risks might be resolved, highlighted the need for policymakers to remain flexible
and focused on the implications of incoming data for
the outlook.

Committee Policy Action
In their discussion of monetary policy for this meeting, members noted that while there had been some
improvement in economic conditions over the intermeeting period and the overall outlook remained
favorable, significant risks and uncertainties attending the outlook remained. In particular, sluggish U.S.

229

business fixed investment spending and manufacturing output had lingered, suggesting that risks and
uncertainties associated with weak global economic
growth and in international trade were weighing on
the domestic economy. Strong labor markets and rising incomes continued to support the outlook for
consumer spending, but modest growth in prices and
wages suggested that inflation pressures remained
muted. Inflation had continued to run below the
Committee’s 2 percent symmetric objective. Marketbased measures of inflation compensation moved up
modestly from the low levels recorded in June, but a
portion of this change likely reflected the expectation
by market participants of additional near-term monetary accommodation. Survey-based measures of
longer-term inflation expectations were little
changed. On this basis, all but two members agreed
to lower the target range for the federal funds rate to
2 to 2¼ percent at this meeting.
With this adjustment to policy, those members who
voted for the policy action sought to better position
the overall stance of policy to help counter the effects
on the outlook of weak global growth and trade
policy uncertainty, insure against any further downside risks from those sources, and promote a faster
return of inflation to the Committee’s symmetric
2 percent objective than would otherwise be the case.
Those members noted that the action taken at this
meeting should be viewed as part of an ongoing reassessment of the appropriate path of the federal funds
rate that began in late 2018. Two members preferred
to maintain the current target range for the federal
funds rate. In explaining their policy views, those
members noted that economic data collected over the
intermeeting period had been largely positive and
that they anticipated continued strong labor markets
and solid growth in activity, with inflation gradually
moving up to the Committee’s 2 percent target. One
member also noted that a further easing in policy at a
time when the economy is very strong and asset
prices are elevated could have adverse implications
for financial stability.
Members agreed that in determining the timing and
size of future adjustments to the target range for the
federal funds rate, the Committee would assess realized and expected economic conditions relative to the
Committee’s maximum-employment and symmetric
2 percent inflation objectives. They reiterated that
this assessment would take into account a wide range
of information, including measures of labor market
conditions, indicators of inflation pressures and
inflation expectations, and readings on financial and

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106th Annual Report | 2019

international developments. Members generally
agreed that it was important to maintain optionality
in setting the future target range for the federal funds
rate and, more generally, that near-term adjustments
of the stance of monetary policy would appropriately
remain dependent on the implications of incoming
information for the economic outlook.
With regard to the postmeeting statement, the Committee implemented several adjustments in the
description of the economic situation, including a
revision to recognize that market-based measures of
inflation compensation “remain low.” The Committee stated that the reduction in the target range for
the federal funds rate supported its view that “sustained expansion of economic activity, strong labor
market conditions, and inflation near the Committee’s symmetric 2 percent objective” remained the
most likely outcomes, but “uncertainties about this
outlook remain.” The phrase “as the Committee contemplates the future path” of the target range for the
federal funds rate was added to underscore the Committee’s intention to carefully assess incoming information before deciding on future policy adjustments.
The statement noted that the Committee would
“continue to monitor the implications of incoming
information for the economic outlook” and would
“act as appropriate to sustain the expansion, with a
strong labor market and inflation near its symmetric
2 percent objective.” Finally, the Committee
announced the conclusion of the reduction of securities holdings in the SOMA. Ending the runoff of
securities holdings two months earlier than initially
planned was seen as having only very small effects on
the balance sheet, with negligible implications for the
economic outlook, and was helpful in simplifying
communications regarding the usage of the Committee’s policy tools.
At the conclusion of the discussion, the Committee
voted to authorize and direct the Federal Reserve
Bank of New York, until instructed otherwise, to
execute transactions in the SOMA in accordance
with the following domestic policy directive, to be
released at 2:00 p.m.:
“Effective August 1, 2019, the Federal Open
Market Committee directs the Desk to undertake open market operations as necessary to
maintain the federal funds rate in a target range
of 2 to 2¼ percent, including overnight reverse
repurchase operations (and reverse repurchase
operations with maturities of more than one day
when necessary to accommodate weekend, holi-

day, or similar trading conventions) at an offering rate of 2.00 percent, in amounts limited only
by the value of Treasury securities held outright
in the System Open Market Account that are
available for such operations and by a percounterparty limit of $30 billion per day.
Effective August 1, 2019, the Committee directs
the Desk to roll over at auction all principal payments from the Federal Reserve’s holdings of
Treasury securities and to reinvest all principal
payments from the Federal Reserve’s holdings of
agency debt and agency mortgage-backed securities received during each calendar month. Principal payments from agency debt and agency
mortgage-backed securities up to $20 billion per
month will be reinvested in Treasury securities to
roughly match the maturity composition of
Treasury securities outstanding; principal payments in excess of $20 billion per month will
continue to be reinvested in agency mortgagebacked securities. Small deviations from these
amounts for operational reasons are acceptable.
The Committee also directs the Desk to engage
in dollar roll and coupon swap transactions as
necessary to facilitate settlement of the Federal
Reserve’s agency mortgage-backed securities
transactions.”
The vote also encompassed approval of the statement
below to be released at 2:00 p.m.:
“Information received since the Federal Open
Market Committee met in June indicates that
the labor market remains strong and that economic activity has been rising at a moderate
rate. Job gains have been solid, on average, in
recent months, and the unemployment rate has
remained low. Although growth of household
spending has picked up from earlier in the year,
growth of business fixed investment has been
soft. On a 12-month basis, overall inflation and
inflation for items other than food and energy
are running below 2 percent. Market-based
measures of inflation compensation remain low;
survey-based measures of longer-term inflation
expectations are little changed.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment
and price stability. In light of the implications of
global developments for the economic outlook
as well as muted inflation pressures, the Com-

Minutes of Federal Open Market Committee Meetings | July

mittee decided to lower the target range for the
federal funds rate to 2 to 2¼ percent. This action
supports the Committee’s view that sustained
expansion of economic activity, strong labor
market conditions, and inflation near the Committee’s symmetric 2 percent objective are the
most likely outcomes, but uncertainties about
this outlook remain. As the Committee contemplates the future path of the target range for the
federal funds rate, it will continue to monitor the
implications of incoming information for the
economic outlook and will act as appropriate to
sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent
objective.
In determining the timing and size of future
adjustments to the target range for the federal
funds rate, the Committee will assess realized
and expected economic conditions relative to its
maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of
information, including measures of labor market
conditions, indicators of inflation pressures and
inflation expectations, and readings on financial
and international developments.
The Committee will conclude the reduction of
its aggregate securities holdings in the System
Open Market Account in August, two months
earlier than previously indicated.”
Voting for this action: Jerome H. Powell, John C.
Williams, Michelle W. Bowman, Lael Brainard,
James Bullard, Richard H. Clarida, Charles L.
Evans, Randal K. Quarles.
Voting against this action: Esther L. George and Eric
Rosengren.
President George dissented because she believed that
an unchanged setting of policy was appropriate
based on the incoming data and the outlook for economic activity over the medium term. Recognizing
risks to the outlook from the crosscurrents emanating from trade policy uncertainty and weaker global
activity, President George would be prepared to
adjust policy should incoming data point to a materially weaker outlook for the economy.
President Rosengren dissented because he did not see
a clear and compelling case for additional accommodation at this time given that the unemployment rate

231

stood near 50-year lows, inflation seemed likely to
rise toward the Committee’s 2 percent target, and
financial stability concerns were elevated, as indicated
by near-record equity prices and corporate leverage.
Consistent with the Committee’s decision to lower
the target range for the federal funds rate to 2 to
2¼ percent, the Board of Governors voted unanimously to lower the interest rate paid on required
and excess reserve balances to 2.10 percent and voted
unanimously to approve a ¼ percentage point
decrease in the primary credit rate to 2.75 percent,
effective August 1, 2019.7

Reinvestment Plans
The manager pro tem described the Desk’s plans for
reinvestments in light of the Committee’s decision to
conclude the reduction of aggregate securities holdings in the SOMA portfolio effective August 1. In
accordance with the directive to the Desk, beginning
on August 1, all principal payments from Treasury
securities, agency debt, and agency MBS will be reinvested. Principal payments from Treasury securities
held in the SOMA portfolio will be reinvested
through rollovers in Treasury auctions. The Desk also
will reinvest principal payments from agency debt
and agency MBS securities of up to $20 billion per
month in Treasury securities in a manner that
roughly matches the maturity composition of Treasury securities outstanding. The Desk plans to purchase these Treasury securities in the secondary market across 11 sectors of different maturities and security types approximately in proportion to the
12-month average of the amount outstanding in each
sector relative to the total amount outstanding across
sectors, as measured at the end of July. The Desk will
continue to reinvest agency debt and agency MBS
principal payments in excess of $20 billion per month
in agency MBS. Given the Committee’s decision to
bring forward the timing of these purchases to
7

In taking this action, the Board approved requests to establish
that rate submitted by the boards of directors of the Federal
Reserve Banks of Philadelphia, Chicago, St. Louis, Dallas, and
San Francisco. This vote also encompassed approval by the
Board of Governors of the establishment of a 2.75 percent primary credit rate by the remaining Federal Reserve Banks, effective on the later of August 1, 2019, and the date such Reserve
Banks informed the Secretary of the Board of such a request.
(Secretary’s note: Subsequently, the Federal Reserve Banks of
Boston, New York, Cleveland, Richmond, Atlanta, Minneapolis, and Kansas City were informed of the Secretary of the
Board’s approval of their establishment of a primary credit rate
of 2.75 percent, effective August 1, 2019.) A second vote of the
Board encompassed approval of the establishment of the interest rates for secondary and seasonal credit under the existing
formulas for computing such rates.

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106th Annual Report | 2019

August, the Desk planned to release an operational
statement to provide more details on the plans for
reinvestment operations.
It was agreed that the next meeting of the Committee
would be held on Tuesday–Wednesday, September 17–18, 2019. The meeting adjourned at 11:15
a.m. on July 31, 2019.

Notation Vote
By notation vote completed on July 9, 2019, the
Committee unanimously approved the minutes of the
Committee meeting held on June 18–19, 2019.
James A. Clouse
Secretary

Minutes of Federal Open Market Committee Meetings | September

233

Meeting Held
on September 17–18, 2019

Thomas Laubach
Economist

A joint meeting of the Federal Open Market Committee and the Board of Governors was held in the
offices of the Board of Governors of the Federal
Reserve System in Washington, D.C., on Tuesday,
September 17, 2019, at 10:15 a.m. and continued on
Wednesday, September 18, 2019, at 9:00 a.m.1

Rochelle M. Edge, Eric M. Engen, William Wascher,
Jonathan L. Willis, and Beth Anne Wilson
Associate Economists

The Federal Open Market Committee is referenced as the
“FOMC” and the “Committee” in these minutes.

Stacey Tevlin
Economist

Lorie K. Logan
Manager pro tem, System Open Market Account
Ann E. Misback
Secretary, Office of the Secretary,
Board of Governors
Eric Belsky2
Director, Division of Consumer and Community
Affairs, Board of Governors
Matthew J. Eichner3
Director, Division of Reserve Bank Operations and
Payment Systems, Board of Governors
Michael S. Gibson
Director, Division of Supervision and Regulation,
Board of Governors
Andreas Lehnert
Director, Division of Financial Stability,
Board of Governors
Daniel M. Covitz
Deputy Director, Division of Research and Statistics,
Board of Governors
Michael T. Kiley
Deputy Director, Division of Financial Stability,
Board of Governors
Trevor A. Reeve
Deputy Director, Division of Monetary Affairs,
Board of Governors
Jon Faust
Senior Special Adviser to the Chair, Office of Board
Members, Board of Governors
Joshua Gallin
Special Adviser to the Chair, Office of Board
Members, Board of Governors
Brian M. Doyle, Wendy E. Dunn, Joseph W. Gruber,
Ellen E. Meade, and Ivan Vidangos
Special Advisers to the Board, Office of Board
Members, Board of Governors
2

Attended through the discussion of the review of the monetary
policy framework.
Attended through the discussion of developments in financial
markets and open market operations.

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106th Annual Report | 2019

Linda Robertson
Assistant to the Board, Office of Board Members,
Board of Governors

Hess T. Chung2
Group Manager, Division of Research and Statistics,
Board of Governors

Shaghil Ahmed
Senior Associate Director, Division of International
Finance, Board of Governors

Jonathan E. Goldberg, Edward Herbst,2
and Benjamin K. Johannsen
Principal Economists, Division of Monetary Affairs,
Board of Governors

Antulio Bomfim, Jane E. Ihrig, and Edward Nelson
Senior Advisers, Division of Monetary Affairs,
Board of Governors
Jeremy B. Rudd
Senior Adviser, Division of Research and Statistics,
Board of Governors
David López-Salido
Associate Director, Division of Monetary Affairs,
Board of Governors
John J. Stevens
Associate Director, Division of Research and
Statistics, Board of Governors
Andrew Figura and John M. Roberts
Deputy Associate Directors, Division of Research and
Statistics, Board of Governors
Christopher J. Gust
Deputy Associate Director, Division of Monetary
Affairs, Board of Governors
Matteo Iacoviello and Andrea Raffo2
Deputy Associate Directors, Division of International
Finance, Board of Governors
Jeffrey D. Walker3
Deputy Associate Director, Division of Reserve
Bank Operations and Payment Systems,
Board of Governors
Zeynep Senyuz4
Assistant Director, Division of Monetary Affairs,
Board of Governors
Penelope A. Beattie5
Assistant to the Secretary, Office of the Secretary,
Board of Governors
Martin Bodenstein2
Section Chief, Division of International Finance,
Board of Governors
David H. Small6
Project Manager, Division of Monetary Affairs,
Board of Governors
4

5
6

Attended the discussion of developments in financial markets
and open market operations.
Attended Tuesday’s session only.
Attended the discussion of the review of the monetary policy
framework through the end of the meeting.

Fabian Winkler2
Senior Economist, Division of Monetary Affairs,
Board of Governors
Randall A. Williams2
Senior Information Manager, Division of Monetary
Affairs, Board of Governors
James Hebden2
Senior Technology Analyst, Division of Monetary
Affairs, Board of Governors
Achilles Sangster II
Information Management Analyst, Division of
Monetary Affairs, Board of Governors
Kenneth C. Montgomery
First Vice President, Federal Reserve Bank of Boston
David Altig,2 Kartik B. Athreya, Michael Dotsey,
Jeffrey Fuhrer,2 Sylvain Leduc, Simon Potter,7
and Ellis W. Tallman
Executive Vice Presidents, Federal Reserve
Banks of Atlanta, Richmond, Philadelphia,
Boston, San Francisco, New York, and Cleveland,
respectively
David Andolfatto, Marc Giannoni, Evan F. Koenig,2
Paula Tkac, and Mark L. J. Wright
Senior Vice Presidents, Federal Reserve Banks of
St. Louis, Dallas, Dallas, Atlanta, and Minneapolis,
respectively
Jonas Fisher, Giovanni Olivei, Giorgio Topa,
and Patricia Zobel
Vice Presidents, Federal Reserve Banks of Chicago,
Boston, New York, and New York, respectively
Jonas Arias,2 Thorsten Drautzburg,2
and Leonardo Melosi2
Senior Economists, Federal Reserve Banks of
Philadelphia, Philadelphia, and Chicago, respectively
Fernando Duarte2
Financial Economist, Federal Reserve Bank of
New York

Attended opening remarks for Tuesday session only.

Minutes of Federal Open Market Committee Meetings | September

Review of Monetary Policy Strategy, Tools,
and Communication Practices
Committee participants continued their discussions
related to the ongoing review of the Federal
Reserve’s monetary policy strategy, tools, and communication practices. Staff briefings provided an
assessment of the risk that the federal funds rate
could, in some future downturn, be constrained by
the effective lower bound (ELB) and discussed
options for mitigating the costs associated with this
constraint. The staff’s analysis suggested that the
ELB would likely bind in most future recessions,
which could make it more difficult for the FOMC to
achieve its longer-run objectives of maximum
employment and symmetric 2 percent inflation. The
staff discussed several options for mitigating ELB
risks, including using forward guidance and balance
sheet policies earlier and more aggressively than in
the past.
The staff also illustrated the properties of “makeup”
strategies using model simulations. Under such strategies, policymakers would promise to make up for
past inflation shortfalls with a sustained accommodative stance of policy that is intended to generate
higher future inflation. These strategies are designed
to provide accommodation at the ELB by keeping
the policy rate low for an extended period in order to
support an economic recovery. Because of their properties both at and away from the ELB, makeup strategies may also more firmly anchor inflation expectations at 2 percent than a policy strategy that does not
compensate for past inflation misses. The staff analysis emphasized, however, that the benefits of makeup
strategies depend importantly on the private sector’s
understanding of these strategies and their confidence that future policymakers would follow through
on promises to keep policy accommodative.
Participants generally agreed with the staff’s analysis
that the risk of future ELB episodes had likely
increased over time, and that future ELB episodes
and the reduced effect of resource utilization on
inflation could inhibit the Committee’s ability to
achieve its employment and inflation objectives. The
increased ELB risk was attributed in part to structural changes in the U.S. economy that had lowered
the longer-run real short-term interest rate and thus
the neutral level of the policy rate. In this context, a
couple of participants noted that uncertainty about
the neutral rate made it especially challenging to
determine any appropriate changes to the current
framework. In light of a low neutral rate and short-

235

falls of inflation below the 2 percent objective for several years, some participants raised the concern that
the policy space to reduce the federal funds rate in
response to future recessions could be compressed
further if inflation shortfalls continued and led to a
decline in inflation expectations, a risk that was also
discussed in the staff analysis. These participants
pointed to long, ongoing ELB spells in other major
foreign economies and suggested that, to avoid similar circumstances in the United States, it was important to be aggressive when confronted with forces
holding inflation below objective. A couple of participants judged that the lack of monetary policy
space abroad and the possibility that fiscal space in
the United States might be limited reinforced the case
for strengthening the FOMC’s monetary policy
framework as a matter of prudent planning.
With regard to the current monetary policy framework, participants agreed that this framework served
the Committee well in the aftermath of the financial
crisis. A number of participants noted that the Committee’s experience with forward guidance and balance sheet policies would likely allow the Committee
to deploy these tools earlier and more aggressively in
the event that they were needed. A few indicated that
the uncertainty about the effectiveness of these policies was smaller than the uncertainty surrounding the
effectiveness of a makeup strategy.
Participants generally agreed that the current framework also served the Committee well by providing a
strong commitment to achieving the Committee’s
maximum-employment and symmetric inflation
objectives. Such a commitment was seen as flexible
enough to allow the Committee to choose policy
actions that best support its objectives in a wide array
of economic circumstances. Because of the downside
risk to inflation and employment associated with the
ELB, most participants were open to the possibility
that the dual-mandate objectives of maximum
employment and stable prices could be best served by
strategies that deliver inflation rates that over time
are, on average, equal to the Committee’s longer-run
objective of 2 percent. Promoting such outcomes
may require aiming for inflation somewhat above
2 percent when the policy rate was away from the
ELB, recognizing that inflation would tend to be
lower than 2 percent when the policy rate was constrained by the ELB. Participants suggested several
alternatives for doing so, including strategies that
make up for past inflation shortfalls and those that
respond more aggressively to below-target inflation
than to above-target inflation. In this context, several

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106th Annual Report | 2019

participants suggested that the adoption of a target
range for inflation could be helpful in achieving the
Committee’s objective of 2 percent inflation, on average, as it could help communicate to the public that
periods in which the Committee judged inflation to
be moderately away from its 2 percent objective were
appropriate. A couple of participants suggested analyzing policies in which there was a target range for
inflation whose midpoint was modestly higher than
2 percent or in which 2 percent was an inflation floor;
these policies might enhance policymakers’ scope to
provide accommodation as appropriate when the
neutral real interest rate was low.
Although ensuring inflation outcomes averaging
2 percent over time was seen as important, many participants noted that the illustrated makeup strategies
delivered only modest benefits in the staff’s model
simulations. These modest benefits in part reflected
that the responsiveness of inflation to resource slack
had diminished, making it more difficult to provide
sufficient accommodation to push inflation back to
the Committee’s objective in a timely manner. Some
participants suggested that the modest effects were
particularly pronounced using the FRB/US model
and indicated the need for more robustness analysis
of simulation results along several dimensions and
for further comparison to other alternative strategies.
In addition, several participants noted that the implementation of the makeup strategies in the form of
either average inflation targeting or price-level targeting in the simulations was tied too rigidly to the
details of particular rules. An advantage of the current framework over such alternative approaches is
that it has provided the Committee with the flexibility to assess a broad range of factors and information in choosing its policy actions, and these actions
can vary depending on economic circumstances in
order to best achieve the Committee’s dual mandate.
Similarly, makeup strategies could be implemented
more flexibly in order to deliver more accommodation during a future downturn and through the subsequent recovery than what could be achieved with a
mechanical makeup rule.
Participants also discussed a number of challenges
associated with makeup strategies. Many participants
expressed reservations with the makeup strategies
analyzed by the staff. Some participants raised the
concern that the effective use of the makeup strategies in the form of the average inflation targeting and
price-level targeting rules that the staff presented
depended on future policy-makers following through

on commitments to keep policy accommodative for a
long time. Such commitments might be difficult for
future policymakers to follow through on, especially
in situations in which the labor market was strong
and inflation was above target. A few participants
acknowledged that credibly committing to makeup
strategies posed challenges. However, they pointed to
the commitments that central banks around the
world made to inflation targeting as examples in
which similar challenges had been overcome. A
couple of participants raised the concern that keeping policy rates low for a long time could lead to
excessive risk-taking in financial markets and
threaten financial stability. However, a couple of
other participants judged that macroprudential tools
could be used to help ensure that any overleveraging
of households and firms did not threaten the financial system, while monetary policy needed to be
focused on achieving maximum employment and
symmetric 2 percent inflation. A few participants
viewed the communication challenges associated with
average-inflation targeting strategies, including the
difficulty of conveying the dangers of low inflation
to the public, as greater than for some other strategies that use threshold-based forward guidance. Several participants noted that makeup strategies could
unduly limit the policy response in situations in
which inflation had been running above 2 percent
amid signs of an impending economic downturn.
Accordingly, these participants favored makeup strategies that only reversed past inflation shortfalls relative to makeup strategies that reversed both past
inflation shortfalls and past overruns.
Participants continued to discuss the benefits of the
Committee’s review of the monetary policy framework as well as the Committee’s Statement on
Longer-Run Goals and Monetary Policy Strategy,
which articulates the Committee’s approach to monetary policy. As they did at their meeting in July, participants mentioned several issues that this statement
might possibly address. These issues included the
conduct of monetary policy in the presence of the
ELB constraint, the role of inflation expectations in
the Committee’s pursuit of its inflation goal, the best
means of conveying the Committee’s balanced
approach to monetary policy, the symmetry of its
inflation goal, and the time frame over which the
Committee aimed to achieve it. Participants expected
that they would continue their deliberations on these
and other topics pertinent to the review at upcoming
meetings. They also generally agreed that the Committee’s consideration of possible modifications to its

Minutes of Federal Open Market Committee Meetings | September

policy strategy, tools, and communication practices
would take some time, and that the process would be
careful, deliberate, and patient.

Developments in Financial Markets and
Open Market Operations
The manager pro tem first discussed developments in
global financial markets over the intermeeting
period. Global financial markets were volatile over
the intermeeting period, with market participants
reacting to incoming information about U.S.–China
trade tensions and the global growth outlook. In the
weeks following the July FOMC meeting, U.S. yields
declined sharply and risk asset prices fell amid a
spate of largely negative news about risks to the
global economic outlook. These price moves reversed
to some degree in September as developments on
trade and economic data turned more positive. On
net, Treasury yields remained substantially lower,
while the S&P 500 and corporate credit spreads
reversed most or all of their earlier losses to end the
period little changed.

237

became highly volatile just before the September
meeting, apparently spurred partly by large corporate
tax payments and Treasury settlements, and
remained so through the time of the meeting. In an
environment of greater perceived uncertainty about
potential outflows related to the corporate tax payment date, typical lenders in money markets were less
willing to accommodate increased dealer demand for
funding. Moreover, some banks maintained reserve
levels significantly above those reported in the Senior
Financial Officer Survey about their lowest comfortable level of reserves rather than lend in repo markets. Money market mutual funds reportedly also
held back some liquidity in order to cushion against
potential outflows. Rates on overnight Treasury
repurchase agreements rose to over 5 percent on
September 16 and above 8 percent on September 17.
Highly elevated repo rates passed through to rates in
unsecured markets. Federal Home Loan Banks
reportedly scaled back their lending in the federal
funds market in order to maintain some liquidity in
anticipation of higher demand for advances from
their members and to shift more of their overnight
funding into repo. In this environment, the effective
federal funds rate (EFFR) rose to the top of the target range on September 16. The following morning,
in accordance with the FOMC’s directive to the Desk
to foster conditions to maintain the EFFR in the target range, the Desk conducted overnight repurchase
operations for up to $75 billion. After the operation,
rates in secured and unsecured markets declined
sharply. Rates in secured markets were trading
around 2.5 percent after the operation. Market participants reportedly expected that additional temporary open market operations would be necessary
both over subsequent days and around the end of the
quarter. Many also reportedly expected another
5 basis point technical adjustment of the IOER rate.

Even after the partial rebound in September, marketand survey-based indicators of policy rate expectations suggested that investors viewed it as very likely
that the Committee would ease policy further at this
meeting. All respondents from the Desk’s Survey of
Primary Dealers and Survey of Market Participants
viewed a 25 basis point decrease in the target range
as the most likely outcome at this meeting. Looking
beyond September, most survey respondents
expected another 25 basis point cut by year-end. Further out, while the median of respondents’ modal
forecasts for the end of 2020 pointed to no rate cuts
next year, individual forecasts were much more dispersed, with nearly half of respondents expecting at
least one additional 25 basis point cut in 2020, and
about one-fourth expecting two or more cuts. Market
participants remained attentive to a range of global
risk factors that could affect the policy rate path,
including trade tensions between the United States
and China, developments in Europe, political tensions in Hong Kong, uncertainties related to Brexit,
and escalating geopolitical tension in the Middle East
following attacks on Saudi oil facilities.

Staff Review of the Economic Situation

The manager pro tem turned next to a discussion of
money market conditions. Money markets were
stable over most of the period, and the reduction in
the interest on excess reserves (IOER) rate following
the July FOMC meeting fully passed through to
money market rates. However, money markets

The information available for the September 17–18
meeting indicated that labor market conditions
remained strong and that real gross domestic product
(GDP) appeared to be increasing at a moderate rate
in the third quarter. Consumer price inflation, as
measured by the 12-month percentage change in the

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106th Annual Report | 2019

price index for personal consumption expenditures
(PCE), was below 2 percent in July. Survey-based
measures of longer-run inflation expectations were
little changed.
Total nonfarm payroll employment expanded at a
solid pace in July and August, although at a slower
rate than in the first half of the year. (Separately, the
Bureau of Labor Statistics’ preliminary estimate of
the upcoming benchmark revision to payroll employment, which will be incorporated in the published
data in February 2020, indicated that the revised pace
of average monthly job gains from April 2018 to
March 2019 would be notably slower than in the current published data.) The unemployment rate
remained at 3.7 percent through August, and both
the labor force participation rate and the
employment-to-population ratio moved up. The
unemployment rates for African Americans and Hispanics declined over July and August, while the rates
for whites and Asians increased; the unemployment
rate for each group was below its level at the end of
the previous economic expansion, though persistent
differentials between these rates remained. The average share of workers employed part time for economic reasons in July and August continued to be
below its level in late 2007. Both the rate of privatesector job openings and the rate of quits moved
roughly sideways in June and July and were still at
relatively high levels; the four-week moving average
of initial claims for unemployment insurance benefits
through early September was near historically low
levels. Total labor compensation per hour in the business sector increased 4.4 percent over the four quarters ending in the second quarter, a faster rate than a
year earlier. Average hourly earnings for all employees rose 3.2 percent over the 12 months ending in
August, the same pace as a year earlier.
Total consumer prices, as measured by the PCE price
index, increased 1.4 percent over the 12 months ending in July. This increase was slower than a year earlier, as core PCE price inflation (which excludes
changes in consumer food and energy prices) moved
down to 1.6 percent, consumer food price inflation
remained below core inflation, and consumer energy
prices declined. The average monthly change in core
PCE prices in recent months was faster than earlier
this year, suggesting that the soft inflation readings
during the earlier period were transitory. The
trimmed mean measure of 12-month PCE price
inflation constructed by the Federal Reserve Bank of
Dallas remained at 2 percent in July. The consumer
price index (CPI) rose 1.7 percent over the 12 months

ending in August, while core CPI inflation was
2.4 percent. Recent survey-based measures of longerrun inflation expectations were little changed on balance. The preliminary September reading from the
University of Michigan Surveys of Consumers
dipped after edging up in August, but it remained
within its recent range; the measures of longer-run
inflation expectations from the Desk’s Survey of Primary Dealers and Survey of Market Participants
were little changed.
Real consumer expenditures appeared to be rising
solidly in the third quarter after expanding strongly
in the second quarter. Real PCE rose briskly in July,
while the components of the nominal retail sales data
used by the Bureau of Economic Analysis (BEA) to
estimate PCE were flat in August and the rate of
sales of light motor vehicles only edged up, suggesting some slowing in consumer spending growth in the
third quarter from its strong second-quarter pace.
Key factors that influence consumer spending—
including a low unemployment rate, further gains in
real disposable income, high levels of households’ net
worth, and generally low borrowing rates—were supportive of solid real PCE growth in the near term.
The preliminary September reading on the Michigan
survey measure of consumer sentiment picked up a
little after weakening notably in August, although the
Conference Board survey measure of consumer confidence did not show a similar decline in August.
Real residential investment seemed to be picking up a
little in the third quarter after declining over the previous year and a half. Starts of new single-family
homes were higher in July and August than the
second-quarter average, and starts of multifamily
units rose in August after falling back in July. Building permit issuance for new single-family homes—
which tends to be a good indicator of the underlying
trend in construction of such homes—was higher in
July and August than its second-quarter average.
Sales of existing homes rose modestly in July, while
new home sales declined following an outsized
increase in June.
Real nonresidential private fixed investment looked
to be declining further in the third quarter. Nominal
shipments of nondefense capital goods excluding aircraft decreased in July, and forward-looking indicators generally pointed to continued softness in business equipment spending. Orders for nondefense
capital goods excluding aircraft increased in June but
were still below the level of shipments, most measures
of business sentiment deteriorated, analysts’ expecta-

Minutes of Federal Open Market Committee Meetings | September

239

tions of firms’ longer-term profit growth declined
further, and trade policy concerns continued to weigh
on firms’ investment decisions. Nominal business
expenditures for nonresidential structures outside the
drilling and mining sector decreased in July, and the
number of crude oil and natural gas rigs in operation—an indicator of business spending for structures in the drilling and mining sector—continued to
decline through mid-September.

ing up relatively well. Foreign inflation rose in the
second quarter, pushed up by earlier increases in oil
prices as well as by rising food prices in some emerging economies. However, data on foreign core consumer prices showed little sign of underlying inflationary pressures abroad. Late in the intermeeting
period, an attack on a key oil facility in Saudi Arabia
disrupted Saudi oil production and caused an initial
spike in prices on near-dated oil futures contracts.

Industrial production increased modestly, on net,
over July and August, but production remained notably lower than at the beginning of the year. Automakers’ assembly schedules indicated that the production of light motor vehicles would be roughly flat
in the near term (although the labor strike at General
Motors was expected to temporarily disrupt vehicle
production), while new orders indexes from national
and regional manufacturing surveys and a persistent
drag from trade tariffs pointed toward continued
softness in factory output in coming months.

Staff Review of the Financial Situation

Total real government purchases appeared to be rising at a slower pace in the third quarter than in the
second quarter. Federal defense spending over July
and August decelerated, and federal hiring of temporary workers for next year’s decennial census was
modest in August. State and local government payrolls rose moderately over July and August, and
nominal spending by these governments on structures in July was below its second-quarter average.
The nominal U.S. international trade deficit
remained about unchanged in June before narrowing
in July. Exports, which had been soft over most of
the past year, declined sharply in June but partially
rebounded in July. This pattern was particularly
notable in exports of non-aircraft capital goods and
consumer goods. Imports also declined sharply in
June and then declined a little further in July.
Imports of oil and consumer goods fell in June, while
imports of capital goods dropped significantly in
July. The BEA estimated that the change in net
exports was a drag of about ¾ percentage point on
real GDP growth in the second quarter.
Foreign economic growth remained subdued in the
second quarter. Growth picked up in Canada as oil
production rebounded, but growth slowed sharply in
Europe amid a downturn in manufacturing activity
and persistent policy-related uncertainty. Growth
also slowed in China and India. Recent indicators
suggested widespread weakness in manufacturing
abroad even as services activity appeared to be hold-

Financial market developments over the intermeeting
period were driven by an escalation in international
trade tensions, growing concerns about the global
economic growth outlook, and the prospect of more
policy accommodation by central banks. Nominal
Treasury yields posted very large declines in August
as investors reacted to the U.S. Administration’s
announcement of additional tariffs on Chinese
goods, along with the depreciation of the Chinese
renminbi through the perceived threshold of
7 renminbi per U.S. dollar and the associated implications of these actions for the global economic outlook. Treasury yields partially rebounded following
better-than-expected incoming economic data in the
United States and abroad, a perceived reduction in
the probability of a no-deal Brexit, and some positive
headlines about trade policy. The market-implied
path of the federal funds rate shifted down on net.
Broad equity price indexes were down as much as
6 percent in early August but almost fully recovered
by the end of the intermeeting period. Spreads on
investment-grade corporate bonds widened modestly,
while those on speculative-grade corporate bonds
were little changed on net. Financing conditions for
businesses and households were largely unaffected by
the intermeeting turbulence in financial markets and
remained generally supportive of spending and economic activity.
Measures of expectations of the near- and mediumterm path for the federal funds rate were particularly
sensitive to news about U.S.–China trade tensions,
while FOMC communications had only modest
effects on market-based measures of policy rate
expectations. A straight read of the option-implied
probability distribution of the federal funds rate suggested that the odds investors attached to a 25 basis
point reduction in the target range of the federal
funds rate at the September FOMC meeting
increased from about 50 percent at the time of the
July FOMC meeting to 90 percent by the end of the
intermeeting period. Respondents to the Desk’s Sur-

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106th Annual Report | 2019

vey of Primary Dealers and Survey of Market Participants assigned, on average, similarly high odds to
a rate decrease at the September FOMC meeting. In
addition, market-implied expectations for the federal
funds rate at year-end and beyond moved down. A
straight read of OIS (overnight index swap) forward
rates suggested that investors expected the federal
funds rate to decline about 45 basis points by yearend, to a level nearly 10 basis points lower than was
expected at the time of the July FOMC meeting, and
to decrease an additional roughly 45 basis points by
the end of 2020.
Nominal Treasury yields decreased, on net, over the
intermeeting period, with longer-term yields falling
the most. The spread between 10-year and 3-month
Treasury yields became a bit more negative, while the
spread between 10-year and 2-year Treasury yields
turned negative for the first time since 2007 and fluctuated around zero until the September FOMC meeting. Measures of inflation compensation derived
from Treasury Inflation-Protected Securities declined
on net.
Broad stock price indexes decreased slightly, on net,
over the intermeeting period amid heightened volatility. The escalation of trade tensions between China
and the United States weighed on equity prices, but
investors’ expectations that major central banks
would shift toward more accommodative monetary
policies provided some support. Equity prices were
also boosted by better-than-anticipated corporate
earnings and retail-sector data. Stock prices of firms
with high exposure to China underperformed the
broader market somewhat, as did bank stocks amid
downward revisions to banks’ earnings forecasts.
Conversely, the stock prices of utilities and real estate
firms increased noticeably, reportedly benefiting from
demand by investors reaching for less cyclical and
higher-yielding assets. One-month option-implied
volatility on the S&P 500 index—the VIX—was little
changed, on net, over the intermeeting period and
remained at the lower end of its historical distribution after retracing a sharp increase in early August.
Despite the volatility in many domestic and global
financial markets over the intermeeting period, conditions in domestic short-term funding markets
remained stable until the Monday before the September FOMC meeting, when flows associated with a
combination of corporate tax payments and Treasury
coupon securities settlements led to significant tightening of conditions, particularly for overnight funding. The EFFR rose to the top of the target range on

September 16 and exceeded it by 5 basis points on
September 17, after which funding pressures eased
somewhat following the Desk’s open market operations. On net, the EFFR averaged 2.14 percent over
the current intermeeting period, with the spread to
the IOER rate down a bit relative to the previous
intermeeting period.
Early in the intermeeting period, bond yields in the
advanced foreign economies (AFEs) plunged and foreign equities declined notably following an increase
in U.S.–China trade tensions. Some weakness in foreign economic data, growing concerns about global
growth, and the prospect of more monetary policy
accommodation abroad contributed to further
declines in yields. Later in the period, AFE yields
partially rebounded and foreign equity prices fully
recovered on some easing of U.S.–China trade tensions, as well as perceptions of reduced political
uncertainty in the United Kingdom and Italy. Financial market reactions were mixed after the European
Central Bank (ECB) announced a package of policy
easing measures, including a rate cut on deposits at
the ECB, resumption of its asset purchase
program, and more favorable terms for longer-term
lending to banks.
The dollar appreciated against emerging market currencies but was little changed, on balance, against
AFE currencies, leaving the broad dollar index
slightly higher. Emerging market sovereign bond
spreads widened notably. The Argentine peso depreciated sharply and Argentine sovereign yields soared
following the defeat of the current pro-market president in the primary election and the subsequent
announcement of plans for debt restructuring and
the imposition of capital controls.
Financing conditions for nonfinancial businesses
remained accommodative. Overall issuance of corporate bonds was solid in August, driven by resilient
investment-grade issuance. While speculative-grade
corporate bond issuance was somewhat subdued in
August, it was comparable to that seen over the same
period in 2018. Growth of commercial and industrial
loans at banks ticked up, driven by faster growth at
large domestic banks. There were no initial public
equity offerings by domestic firms in August amid
increased market volatility, but several deals were
expected to be completed in the coming months. On
balance, the credit quality of nonfinancial corporations weakened slightly, with the volume of nonfinancial corporate bond downgrades modestly outpacing that of upgrades in recent months. Credit

Minutes of Federal Open Market Committee Meetings | September

conditions for both small businesses and municipalities remained accommodative on balance.
In the commercial real estate (CRE) sector, financing
conditions remained generally accommodative. Bank
CRE loan growth slowed moderately since the second quarter, driven by slower growth in loans secured
by nonfarm nonresidential properties. The volume of
agency and non-agency commercial mortgage-backed
securities issuance was slightly weaker in July and
August than in the same period last year, though
industry analysts reportedly anticipated that issuance
would soon pick up in response to recent declines in
interest rates.
Financing conditions in the residential mortgage
market eased over the intermeeting period. Residential mortgage rates declined less than long-term
Treasury yields, as the increase in prepayment risk
and the rise in implied interest rate volatility reportedly reduced the demand for mortgage-backed securities. Home-purchase originations and refinancing
originations both rose.
Financing conditions in consumer credit markets
remained generally supportive of growth in consumer
spending, although supply conditions continued to
be tight for subprime credit card borrowers. Consumer credit expanded at a moderate pace in the second quarter overall, with bank credit data pointing to
continued growth through July and August. In consumer asset-backed securities markets, issuance was
solid, and spreads remained at relatively low levels,
though somewhat above their post-crisis averages.

Staff Economic Outlook
The projection for U.S. economic activity prepared
by the staff for the September FOMC meeting was
little changed in the near term; real GDP growth was
still forecast to be slower in the second half of the
year than in the first half, mostly attributable to continued soft business investment and a slower increase
in government spending. The projection for real
GDP growth over the medium term was a bit weaker
than the previous forecast, primarily reflecting the
effects of a higher projected path for the foreign
exchange value of the dollar and a lower trajectory
for economic growth abroad, which were partially
offset by a lower assumed path for interest rates. Real
GDP was forecast to expand at a rate a little above
the staff’s estimate of potential output growth in
2019 and 2020 and then slow to a pace slightly below
potential output growth in 2021 and 2022. The

241

unemployment rate was projected to be roughly flat
through 2022 and to remain below the staff’s estimate of its longer-run natural rate, which was revised
down a little. In addition, the staff revised up its estimate of the level of trend productivity in recent years
after incorporating the BEA’s recent annual revisions
to the national income and product accounts. Both of
these supply-side adjustments led to a somewhat
higher projected path for potential output, implying
that estimates of current and projected resource utilization were less tight than the staff previously
assumed.
The staff’s forecast of total PCE price inflation for
this year was revised down somewhat, reflecting
slightly lower projected paths for consumer food and
energy prices, along with a little lower forecast for
core PCE prices. The core PCE price inflation forecast for this year was revised down to reflect recent
data as well as downward-revised data for earlier in
the year from the BEA’s annual revision. Both total
and core inflation were projected to move up slightly
next year, as the low readings early this year were
expected to be transitory; nevertheless, both inflation
measures were forecast to continue to run below
2 percent through 2022.
The staff continued to view the uncertainty around
its projections for real GDP growth, the unemployment rate, and inflation as generally similar to the
average of the past 20 years. Moreover, the staff still
judged that the risks to the forecast for real GDP
growth were tilted to the downside, with a corresponding skew to the upside for the unemployment
rate. Important factors in that assessment were that
international trade tensions and foreign economic
developments seemed more likely to move in directions that could have significant negative effects on
the U.S. economy than to resolve more favorably
than assumed. In addition, softness in business
investment and manufacturing so far this year was
seen as pointing to the possibility of a more substantial slowing in economic growth than the staff projected. The risks to the inflation projection were also
viewed as having a downward skew, in part because
of the downside risks to the forecast for economic
activity.

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outcomes for real GDP growth, the unemployment rate,
and inflation for each year from 2019 through 2022 and
over the longer run, based on their individual assessments of the appropriate path for the federal funds rate.
The longer-run projections represented each participant’s assessment of the rate to which each variable
would be expected to converge, over time, under appropriate monetary policy and in the absence of further
shocks to the economy. These projections are described
in the Summary of Economic Projections, which is an
addendum to these minutes.
Participants agreed that the labor market had
remained strong over the intermeeting period and
that economic activity had risen at a moderate rate.
Job gains had been solid, on average, in recent
months, and the unemployment rate had remained
low. Although household spending had risen at a
strong pace, business fixed investment and exports
had weakened. On a 12-month basis, overall inflation
and inflation for items other than food and energy
were running below 2 percent. Market-based measures of inflation compensation remained low; surveybased measures of longer-term inflation expectations
were little changed.
Participants generally viewed the baseline economic
outlook as positive and indicated that their views of
the most likely outcomes for economic activity and
inflation had changed little since the July meeting.
However, for most participants, that economic outlook was premised on a somewhat more accommodative path for policy than in July. Participants generally had become more concerned about risks associated with trade tensions and adverse developments in
the geopolitical and global economic spheres. In
addition, inflation pressures continued to be muted.
Many participants expected that real GDP growth
would moderate to around its potential rate in the
second half of the year. Participants agreed that consumer spending was increasing at a strong pace. They
also expected that, in the period ahead, household
spending would likely remain on a firm footing, supported by strong labor market conditions, rising
incomes, and accommodative financial conditions.
Several participants indicated that the housing sector
was starting to rebound, stimulated by a significant
decline in mortgage rates. With regard to the contrast
between robust consumption growth and weak
investment growth, several participants mentioned
that uncertainties in the business outlook and sustained weak investment could eventually lead to
slower hiring, which, in turn, could damp the growth
of income and consumption.

In their discussion of the business sector, participants
saw trade tensions and concerns about the global
outlook as the main factors weighing on business
investment, exports, and manufacturing production.
Participants judged that trade uncertainty and global
developments would continue to affect firms’ investment spending, and that this uncertainty was discouraging them from investing in their businesses. A
couple of participants noted that businesses had the
capacity to adjust to ongoing uncertainty concerning
trade, and some firms were reconfiguring supply
chains and making logistical arrangements as part of
contingency planning to mitigate the effects of trade
tensions on their businesses.
Participants discussed developments in the manufacturing and the agricultural sectors of the U.S.
economy. Manufacturing production remained lower
than at the beginning of the year, and recent indicators suggested that conditions were unlikely to
improve materially over the near term. Participants
saw the ongoing global slowdown and trade uncertainty as contributing importantly to these declines.
A few participants noted ongoing challenges in the
agricultural sector, including those associated with
tariffs, weak export demand, and more intense financial burdens arising from the increase in carryover
debt in preceding years. Participants commented on
the potential disruption to global oil production arising from the attack on Saudi Arabia’s facilities.
Participants judged that conditions in the labor market remained strong, with the unemployment rate
near historical lows and continued solid job gains, on
average, in recent months. The labor force participation rate of prime-age individuals, especially of
prime-age women, moved up in August, continuing
its upward trajectory, and the unemployment rate of
African Americans fell to its lowest rate on record.
However, a number of participants noted that,
although the labor market was clearly in a strong
position, the preliminary benchmark revision by the
Bureau of Labor Statistics indicated that payroll
employment gains would likely show less momentum
coming into this year when the revisions are incorporated in published data early next year. A few participants observed that it would be important to be vigilant in monitoring incoming data for any sign of
softening in labor market conditions. That said,
reports from business contacts in many Districts
pointed to continued strong labor demand, with
some firms still reporting difficulties finding qualified
workers and others broadening their recruiting to
include traditionally marginalized groups. In some

Minutes of Federal Open Market Committee Meetings | September

Districts, employers were also expanding training and
provision of nonwage benefits, which could help sustain their expansion of hiring against a background
of a very tight national labor market without spurring above-trend aggregate wage growth. Some firms
were also reluctant to raise wages because of their
limited pricing power, while others thought the wages
they were offering were in line with the skill sets of
the workers available to fill new positions. Participants generally viewed overall wage growth as
broadly consistent with modest average rates of labor
productivity growth in recent years and as exerting
little upward pressure on inflation. A couple of participants noted that, with inflationary pressures
remaining muted and wage growth moderate even as
employment and spending expanded further, they
had again adjusted downward their estimates of the
longer-run normal unemployment rate.
In their discussion of inflation developments, participants noted that, despite a recent firming in the
incoming data, readings on overall and core PCE
inflation had continued to run below the Committee’s symmetric 2 percent objective. Furthermore, in
light of weakness in the global economy, perceptions
of downside risks to growth, and subdued inflation
pressures, some participants continued to view the
risks to the outlook for inflation as weighted to the
downside. Some participants, however, saw the recent
inflation data as consistent with their previous assessment that much of the weakness seen early in the
year was transitory. In this connection, several participants noted that recent monthly readings, notably
for CPI inflation, seemed broadly consistent with the
Committee’s longer-run inflation objective of 2 percent, while the trimmed mean measure of PCE inflation, constructed by the Federal Reserve Bank of
Dallas, remained at 2 percent in July.
In their discussion of the outlook for inflation, participants generally agreed that, under appropriate
policy, inflation would move up to the Committee’s
2 percent objective over the medium term. Participants saw inflation expectations as reasonably well
anchored, but many participants observed that
market-based measures of inflation compensation
and some survey measures of consumers’ inflation
expectations were at historically low levels. Some of
these participants further noted that longer-term
inflation expectations could be somewhat below levels consistent with the Committee’s 2 percent inflation objective, or that continued weakness in inflation
could prompt expectations to drift lower.

243

Participants generally judged that downside risks to the
outlook for economic activity had increased somewhat
since their July meeting, particularly those stemming
from trade policy uncertainty and conditions abroad. In
addition, although readings on the labor market and the
overall economy continued to be strong, a clearer picture of protracted weakness in investment spending,
manufacturing production, and exports had emerged.
Participants also noted that there continued to be a significant probability of a no-deal Brexit, and that geopolitical tensions had increased in Hong Kong and the
Middle East. Several participants commented that, in
the wake of this increase in downside risk, the weakness
in business spending, manufacturing, and exports could
give rise to slower hiring, a development that would
likely weigh on consumption and the overall economic
outlook. Several participants noted that statistical models designed to gauge the probability of recession,
including those based on information from the yield
curve, suggested that the likelihood of a recession occurring over the medium term had increased notably in
recent months. However, a couple of these participants
stressed the difficulty of extracting the right signal from
these probability models, especially in the current period
of unusually low levels of term premiums.
With regard to developments in financial markets, participants noted that longer-term U.S. Treasury rates had
been volatile over the intermeeting period but, on net,
had registered a sizable decline. Participants observed
that a key source of downward pressure on Treasury
rates arose from flight-to-safety flows, driven by downside risks to global growth, escalating trade tensions,
and disappointing global data. Low interest rates
abroad were also considered an important influence on
U.S. longer-term rates. Participants expressed a range of
views about the implications of low longer-term Treasury rates. Some participants judged that a prolonged
inversion of the yield curve could be a matter of concern. Participants also noted that equity prices had
exhibited volatility but had been largely flat, on balance,
over the intermeeting period. Several participants cited
considerations that led them to be concerned about
financial stability, including low risk spreads and a
buildup of corporate debt, corporate stock buybacks
financed through low-cost leverage, and the pace of
lending in the CRE market. However, several others
pointed to signs that the financial system remained
resilient.
In their consideration of the monetary policy options
at this meeting, most participants believed that a
reduction of 25 basis points in the target range for

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106th Annual Report | 2019

the federal funds rate would be appropriate. In discussing the reasons for such a decision, these participants pointed to considerations related to the economic outlook, risk management, and the need to
center inflation and inflation expectations on the
Committee’s longer-run objective of 2 percent.
Participants noted that there had been little change
in their economic outlook since the July meeting and
that incoming data had continued to suggest that the
pace of economic expansion was consistent with the
maintenance of strong labor market conditions.
However, a couple of participants pointed out that
data revisions announced in recent months implied
that the economy had likely entered the year with
somewhat less momentum than previously thought.
In addition, data received since July had confirmed
the weakening in business fixed investment and
exports. One risk that the economy faced was that the
softness recorded of late in firms’ capital formation,
manufacturing, and exporting activities might spread
to their hiring decisions, with adverse implications
for household income and spending. Participants
observed that such an eventuality was not embedded
in their baseline outlook; however, a couple of them
indicated that this was partly because they assumed
that an appropriate adjustment to the policy rate
path would help forestall that eventuality. Several also
noted that, because monetary policy actions affected
economic activity with a lag, it was appropriate to
provide the requisite policy accommodation now to
support economic activity over coming quarters.
Participants favoring a modest adjustment to the
stance of monetary policy at this juncture cited other
risks to the economic outlook that further underscored the case for such a move. As their discussion
of risks had highlighted, downside risks had become
more pronounced since July: Trade uncertainty had
increased, prospects for global growth had become
more fragile, and various intermeeting developments
had intensified geopolitical risks. Against this background, risk-management considerations implied
that it would be prudent for the Committee to adopt
a somewhat more accommodative stance of policy. In
addition, a number of participants suggested that a
reduction at this meeting in the target range for the
federal funds rate would likely better align the target
range with a variety of indicators of the appropriate
policy stance, including those based on estimates of
the neutral interest rate. A few participants observed
that the considerations favoring easing were reinforced by the proximity of the federal funds rate to
the ELB. If policymakers provided adequate accom-

modation while still away from the ELB, this course
of action would help forestall the possibility of a prolonged ELB episode.
Many participants also cited the level of inflation or
inflation expectations as justifying a reduction of
25 basis points in the federal funds rate at this meeting. Inflation had generally fallen short of the Committee’s objective for several years and, notwithstanding some stronger recent monthly readings on
inflation, the 12-month rate was still below 2 percent.
Some estimates of trend inflation were also below
2 percent. Several participants additionally stressed
that survey measures of longer-term inflation expectations and market-based measures of inflation compensation were near historical lows and that these
values pointed to the possibility that inflation expectations were below levels consistent with the 2 percent objective or could soon fall below such levels.
Against this backdrop, participants suggested that a
policy easing would help underline policymakers’
commitment to the symmetric 2 percent longer-run
objective. With inflation pressures muted and U.S.
inflation likely being weighed down by global disinflationary forces, policymakers saw little chance of an
outsized increase in inflation in response to additional policy accommodation and argued that such
an increase, should it occur, could be addressed in a
straightforward manner using conventional monetary
policy tools.
Several participants favored maintaining the existing
target range for the federal funds rate at this meeting.
These participants suggested that the baseline projection for the economy had changed very little since the
Committee’s previous meeting and that the state of
the economy and the economic outlook did not justify a shift away from the current policy stance, which
they felt was already adequately accommodative.
They acknowledged the uncertainties that currently
figured importantly in evaluations of the economic
outlook, but they contended that the key uncertainties were unlikely to be resolved soon. Furthermore,
as they did not believe that these uncertainties would
derail the expansion, they did not see further policy
accommodation as needed at this time. Changes in
the stance of policy, they believed, should instead
occur only when the macroeconomic data readily justified those moves. In this connection, a couple of
participants suggested that, if it decided to provide
more policy accommodation at the present juncture,
the Committee might be taking out too much insurance against possible future shocks, leaving monetary
policy with less scope to boost aggregate demand in

Minutes of Federal Open Market Committee Meetings | September

the event that such shocks materialized. A few of the
participants favoring an unchanged target range for
the federal funds rate also expressed concern that an
easing of monetary policy at this meeting could exacerbate financial imbalances.
A couple of participants indicated their preference
for a 50 basis point cut in the federal funds rate at
this meeting. These participants suggested that a
larger policy move would help reduce the risk of an
economic downturn and would more appropriately
recognize important recent developments, such as
slowing job gains, weakening investment, and continued low values of market-based measures of inflation
compensation. In addition, these participants
stressed the need for a policy stance—possibly one
using enhanced forward guidance—that was sufficiently accommodative to make it unlikely that the
United States would experience a protracted period
of the kind seen abroad in which the economy
became mired in a combination of undesirably low
inflation, weak economic activity, and near-zero
policy rates. They also argued that it was desirable for
the Committee to seek and maintain a level of
accommodation sufficient to deliver inflation at
2 percent on a sustained basis and that such a policy
would be consistent with inflation exceeding 2 percent for a time.
With regard to monetary policy beyond this meeting,
participants agreed that policy was not on a preset
course and would depend on the implications of incoming information for the evolution of the economic outlook. A few participants judged that the expectations
regarding the path of the federal funds rate implied by
prices in financial markets were currently suggesting
greater provision of accommodation at coming meetings than they saw as appropriate and that it might
become necessary for the Committee to seek a better
alignment of market expectations regarding the policy
rate path with policymakers’ own expectations for that
path. Several participants suggested that the Committee’s postmeeting statement should provide more clarity
about when the recalibration of the level of the policy
rate in response to trade uncertainty would likely come
to an end.

Participants’ Discussion of Recent Money
Market Developments
The manager pro tem provided a summary of the
most recent developments in money markets. Open
market operations conducted on the previous day
had helped to ease strains in money markets, but the

245

EFFR had nonetheless printed 5 basis points above
the top of the target range. With significant pressures
still evident in repo markets and the federal funds
market, and in accordance with the FOMC’s directive to maintain the federal funds rate within the target range, the Desk conducted another repo operation on the morning of the second day of the meeting. The staff presented a proposal to lower the
IOER rate and the overnight reverse repurchase
agreement rate by 5 basis points, relative to the target
range for the federal funds rate, in order to foster
trading of federal funds within the target range.
Participants agreed that developments in money markets over recent days implied that the Committee should
soon discuss the appropriate level of reserve balances
sufficient to support efficient and effective implementation of monetary policy in the context of the amplereserves regime that the Committee had chosen. A few
participants noted the possibility of resuming trend
growth of the balance sheet to help stabilize the level of
reserves in the banking system. Participants agreed that
any Committee decision regarding the trend pace of
balance sheet expansion necessary to maintain a level of
reserve balances appropriate to facilitate policy implementation should be clearly distinguished from past
large-scale asset purchase programs that were aimed at
altering the size and composition of the Federal
Reserve’s asset holdings in order to provide monetary
policy accommodation and ease overall financial conditions. Several participants suggested that such a discussion could benefit from also considering the merits of
introducing a standing repurchase agreement facility as
part of the framework for implementing monetary
policy.

Committee Policy Action
In their discussion of monetary policy for this meeting, members noted that information received since
the July meeting indicated that the labor market
remained strong and that economic activity had been
rising at a moderate rate. Job gains had been solid,
on average, in recent months, and the unemployment
rate had remained low. Household spending had
been rising at a strong pace. However, business fixed
investment and exports had weakened, and this outcome suggested that risks and uncertainty associated
with international trade developments and with
ongoing weakness in global economic growth were
continuing to weigh on the domestic economy. On a
12-month basis, both the overall inflation rate and
inflation for items other than food and energy were
running below 2 percent. Market-based measures of

246

106th Annual Report | 2019

inflation compensation remained low. Survey-based
measures of longer-term inflation expectations were
little changed. In light of these developments, most
members agreed to lower the target range for the federal funds rate to 1¾ to 2 percent at this meeting.
With this adjustment to policy, those members who
supported the policy action sought to make the overall stance of monetary policy most consistent with
helping to offset the effects on aggregate demand of
weak global growth and trade policy uncertainty,
insure against further downside risks arising from
those sources and from geopolitical developments,
and promote a more rapid return of inflation to the
Committee’s symmetric 2 percent objective than
would otherwise occur. A couple of these members
observed that, because monetary policy actions
affected aggregate spending with a lag, the present
meeting was an appropriate occasion for providing
accommodation that would support economic activity in the period ahead. Two members preferred to
maintain the current target range for the federal
funds rate at this meeting. These members noted that
economic data received over the intermeeting period
had been largely positive and that they anticipated,
under an unchanged policy stance, continued strong
labor markets and solid growth in activity, with inflation gradually moving up to the Committee’s 2 percent objective. These members also suggested that
providing further accommodation during a period of
high economic activity and elevated asset prices
could have adverse consequences for financial stability. One member preferred a reduction in the target
range of 50 basis points in the federal funds rate at
this meeting. This member suggested that such a
larger rate adjustment would be more consistent with
the achievement of the Committee’s objectives over
time and, in particular, with helping preclude the
possibility of a protracted period in which inflation
and employment were below the Committee’s
objectives.
Members agreed that, in determining the timing and
size of future adjustments to the target range for the
federal funds rate, the Committee would assess realized and expected economic conditions relative to its
maximum-employment objective and its symmetric
2 percent inflation objective. They also agreed that
those assessments would take into account a wide
range of information, including measures of labor
market conditions, indicators of inflation pressures
and inflation expectations, and readings on financial
and international developments.

With regard to the postmeeting statement, members
agreed to update the language of the Committee’s
description of incoming data to acknowledge the
weakening in investment spending and in U.S.
exports, as well as the recent strong rate of increase
of household spending.
At the conclusion of the discussion, the Committee
voted to authorize and direct the Federal Reserve
Bank of New York, until instructed otherwise, to
execute transactions in the SOMA in accordance
with the following domestic policy directive, to be
released at 2:00 p.m.:
“Effective September 19, 2019, the Federal Open
Market Committee directs the Desk to undertake open market operations as necessary to
maintain the federal funds rate in a target range
of 1¾ to 2 percent, including overnight reverse
repurchase operations (and reverse repurchase
operations with maturities of more than one day
when necessary to accommodate weekend, holiday, or similar trading conventions) at an offering rate of 1.70 percent, in amounts limited only
by the value of Treasury securities held outright
in the System Open Market Account that are
available for such operations and by percounterparty limit of $30 billion per day.
The Committee directs the Desk to continue
rolling over at auction all principal payments
from the Federal Reserve’s holdings of Treasury
securities and to continue reinvesting all principal payments from the Federal Reserve’s holdings of agency debt and agency mortgagebacked securities received during each calendar
month. Principal payments from agency debt
and agency mortgage-backed securities up to
$20 billion per month will continue to be reinvested in Treasury securities to roughly match
the maturity composition of Treasury securities
outstanding; principal payments in excess of
$20 billion per month will continue to be reinvested in agency mortgage-backed securities.
Small deviations from these amounts for operational reasons are acceptable.
The Committee also directs the Desk to engage
in dollar roll and coupon swap transactions as
necessary to facilitate settlement of the Federal
Reserve’s agency mortgage-backed securities
transactions.”

Minutes of Federal Open Market Committee Meetings | September

247

The vote also encompassed approval of the statement
below to be released at 2:00 p.m.:

Richard H. Clarida, Charles L. Evans, and Randal
K. Quarles.

“Information received since the Federal Open
Market Committee met in July indicates that the
labor market remains strong and that economic
activity has been rising at a moderate rate. Job
gains have been solid, on average, in recent
months, and the unemployment rate has
remained low. Although household spending has
been rising at a strong pace, business fixed
investment and exports have weakened. On a
12-month basis, overall inflation and inflation
for items other than food and energy are running below 2 percent. Market-based measures of
inflation compensation remain low; surveybased measures of longer-term inflation expectations are little changed.

Voting against this action: James Bullard, Esther L.
George, and Eric Rosengren.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment
and price stability. In light of the implications of
global developments for the economic outlook
as well as muted inflation pressures, the Committee decided to lower the target range for the
federal funds rate to 1¾ to 2 percent. This action
supports the Committee’s view that sustained
expansion of economic activity, strong labor
market conditions, and inflation near the Committee’s symmetric 2 percent objective are the
most likely outcomes, but uncertainties about
this outlook remain. As the Committee contemplates the future path of the target range for the
federal funds rate, it will continue to monitor the
implications of incoming information for the
economic outlook and will act as appropriate to
sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent
objective.
In determining the timing and size of future
adjustments to the target range for the federal
funds rate, the Committee will assess realized
and expected economic conditions relative to its
maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of
information, including measures of labor market
conditions, indicators of inflation pressures and
inflation expectations, and readings on financial
and international developments.”
Voting for this action: Jerome H. Powell, John C.
Williams, Michelle W. Bowman, Lael Brainard,

President Bullard dissented because he believed that
lowering the target range for the federal funds rate by
50 basis points at this time would provide insurance
against further declines in expected inflation and a
slowing economy subject to elevated downside risks.
In addition, a 50 basis point cut at this time would
help promote a more rapid return of inflation and
inflation expectations to target. President George dissented because she believed that an unchanged setting of policy was appropriate based on incoming
data and the outlook for economic activity over the
medium term. Recognizing the risks to the outlook
from the effects of trade policy and weaker global
activity, President George would be prepared to
adjust policy should incoming data point to a materially weaker outlook for the economy. President
Rosengren dissented because he judged that monetary policy was already accommodative. In his view,
additional accommodation was not needed for an
economy in which labor markets are already tight
and could pose risks of further inflating the prices of
risky assets and encouraging households and firms to
take on too much leverage.
Consistent with the Committee’s decision to lower
the target range for the federal funds rate to 1¾ to
2 percent, the Board of Governors voted unanimously to lower the interest rate paid on required
and excess reserve balances to 1.80 percent and voted
unanimously to approve a ¼ percentage point
decrease in the primary credit rate to 2.50 percent,
effective September 19, 2019.
It was agreed that the next meeting of the Committee
would be held on Tuesday–Wednesday, October
29–30, 2019. The meeting adjourned at 10:40 a.m. on
September 18, 2019.

Notation Vote
By notation vote completed on August 20, 2019, the
Committee unanimously approved the minutes of the
Committee meeting held on July 30–31, 2019.
James A. Clouse
Secretary

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106th Annual Report | 2019

Addendum:
Summary of Economic Projections
In conjunction with the Federal Open Market Committee (FOMC) meeting held on September 17–18,
2019, meeting participants submitted their projections of the most likely outcomes for real gross
domestic product (GDP) growth, the unemployment
rate, and inflation for each year from 2019 to 2022
and over the longer run. Each participant’s projections were based on information available at the time
of the meeting, together with his or her assessment of
appropriate monetary policy—including a path for
the federal funds rate and its longer-run value—and
assumptions about other factors likely to affect economic outcomes. The longer-run projections represent each participant’s assessment of the value to
which each variable would be expected to converge,
over time, under appropriate monetary policy and in
the absence of further shocks to the economy.1
“Appropriate monetary policy” is defined as the
future path of policy that each participant deems
most likely to foster outcomes for economic activity
and inflation that best satisfy his or her individual
interpretation of the statutory mandate to promote
maximum employment and price stability.
Participants who submitted longer-run projections
expected that, under appropriate monetary policy,
growth of real GDP in 2019 would run slightly or
somewhat above their individual estimates of its
longer-run rate. Participants expected real GDP
growth to edge down over the projection horizon,
with all participants projecting growth in 2022 to be
at or modestly below their estimates of its longer-run
rate. Almost all participants who submitted longerrun projections expected that the unemployment rate
through 2022 would run below their estimates of its
longer-run level. All participants continued to project
that total inflation, as measured by the fourquarter percent change in the price index for personal
consumption expenditures (PCE), would increase
from 2019 to 2020, and many expected another slight
increase in 2021. The vast majority of participants
expected that inflation would be at or slightly above
the Committee’s 2 percent objective in 2021 and
2022. The median of participants’ projections for
core PCE price inflation increased over the projection
1

One participant did not submit longer-run projections for real
GDP growth, the unemployment rate, or the federal funds rate.

period, rising to 2.0 percent in 2021. Table 1 and
figure 1 provide summary statistics for the projections. Compared with the Summary of Economic
Projections (SEP) from June 2019, some participants
slightly revised down their estimates of the longerrun unemployment rate; the median estimate of the
longer-run unemployment rate was unchanged. Participants’ projections for total and core inflation were
generally little changed compared with their projections in June.
As shown in figure 2, participants expected that the
evolution of the economy, relative to their objectives
of maximum employment and 2 percent inflation,
would likely warrant a federal funds rate target by the
end of this year at or below the target range that the
Committee adopted at its July 30–31 meeting. Compared with the June SEP submissions, the median
projection for the federal funds rate was 50 basis
points lower for the end of 2019 and 25 basis points
lower for the end of 2020 and 2021. In the September
SEP submissions, the median for the federal funds
rate for 2020 was equal to the median for 2019. The
median of participants’ assessments of the appropriate level for the federal funds rate in 2022 was slightly
below the median of participants’ estimates of its
longer-run level. Some participants revised lower
their assessments of the longer-run federal funds rate,
but the median assessment of the longer-run federal
funds rate was unchanged.
Most participants regarded the uncertainties around
their forecasts for GDP growth, total inflation, and
core inflation as broadly similar to the average over
the past 20 years. Just over half of the participants
viewed the level of uncertainty around their unemployment rate projections as being similar to the
average of the past 20 years, while the rest of the participants viewed uncertainty as higher. Most participants assessed the risks to their outlooks for real
GDP growth as weighted to the downside and for the
unemployment rate as weighted to the upside. Most
participants judged the risks to the inflation outlook
as broadly balanced; some participants viewed the
risks to inflation as weighted to the downside, and no
participant assessed risks to inflation as weighted to
the upside. Participants’ assessments of the uncertainties and risks around their forecasts for real GDP
growth and the unemployment rate were little
changed overall relative to June. The uncertainties
around their projections for headline and core infla-

Minutes of Federal Open Market Committee Meetings | September

249

Table 1. Economic projections of Federal Reserve Board members and Federal Reserve Bank presidents, under their individual
assumptions of projected appropriate monetary policy, September 2019
Percent
Median1

Central tendency2

Variable
2019

2020

2021

2022

Change in real GDP
June projection
Unemployment rate
June projection
PCE inflation
June projection
Core PCE inflation4
June projection

2.2
2.1
3.7
3.6
1.5
1.5
1.8
1.8

2.0
2.0
3.7
3.7
1.9
1.9
1.9
1.9

1.9
1.8
3.8
3.8
2.0
2.0
2.0
2.0

1.8

Memo: Projected
appropriate
policy path
Federal funds rate
June projection

1.9
2.4

1.9
2.1

2.1
2.4

3.9
2.0

Longer
run

2.4

Longer
run

2019

2020

2021

2.1–2.4
2.0–2.4
3.5–3.8
3.5–3.8
1.4–1.7
1.4–1.7
1.6–1.8
1.4–1.8

1.7–2.3
1.5–2.3
3.3–4.0
3.3–4.0
1.7–2.1
1.8–2.1
1.7–2.1
1.8–2.1

1.7–2.1
1.5–2.1
3.3–4.1
3.3–4.2
1.8–2.3
1.9–2.2
1.8–2.3
1.8–2.2

2022

Longer
run

2019

2020

2021

1.9
1.9
4.2
4.2
2.0
2.0

2.1–2.3
2.0–2.2
3.6–3.7
3.6–3.7
1.5–1.6
1.5–1.6
1.7–1.8
1.7–1.8

1.8–2.1
1.8–2.2
3.6–3.8
3.5–3.9
1.8–2.0
1.9–2.0
1.9–2.0
1.9–2.0

1.8–2.0
1.8–2.0
3.6–3.9
3.6–4.0
2.0
2.0–2.1
2.0
2.0–2.1

2.5
2.5

1.6–2.1 1.6–2.1 1.6–2.4 1.9–2.6 2.5–2.8 1.6–2.1 1.6–2.4 1.6–2.6 1.6–2.9 2.0–3.3
1.9–2.4 1.9–2.4 1.9–2.6
2.5–3.0 1.9–2.6 1.9–3.1 1.9–3.1
2.4–3.3

2.0

2022

Range3

1.7–2.0 1.8–2.0
1.8–2.0
3.7–4.0 4.0–4.3
4.0–4.4
2.0–2.2
2.0
2.0
2.0–2.2

1.6–2.1 1.7–2.1
1.7–2.1
3.3–4.2 3.6–4.5
3.6–4.5
1.8–2.2
2.0
2.0
1.8–2.2

Note: Projections of change in real gross domestic product (GDP) and projections for both measures of inflation are percent changes from the fourth quarter of the previous year
to the fourth quarter of the year indicated. PCE inflation and core PCE inflation are the percentage rates of change in, respectively, the price index for personal consumption
expenditures (PCE) and the price index for PCE excluding food and energy. Projections for the unemployment rate are for the average civilian unemployment rate in the fourth
quarter of the year indicated. Each participant’s projections are based on his or her assessment of appropriate monetary policy. Longer-run projections represent each
participant’s assessment of the rate to which each variable would be expected to converge under appropriate monetary policy and in the absence of further shocks to the
economy. The projections for the federal funds rate are the value of the midpoint of the projected appropriate target range for the federal funds rate or the projected appropriate
target level for the federal funds rate at the end of the specified calendar year or over the longer run. The June projections were made in conjunction with the meeting of the
Federal Open Market Committee on June 18–19, 2019. One participant did not submit longer-run projections for the change in real GDP, the unemployment rate, or the federal
funds rate in conjunction with the June 18–19, 2019, meeting, and one participant did not submit such projections in conjunction with the September 17–18, 2019, meeting.
1
For each period, the median is the middle projection when the projections are arranged from lowest to highest. When the number of projections is even, the median is the
average of the two middle projections.
2
The central tendency excludes the three highest and three lowest projections for each variable in each year.
3
The range for a variable in a given year includes all participants’ projections, from lowest to highest, for that variable in that year.
4
Longer-run projections for core PCE inflation are not collected.

250

106th Annual Report | 2019

Figure 1. Medians, central tendencies, and ranges of economic projections, 2019–22 and over the longer run
Percent

Change in real GDP
Median of projections
Central tendency of projections
Range of projections

Actual

2
1

2014

2015

2016

2017

2018

2019

2020

2021

2022

Longer
run
Percent

Unemployment rate
7
6
5
4
3

2014

2015

2016

2017

2018

2019

2020

2021

2022

Longer
run
Percent

PCE inflation
3

2014

2015

2016

2017

2018

2019

2020

2021

2022

Longer
run
Percent

Core PCE inflation
3

2014

2015

2016

2017

2018

2019

2020

2021

2022

Note: Definitions of variables and other explanations are in the notes to table 1. The data for the actual values of the variables are annual.

Longer
run

Minutes of Federal Open Market Committee Meetings | September

251

Figure 2. FOMC participants’ assessments of appropriate monetary policy: Midpoint of target range or target level for the
federal funds rate
Percent

5.0

4.5

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

2019

2020

2021

2022

Longer run

252

106th Annual Report | 2019

tion were little changed as well, but more participants
saw the inflation risks as broadly balanced than in
June.

The Outlook for Real GDP Growth
and Unemployment
As shown in table 1, the median of participants’ projections for the growth rate of real GDP in 2019, conditional on their individual assessments of appropriate monetary policy, was 2.2 percent, a bit above the
median estimate of its longer-run rate of 1.9 percent.
Almost all participants continued to expect GDP
growth to slow over the projection period, with the
median projection at 2.0 percent in 2020, 1.9 percent
in 2021, and 1.8 percent in 2022. Relative to the June
SEP, the medians of the projections for real GDP
growth in 2019, 2020, 2021, and the longer run were
unchanged or revised slightly higher.
The median of projections for the unemployment
rate in the fourth quarter of 2019 was 3.7 percent,
½ percentage point below the median assessment of
its longer-run level of 4.2 percent. The medians of
projections for 2020, 2021, and 2022 were 3.7 percent, 3.8 percent, and 3.9 percent, respectively. The
median projected unemployment rate for 2019 was
slightly higher than in the June SEP, while the
median projected unemployment rates for 2020 and
2021 were unchanged relative to the June SEP. A vast
majority of participants who submitted longer-run
projections expected that the unemployment rate in
2022 would be below their estimates of its longer-run
level, with some participants projecting a gap of
½ percentage point or more.
Figures 3.A and 3.B show the distributions of participants’ projections for real GDP growth and the
unemployment rate, respectively, from 2019 to 2022
and in the longer run. The distribution of individual
projections for real GDP growth for 2019 shifted up
somewhat relative to that in the June SEP. The distributions of individual projections of real GDP growth
for 2020 and 2021 and for the longer run were little
changed overall. The distributions of individual projections for the unemployment rate for 2019 to 2021
and for the longer run were also little changed overall
relative to those in June.

The Outlook for Inflation
As shown in table 1, the median of projections for
total PCE price inflation was 1.5 percent in 2019,
1.9 percent in 2020, and 2.0 percent in 2021; these

medians were unchanged from June. For 2022, the
median projection for total PCE was 2.0 percent. The
medians of projections for core PCE price inflation
were 1.8 percent for 2019 and 1.9 percent for 2020.
The median projections for core inflation for 2021
and 2022 were 2.0 percent. These medians were also
unchanged from June for each year included in the
June SEP.
Figures 3.C and 3.D provide information on the distributions of participants’ views about the outlook
for inflation. The distributions of projections for
total and core PCE price inflation in 2019, 2020, and
2021 were little changed overall relative to those in
June. For 2022, all participants projected total and
core inflation between 1.8 and 2.2 percent.

Appropriate Monetary Policy
Figure 3.E shows distributions of participants’ judgments regarding the appropriate target—or midpoint
of the target range—for the federal funds rate at the
end of each year from 2019 to 2022 and over the longer run. Compared with the June projections, the
range of projections for 2019, 2020, and 2021 shifted
toward lower values and narrowed somewhat. The
vast majority of participants viewed the appropriate
levels of the federal funds rate at the end of 2019,
2020, and 2021 as lower than those that they deemed
appropriate in June. All participants lowered their
projections for the appropriate level of the federal
funds rate, relative to June, at some point in the projection period, and none raised their projections for
the federal funds rate for any year. Compared with
the projections prepared for the June SEP, the
median federal funds rate was 50 basis points lower
in 2019 and 25 basis points lower in 2020 and 2021.
Muted inflation pressures, slower global growth, and
weak business fixed investment were cited as reasons
for downward revisions to the appropriate path for
the federal funds rate, as were trade tensions and
risk-management considerations.
The median federal funds rate projection for the end
of 2019 was 1.88 percent. Seven participants assessed
that the most likely appropriate federal funds rate at
the end of 2019 was 1.63 percent, while five assessed
that the most likely appropriate rate at year-end was
2.13 percent. The median for 2020 was 1.88 percent,
equal to the median for 2019. For subsequent years,
the medians of the projections were 2.13 percent at
the end of 2021 and 2.38 percent at the end of 2022.
Some participants revised lower their estimates of the
longer-run level of the federal funds rate, while a

Minutes of Federal Open Market Committee Meetings | September

253

Figure 3.A. Distribution of participants’ projections for the change in real GDP, 2019–22 and over the longer run
Number of participants

2019
18
16
14
12
10
8
6
4
2

September projections
June projections

1.4−
1.5

1.6−
1.7

1.8−
1.9

2.0−
2.1

2.2−
2.3

Percent range

2.4−
2.5
Number of participants

2020
18
16
14
12
10
8
6
4
2

1.4−
1.5

1.6−
1.7

1.8−
1.9

2.0−
2.1

2.2−
2.3

Percent range

2.4−
2.5
Number of participants

2021
18
16
14
12
10
8
6
4
2

1.4−
1.5

1.6−
1.7

1.8−
1.9

2.0−
2.1

2.2−
2.3

Percent range

2.4−
2.5
Number of participants

2022
18
16
14
12
10
8
6
4
2

1.4−
1.5

1.6−
1.7

1.8−
1.9

2.0−
2.1

2.2−
2.3

Percent range

2.4−
2.5
Number of participants

Longer run
18
16
14
12
10
8
6
4
2

1.4−
1.5

1.6−
1.7

1.8−
1.9

2.0−
2.1
Percent range

Note: Definitions of variables and other explanations are in the notes to table 1.

2.2−
2.3

2.4−
2.5

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106th Annual Report | 2019

Figure 3.B. Distribution of participants’ projections for the unemployment rate, 2019–22 and over the longer run
Number of participants

2019
18
16
14
12
10
8
6
4
2

September projections
June projections

3.2−
3.3

3.4−
3.5

3.6−
3.7

3.8−
4.0−
3.9
4.1
Percent range

4.2−
4.3

4.4−
4.5

4.6−
4.7
Number of participants

2020
18
16
14
12
10
8
6
4
2

3.2−
3.3

3.4−
3.5

3.6−
3.7

3.8−
4.0−
3.9
4.1
Percent range

4.2−
4.3

4.4−
4.5

4.6−
4.7
Number of participants

2021
18
16
14
12
10
8
6
4
2

3.2−
3.3

3.4−
3.5

3.6−
3.7

3.8−
4.0−
3.9
4.1
Percent range

4.2−
4.3

4.4−
4.5

4.6−
4.7
Number of participants

2022
18
16
14
12
10
8
6
4
2

3.2−
3.3

3.4−
3.5

3.6−
3.7

3.8−
4.0−
3.9
4.1
Percent range

4.2−
4.3

4.4−
4.5

4.6−
4.7
Number of participants

Longer run
18
16
14
12
10
8
6
4
2

3.2−
3.3

3.4−
3.5

3.6−
3.7

3.8−
4.0−
3.9
4.1
Percent range

Note: Definitions of variables and other explanations are in the notes to table 1.

4.2−
4.3

4.4−
4.5

4.6−
4.7

Minutes of Federal Open Market Committee Meetings | September

255

Figure 3.C. Distribution of participants’ projections for PCE inflation, 2019–22 and over the longer run
Number of participants

2019
18
16
14
12
10
8
6
4
2

September projections
June projections

1.3−
1.4

1.5−
1.6

1.7−
1.8

1.9−
2.0

2.1−
2.2

Percent range

2.3−
2.4
Number of participants

2020
18
16
14
12
10
8
6
4
2

1.3−
1.4

1.5−
1.6

1.7−
1.8

1.9−
2.0

2.1−
2.2

Percent range

2.3−
2.4
Number of participants

2021
18
16
14
12
10
8
6
4
2

1.3−
1.4

1.5−
1.6

1.7−
1.8

1.9−
2.0

2.1−
2.2

Percent range

2.3−
2.4
Number of participants

2022
18
16
14
12
10
8
6
4
2

1.3−
1.4

1.5−
1.6

1.7−
1.8

1.9−
2.0

2.1−
2.2

Percent range

2.3−
2.4
Number of participants

Longer run
18
16
14
12
10
8
6
4
2

1.3−
1.4

1.5−
1.6

1.7−
1.8

1.9−
2.0
Percent range

Note: Definitions of variables and other explanations are in the notes to table 1.

2.1−
2.2

2.3−
2.4

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Figure 3.D. Distribution of participants’ projections for core PCE inflation, 2019–22
Number of participants

2019
September projections
June projections

1.3−
1.4

18
16
14
12
10
8
6
4
2

1.5−
1.6

1.7−
1.8

1.9−
2.0

2.1−
2.2

2.3−
2.4

Percent range
Number of participants

2020
18
16
14
12
10
8
6
4
2

1.3−
1.4

1.5−
1.6

1.7−
1.8

1.9−
2.0

2.1−
2.2

2.3−
2.4

Percent range
Number of participants

2021
18
16
14
12
10
8
6
4
2

1.3−
1.4

1.5−
1.6

1.7−
1.8

1.9−
2.0

2.1−
2.2

2.3−
2.4

Percent range
Number of participants

2022
18
16
14
12
10
8
6
4
2

1.3−
1.4

1.5−
1.6

1.7−
1.8

1.9−
2.0
Percent range

Note: Definitions of variables and other explanations are in the notes to table 1.

2.1−
2.2

2.3−
2.4

Minutes of Federal Open Market Committee Meetings | September

257

2019
18
16
14
12
10
8
6
4
2

September projections
June projections

1.38−
1.62

1.63−
1.87

1.88−
2.12

2.13−
2.37

2.38−
2.62
Percent range

2.63−
2.87

2.88−
3.12

3.13−
3.37

3.38−
3.62
Number of participants

2020
18
16
14
12
10
8
6
4
2

1.38−
1.62

1.63−
1.87

1.88−
2.12

2.13−
2.37

2.38−
2.62
Percent range

2.63−
2.87

2.88−
3.12

3.13−
3.37

3.38−
3.62
Number of participants

2021
18
16
14
12
10
8
6
4
2

1.38−
1.62

1.63−
1.87

1.88−
2.12

2.13−
2.37

2.38−
2.62
Percent range

2.63−
2.87

2.88−
3.12

3.13−
3.37

3.38−
3.62
Number of participants

2022
18
16
14
12
10
8
6
4
2

1.38−
1.62

1.63−
1.87

1.88−
2.12

2.13−
2.37

2.38−
2.62
Percent range

2.63−
2.87

2.88−
3.12

3.13−
3.37

3.38−
3.62
Number of participants

Longer run
18
16
14
12
10
8
6
4
2

1.38−
1.62

1.63−
1.87

1.88−
2.12

2.13−
2.37

2.38−
2.62
Percent range

Note: Definitions of variables and other explanations are in the notes to table 1.

2.63−
2.87

2.88−
3.12

3.13−
3.37

3.38−
3.62

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106th Annual Report | 2019

Table 2. Average historical projection error ranges
Percentage points
Variable
Change in real GDP1
Unemployment rate1
Total consumer prices2
Short-term interest rates3

2019

2020

2021

2022

±1.2
±0.3
±0.8
±0.5

±1.8
±1.1
±1.0
±1.7

±1.9
±1.6
±1.1
±2.2

±2.0
±2.0
±1.0
±2.7

Note: Error ranges shown are measured as plus or minus the root mean squared
error of projections for 1999 through 2018 that were released in the fall by
various private and government forecasters. As described in the box “Forecast
Uncertainty,” under certain assumptions, there is about a 70 percent probability
that actual outcomes for real GDP, unemployment, consumer prices, and the
federal funds rate will be in ranges implied by the average size of projection
errors made in the past. For more information, see David Reifschneider and Peter
Tulip (2017), “Gauging the Uncertainty of the Economic Outlook Using Historical
Forecasting Errors: The Federal Reserve’s Approach,” Finance and Economics
Discussion Series 2017-020 (Washington: Board of Governors of the Federal
Reserve System, February), https://dx.doi.org/10.17016/FEDS.2017.020.
1
Definitions of variables are in the general note to table 1.
2
Measure is the overall consumer price index, the price measure that has been
most widely used in government and private economic forecasts. Projections
are percent changes on a fourth quarter to fourth quarter basis.
3
For Federal Reserve staff forecasts, measure is the federal funds rate. For other
forecasts, measure is the rate on 3-month Treasury bills. Projection errors are
calculated using average levels, in percent, in the fourth quarter.

majority of participants’ estimates were unchanged.
The median estimate of the longer-run federal funds
rate was 2.50 percent, unchanged from the median
estimate in June.

Participants’ assessments of the level of uncertainty
surrounding their individual economic projections
are shown in the bottom-left panels of figures 4.A,
4.B, and 4.C. Most participants continued to view
the uncertainties around their forecasts for GDP
growth, total inflation, and core inflation as broadly
similar to the average over the past 20 years. Just over
half of the participants viewed the level of uncertainty around their unemployment rate projections as
being similar to the average of the past 20 years,
while the rest of the participants viewed uncertainty
as higher.2
Because the fan charts are constructed to be symmetric around the median projections, they do not reflect
any asymmetries in the balance of risks that participants may see in their economic projections. Participants’ assessments of the balance of risks to their
current economic projections are shown in the
bottom-right panels of figures 4.A, 4.B, and 4.C.
Most participants continued to view the risks to their
outlooks for real GDP growth as weighted to the
downside and for the unemployment rate as weighted
to the upside. Most participants—four more than in
the June SEP—judged the risks to the inflation outlook as broadly balanced; some participants viewed
the risks to inflation as weighted to the downside,
and no participants assessed risks to inflation as
weighted to the upside.

In discussing the uncertainty and risks surrounding
their economic projections, several participants mentioned trade developments, concerns about foreign
economic growth, and weaker business fixed investment as sources of uncertainty or downside risk to
the U.S. economic growth outlook. For the inflation
outlook, the possibility that inflation expectations
could be drifting below levels consistent with the
FOMC’s 2 percent inflation objective and the potential for weaker domestic demand to put downward
pressure on inflation were viewed as downside risks.
A few participants noted the possibility that higher
tariffs could lead to aggregate price pressure as a
source of upside risk to inflation. A number of participants mentioned that their assessments of risks
remained roughly balanced, in part because the
downward revisions to their appropriate path for the
federal funds rate were offsetting factors that would
otherwise contribute to asymmetric risks.
2

Minutes of Federal Open Market Committee Meetings | September

259

Figure 4.A. Uncertainty and risks in projections of GDP growth

Median projection and confidence interval based on historical forecast errors

Percent

Change in real GDP
Median of projections
70% confidence interval

4
3
2

Actual

1
0

2014

2015

2016

2017

2018

2019

2020

2021

2022

FOMC participants’ assessments of uncertainty and risks around their economic projections
Number of participants

Uncertainty about GDP growth

Risks to GDP growth

September projections
June projections

Lower

Broadly
similar

Number of participants

18
16
14
12
10
8
6
4
2

Higher

September projections
June projections

Weighted to
downside

Broadly
balanced

18
16
14
12
10
8
6
4
2

Weighted to
upside

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106th Annual Report | 2019

Figure 4.B. Uncertainty and risks in projections of the unemployment rate

Median projection and confidence interval based on historical forecast errors

Percent

Unemployment rate

Median of projections
70% confidence interval

9
8
7

Actual

6
5
4
3
2
1

2014

2015

2016

2017

2018

2019

2020

2021

2022

FOMC participants’ assessments of uncertainty and risks around their economic projections
Number of participants

Uncertainty about the unemployment rate
September projections
June projections

Lower

Broadly
similar

Risks to the unemployment rate
18
16
14
12
10
8
6
4
2

Higher

Number of participants

September projections
June projections

Weighted to
downside

Broadly
balanced

18
16
14
12
10
8
6
4
2

Weighted to
upside

Minutes of Federal Open Market Committee Meetings | September

261

Figure 4.C. Uncertainty and risks in projections of PCE inflation

Median projection and confidence interval based on historical forecast errors

Percent

PCE inflation
Median of projections
70% confidence interval

1
Actual

0
2014

2015

2016

2017

2018

2019

2020

2021

2022

FOMC participants’ assessments of uncertainty and risks around their economic projections
Number of participants

Uncertainty about PCE inflation

Risks to PCE inflation

September projections
June projections

Lower

Broadly
similar

Number of participants

18
16
14
12
10
8
6
4
2

Higher

September projections
June projections

Weighted to
downside

Broadly
balanced

Number of participants

Uncertainty about core PCE inflation

Broadly
similar

Weighted to
upside
Number of participants

Risks to core PCE inflation

September projections
June projections

Lower

18
16
14
12
10
8
6
4
2

Higher

September projections
June projections

Weighted to
downside

Broadly
balanced

18
16
14
12
10
8
6
4
2

Weighted to
upside

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106th Annual Report | 2019

Participants’ assessments of the appropriate future
path of the federal funds rate are also subject to considerable uncertainty. Because the Committee adjusts
the federal funds rate in response to actual and prospective developments over time in key economic
variables—such as real GDP growth, the unemployment rate, and inflation—uncertainty surrounding
the projected path for the federal funds rate importantly reflects the uncertainties about the paths for
these economic variables, along with other factors.
Figure 5 provides a graphic representation of this
uncertainty, plotting the SEP median for the federal

funds rate surrounded by confidence intervals
derived from the results presented in table 2.3 As with
the macroeconomic variables, the forecast uncertainty surrounding the appropriate path of the federal funds rate is substantial and increases for longer
horizons.

The confidence interval for the federal funds rate is assumed to
be symmetric except when it is truncated at zero, which is the
bottom of the lowest target range for the federal funds rate that
has been adopted in the past by the Committee.

Minutes of Federal Open Market Committee Meetings | September

263

Figure 5. Uncertainty and risks in projections of the federal funds rate
Percent

Federal funds rate
Midpoint of target range
Median of projections
70% confidence interval*

6
5
4
3
2
1

Actual

0
2014

2015

2016

2017

2018

2019

2020

2021

2022

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106th Annual Report | 2019

Forecast Uncertainty
The economic projections provided by the members
of the Board of Governors and the presidents of the
Federal Reserve Banks inform discussions of monetary policy among policymakers and can aid public
understanding of the basis for policy actions. Considerable uncertainty attends these projections, however. The economic and statistical models and relationships used to help produce economic forecasts
are necessarily imperfect descriptions of the real
world, and the future path of the economy can be
affected by myriad unforeseen developments and
events. Thus, in setting the stance of monetary
policy, participants consider not only what appears to
be the most likely economic outcome as embodied in
their projections, but also the range of alternative
possibilities, the likelihood of their occurring, and the
potential costs to the economy should they occur.
Table 2 summarizes the average historical accuracy
of a range of forecasts, including those reported in
past Monetary Policy Reports and those prepared by
the Federal Reserve Board’s staff in advance of
meetings of the Federal Open Market Committee
(FOMC). The projection error ranges shown in the
table illustrate the considerable uncertainty associated with economic forecasts. For example, suppose
a participant projects that real gross domestic product (GDP) and total consumer prices will rise steadily
at annual rates of, respectively, 3 percent and 2 percent. If the uncertainty attending those projections is
similar to that experienced in the past and the risks
around the projections are broadly balanced, the
numbers reported in table 2 would imply a probability
of about 70 percent that actual GDP would expand
within a range of 1.8 to 4.2 percent in the current
year, 1.2 to 4.8 percent in the second year, 1.1 to
4.9 percent in the third year, and 1.0 to 5.0 percent in
the fourth year. The corresponding 70 percent confidence intervals for overall inflation would be 1.2 to
2.8 percent in the current year, 1.0 to 3.0 percent in
the second year, 0.9 to 3.1 percent in the third year,
and 1.0 to 3.0 percent in the fourth year. Figures 4.A
through 4.C illustrate these confidence bounds in
“fan charts” that are symmetric and centered on the
medians of FOMC participants’ projections for GDP
growth, the unemployment rate, and inflation. However, in some instances, the risks around the projections may not be symmetric. In particular, the unemployment rate cannot be negative; furthermore, the
risks around a particular projection might be tilted to
either the upside or the downside, in which case the
corresponding fan chart would be asymmetrically
positioned around the median projection.
Because current conditions may differ from those
that prevailed, on average, over history, participants
provide judgments as to whether the uncertainty
attached to their projections of each economic variable is greater than, smaller than, or broadly similar
to typical levels of forecast uncertainty seen in the
past 20 years, as presented in table 2 and reflected
in the widths of the confidence intervals shown in the
top panels of figures 4.A through 4.C. Participants’
current assessments of the uncertainty surrounding

their projections are summarized in the bottom-left
panels of those figures. Participants also provide
judgments as to whether the risks to their projections
are weighted to the upside, are weighted to the
downside, or are broadly balanced. That is, while the
symmetric historical fan charts shown in the top panels of figures 4.A through 4.C imply that the risks to
participants’ projections are balanced, participants
may judge that there is a greater risk that a given
variable will be above rather than below their projections. These judgments are summarized in the lowerright panels of figures 4.A through 4.C.
As with real activity and inflation, the outlook for the
future path of the federal funds rate is subject to considerable uncertainty. This uncertainty arises primarily
because each participant’s assessment of the appropriate stance of monetary policy depends importantly
on the evolution of real activity and inflation over
time. If economic conditions evolve in an unexpected
manner, then assessments of the appropriate setting
of the federal funds rate would change from that
point forward. The final line in table 2 shows the error
ranges for forecasts of short-term interest rates. They
suggest that the historical confidence intervals associated with projections of the federal funds rate are
quite wide. It should be noted, however, that these
confidence intervals are not strictly consistent with
the projections for the federal funds rate, as these
projections are not forecasts of the most likely quarterly outcomes but rather are projections of participants’ individual assessments of appropriate monetary policy and are on an end-of-year basis. However, the forecast errors should provide a sense of
the uncertainty around the future path of the federal
funds rate generated by the uncertainty about the
macroeconomic variables as well as additional
adjustments to monetary policy that would be appropriate to offset the effects of shocks to the economy.
If at some point in the future the confidence interval
around the federal funds rate were to extend below
zero, it would be truncated at zero for purposes of
the fan chart shown in figure 5; zero is the bottom of
the lowest target range for the federal funds rate that
has been adopted by the Committee in the past. This
approach to the construction of the federal funds rate
fan chart would be merely a convention; it would not
have any implications for possible future policy decisions regarding the use of negative interest rates to
provide additional monetary policy accommodation if
doing so were appropriate. In such situations, the
Committee could also employ other tools, including
forward guidance and asset purchases, to provide
additional accommodation.
While figures 4.A through 4.C provide information on
the uncertainty around the economic projections, figure 1 provides information on the range of views
across FOMC participants. A comparison of figure 1
with figures 4.A through 4.C shows that the dispersion of the projections across participants is much
smaller than the average forecast errors over the past
20 years.

Minutes of Federal Open Market Committee Meetings | October

Meeting Held
on October 29–30, 2019
A joint meeting of the Federal Open Market Committee and the Board of Governors was held in the
offices of the Board of Governors of the Federal
Reserve System in Washington, D.C., on Tuesday,
October 29, 2019, at 9:00 a.m. and continued on
Wednesday, October 30, 2019, at 9:00 a.m.1

Michael Held
Deputy General Counsel
Steven B. Kamin
Economist
Thomas Laubach
Economist
Stacey Tevlin
Economist

Jerome H. Powell
Chair

Rochelle M. Edge, Eric M. Engen, Anna Paulson,
Christopher J. Waller, William Wascher,
and Beth Anne Wilson
Associate Economists

John C. Williams
Vice Chair

Lorie K. Logan
Manager pro tem, System Open Market Account

Michelle W. Bowman

Ann E. Misback
Secretary, Office of the Secretary,
Board of Governors

Present

The Federal Open Market Committee is referenced as the
“FOMC” and the “Committee” in these minutes.

265

Eric Belsky2
Director, Division of Consumer and Community
Affairs, Board of Governors
Matthew J. Eichner3
Director, Division of Reserve Bank Operations and
Payment Systems, Board of Governors
Andreas Lehnert
Director, Division of Financial Stability,
Board of Governors
Jennifer J. Burns
Deputy Director, Division of Supervision and
Regulation, Board of Governors
Daniel M. Covitz
Deputy Director, Division of Research and Statistics,
Board of Governors
Michael T. Kiley
Deputy Director, Division of Financial Stability,
Board of Governors
Trevor A. Reeve
Deputy Director, Division of Monetary Affairs,
Board of Governors
Jon Faust
Senior Special Adviser to the Chair, Office of Board
Members, Board of Governors
2

Attended the discussion of the review of monetary policy strategy, tools, and communication practices.
Attended through the discussion of the review of options for
repo operations to support control of the federal funds rate.

266

106th Annual Report | 2019

Joshua Gallin
Special Adviser to the Chair, Office of Board
Members, Board of Governors

Stephanie E. Curcuru
Assistant Director, Division of International Finance,
Board of Governors

Brian M. Doyle, Wendy E. Dunn, Joseph W. Gruber,
Ellen E. Meade, and Ivan Vidangos
Special Advisers to the Board, Office of Board
Members, Board of Governors

Giovanni Favara, Laura Lipscomb,4 Zeynep Senyuz,4
and Rebecca Zarutskie2
Assistant Directors, Division of Monetary Affairs,
Board of Governors

Linda Robertson
Assistant to the Board, Office of Board Members,
Board of Governors

Shane M. Sherlund
Assistant Director, Division of Research and
Statistics, Board of Governors

Shaghil Ahmed
Senior Associate Director, Division of International
Finance, Board of Governors

Penelope A. Beattie5
Section Chief, Office of the Secretary,
Board of Governors

David E. Lebow
Senior Associate Director, Division of Research and
Statistics, Board of Governors

Matthew Malloy4
Section Chief, Division of Monetary Affairs,
Board of Governors

Antulio N. Bomfim
Senior Adviser, Division of Monetary Affairs,
Board of Governors

Mark A. Carlson3
Senior Economic Project Manager, Division of
Monetary Affairs, Board of Governors

Michael Hsu4
Associate Director, Division of Supervision and
Regulation, Board of Governors

David H. Small
Project Manager, Division of Monetary Affairs,
Board of Governors

David López-Salido and Min Wei
Associate Directors, Division of Monetary Affairs,
Board of Governors

Alyssa G. Anderson,4 Anna Orlik,
and Bernd Schlusche2
Principal Economists, Division of Monetary Affairs,
Board of Governors

Glenn Follette
Deputy Associate Director, Division of Research and
Statistics, Board of Governors
Christopher J. Gust
Deputy Associate Director, Division of Monetary
Affairs, Board of Governors
Jeffrey D. Walker3
Deputy Associate Director, Division of Reserve Bank
Operations and Payment Systems,
Board of Governors
Paul R. Wood2
Deputy Associate Director, Division of International
Finance, Board of Governors
Eric C. Engstrom
Senior Adviser, Division of Research and Statistics,
and
Deputy Associate Director, Division of Monetary
Affairs, Board of Governors
4

Attended the discussion of developments in financial markets
and open market operations through the discussion of the
review of options for repo operations to support control of the
federal funds rate.

Cristina Fuentes-Albero2 and Christopher J. Nekarda6
Principal Economists, Division of Research and
Statistics, Board of Governors
Valerie Hinojosa
Senior Information Manager, Division of Monetary
Affairs, Board of Governors
Kelly J. Dubbert
First Vice President, Federal Reserve Bank of
Kansas City
David Altig, Kartik B. Athreya, Jeffrey Fuhrer,
and Glenn D. Rudebusch
Executive Vice Presidents, Federal Reserve
Banks of Atlanta, Richmond, Boston, and
San Francisco, respectively

Attended through the discussion of developments in financial
markets and open market operations.
Attended the discussion of economic developments and the
outlook.

Minutes of Federal Open Market Committee Meetings | October

Angela O’Connor,4 Marc Giannoni,2 Paolo A. Pesenti,
Samuel Schulhofer-Wohl,4 Raymond Testa,4 and
Nathaniel Wuerffel4
Senior Vice Presidents, Federal Reserve Banks of
New York, Dallas, New York, Chicago, New York,
and New York, respectively
Satyajit Chatterjee, Richard K. Crump,6 George A.
Kahn, Rebecca McCaughrin,4 and Patricia Zobel7
Vice Presidents, Federal Reserve Banks of
Philadelphia, New York, Kansas City, New York,
and New York, respectively
Larry Wall2
Executive Director, Federal Reserve Bank of Atlanta
Edward S. Prescott
Senior Economic and Policy Advisor, Federal Reserve
Bank of Cleveland
Nicolas Petrosky-Nadeau6
Senior Research Advisor, Federal Reserve
Bank of San Francisco
Stefania D’Amico2 and Thomas B. King2
Senior Economists and Research Advisors,
Federal Reserve Bank of Chicago
Alex Richter
Senior Research Economist and Advisor,
Federal Reserve Bank of Dallas
Benjamin Malin
Senior Research Economist, Federal Reserve
Bank of Minneapolis

Attended the discussion of developments in financial markets
and open market operations through the end of the meeting.

267

accommodation to the achievement of certain macroeconomic outcomes. The briefing addressed communications challenges associated with each form of
forward guidance, including the need to avoid conveying a more negative economic outlook than the
FOMC expects. Nonetheless, the staff suggested that
forward guidance generally had been effective in easing financial conditions and stimulating economic
activity in circumstances when the policy rate was
above the ELB and when it was at the ELB. The
briefing also discussed negative interest rates, a policy
option implemented by several foreign central banks.
The staff noted that although the evidence so far suggested that this tool had provided accommodation in
jurisdictions where it had been employed, there were
also indications of possible adverse side effects.
Moreover, differences between the U.S. financial
system and the financial systems of those jurisdictions suggested that the foreign experience may not
provide a useful guide in assessing whether negative
rates would be effective in the United States.
The second part of the staff briefing focused on balance sheet policy tools. The staff discussed the benefits and costs associated with the large-scale asset
purchase programs implemented by the Federal
Reserve after the financial crisis. In general, the
staff’s review of the historical experience suggested
that the benefits of large-scale asset purchase programs were significant and that many of the potential
costs of such programs identified at the time either
did not materialize or materialized to a smaller
degree than initially feared. In addition, the staff presentation noted that—taking account of investor
expectations ahead of the announcement of each
new program—the effects of asset purchases did not
appear to have diminished materially across consecutive programs. However, going forward, such policies
might not be as effective because longer-term interest
rates would likely be much lower at the onset of a
future asset purchase program than they were before
the financial crisis. The staff also compared the benefits and costs associated with asset purchase programs that are of a fixed cumulative size and those
that are flow-based—where purchases continue at a
specific pace until certain macroeconomic outcomes
are achieved—and examined the potential effectiveness of using asset purchases to place ceilings on
interest rates. The briefing also discussed lending programs that could facilitate the flow of credit to
households or businesses.
Participants discussed the relative merits of qualitative, date-based, and outcome-based forward guid-

268

106th Annual Report | 2019

ance. A number of participants noted that each of
these three forms of forward guidance could be effective in providing accommodation, depending on circumstances both at and away from the ELB. They
also suggested that different types of forward guidance would likely be needed to address varying economic conditions, and that the communications
regarding forward guidance needed to be tailored to
explain the Committee’s evaluation of the economic
outlook. In particular, several participants emphasized that to guard against the possibility of adverse
feedback loops in which forward guidance is interpreted by the public as a sign of a sharply deteriorating economic outlook, thus leading households and
businesses to become even more cautious in their
spending decisions, the Committee would need to
clearly communicate how its announced policy could
help promote better economic outcomes. Participants
saw both benefits and costs associated with outcomebased forward guidance relative to other forms of
forward guidance. On the one hand, relative to qualitative or date-based forward guidance, outcomebased forward guidance has the advantage of creating an explicit link between future monetary policy
actions and macroeconomic conditions, thereby helping to support economic stabilization efforts and foster transparency and accountability. On the other
hand, outcome-based forward guidance could be
complex and difficult to explain and, hence, could
potentially be less effective than qualitative or datebased forward guidance if those hurdles could not be
overcome. A few participants commented that
outcome-based forward guidance, tied to inflation
outcomes, could be a useful tool to reinforce the
Committee’s commitment to its symmetric
2 percent objective.
Participants also discussed the benefits and costs of
using different types of balance sheet policy. Participants generally agreed that the balance sheet policies
implemented by the Federal Reserve after the crisis
had eased financial conditions and had contributed
to the economic recovery, and that those tools had
become an important part of the Committee’s current toolkit. However, some participants pointed out
that research had produced a sizable range of estimates of the magnitude of the economic effects of
balance sheet actions. In addition, some participants
noted that the effectiveness of these tools might be
diminished in the future, as longer-term interest rates
have declined to very low levels and would likely be
even lower following an adverse shock that could
lead to the resumption of large-scale asset purchases;
as a result, there might be limited scope for balance

sheet tools to provide accommodation. Several participants commented on the advantages and disadvantages of flow-based asset purchase programs tied
to the achievement of economic outcomes. On the
one hand, such programs adjusted automatically in
response to the performance of the economy and,
hence, were more straightforward to implement and
communicate. On the other hand, flow-based asset
purchase programs may result in the balance sheet
rising to undesirable levels. A few participants also
commented that, barring significant dislocations to
particular segments of the markets, they would
restrict asset purchases to Treasury securities to avoid
perceptions that the Federal Reserve was engaging in
credit allocation across sectors of the economy.
In considering policy tools that the Federal Reserve
had not used in the recent past, participants discussed the benefits and costs of using balance sheet
tools to cap rates on short- or long-maturity Treasury
securities through open market operations as necessary. A few participants saw benefits to capping
longer-term interest rates that more directly influence
household and business spending. In addition, capping longer-maturity interest rates using balance
sheet tools, if judged as credible by market participants, might require a smaller amount of asset purchases to provide a similar amount of accommodation as a quantity-based program purchasing longermaturity securities. However, many participants
raised concerns about capping long-term rates. Some
of those participants noted that uncertainty regarding the neutral federal funds rate and regarding the
effects of rate ceiling policies on future interest rates
and inflation made it difficult to determine the
appropriate level of the rate ceiling or when that ceiling should be removed; that maintaining a rate ceiling could result in an elevated level of the Federal
Reserve’s balance sheet or significant volatility in its
size or maturity composition; or that managing
longer-term interest rates might be seen as interacting
with the federal debt management process. By contrast, a majority of participants saw greater benefits
in using balance sheet tools to cap shorter-term interest rates and reinforce forward guidance about the
near-term path of the policy rate.
All participants judged that negative interest rates
currently did not appear to be an attractive monetary
policy tool in the United States. Participants commented that there was limited scope to bring the
policy rate into negative territory, that the evidence
on the beneficial effects of negative interest rates
abroad was mixed, and that it was unclear what

Minutes of Federal Open Market Committee Meetings | October

effects negative rates might have on the willingness of
financial intermediaries to lend and on the spending
plans of households and businesses. Participants
noted that negative interest rates would entail risks of
introducing significant complexity or distortions to
the financial system. In particular, some participants
cautioned that the financial system in the United
States is considerably different from those in countries that implemented negative interest rate policies,
and that negative rates could have more significant
adverse effects on market functioning and financial
stability here than abroad. Notwithstanding these
considerations, participants did not rule out the possibility that circumstances could arise in which it
might be appropriate to reassess the potential role of
negative interest rates as a policy tool.
Overall, participants generally agreed that the forward guidance and balance sheet policies followed by
the Federal Reserve after the financial crisis had been
effective in providing stimulus at the ELB. With estimates of equilibrium real interest rates having
declined notably over recent decades, policymakers
saw less room to reduce the federal funds rate to support the economy in the event of a downturn. In
addition, against a background of inflation undershooting the symmetric 2 percent objective for several
years, some participants raised the concern that the
scope to reduce the federal funds rate to provide support to economic activity in future recessions could
be reduced further if inflation shortfalls continued
and led to a decline in inflation expectations. Therefore, participants generally agreed it was important
for the Committee to keep a wide range of tools
available and employ them as appropriate to support
the economy. Doing so would help ensure the
anchoring of inflation expectations at a level consistent with the Committee’s symmetric 2 percent inflation objective.
Some participants noted that the form of the policy
response would depend critically on the circumstances the Committee faced at the time. Several participants suggested that communicating to the public
clearly and convincingly in advance about how the
Committee intended to provide accommodation at
the ELB would enhance public confidence and support the effectiveness of whichever tool the Committee selected. Some participants thought it would be
helpful for the Committee to evaluate how its tools
could be utilized in different economic scenarios,
such as when longer-term interest rates were significantly below current levels, and discuss which actions
would best address the challenges posed by each sce-

269

nario. Several participants noted that, particularly if
monetary policy became severely constrained at the
ELB, expansionary fiscal policy would be especially
important in addressing an economic downturn.
Participants expected that, at upcoming meetings,
they would continue their deliberations on the
Committee’s review of the monetary policy framework as well as the Committee’s Statement on
Longer-Run Goals and Monetary Policy Strategy.
They also generally agreed that the Committee’s consideration of possible modifications to its policy
strategy, tools, and communication practices would
take some time and that the process would be careful,
deliberate, and patient. A number of participants
judged that the review could be completed around
the middle of 2020.

Developments in Financial Markets and
Open Market Operations
The manager pro tem first reviewed developments in
financial markets over the intermeeting period. Early
in the period, market participants focused on signs of
weakness in U.S. economic data with some soft data
from business surveys viewed as substantiating concerns that global headwinds were spilling over to the
U.S. economy. Later in the period, markets
responded to news suggesting favorable developments around Brexit and a partial U.S.–China trade
deal. On balance, U.S. financial conditions ended the
period little changed.
Regarding the outlook for U.S. monetary policy, the
Open Market Desk’s surveys and market-based indicators pointed to a high likelihood of a 25 basis point
cut in the target range at the October meeting. The
probability that survey respondents placed on this
outcome was broadly similar to the probability of a
25 basis point cut ahead of the July and September
meetings. Further ahead, the path implied by the
medians of survey respondents’ modal forecasts for
the federal funds rate remained essentially flat after
this meeting. Meanwhile, the market-implied path
suggested that investors expected around 25 basis
points of additional easing by the end of 2020, after
the anticipated easing at this meeting.
The manager pro tem next turned to a review of
money market developments since early October. On
October 11, the Committee announced its decision to
maintain reserves at or above the level that prevailed
in early September through a program of Treasury
bill purchases and repurchase agreement (repo)

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operations. After the announcement, the Desk conducted regular operations that offered at least
$75 billion in overnight repo funding and between
$135 and $170 billion in term funding. These operations fostered conditions that helped maintain the
federal funds rate within the target range through
two channels. First, they provided funding in repo
markets that dampened repo market pressure that
would otherwise have passed through to the federal
funds market, and second, they increased the supply
of reserves in the banking system. In anticipation of
another projected sharp decline in reserves and
expected rate pressures around October 31, the Desk
announced an increase in the size of overnight repos
to $120 billion, and an increase in the size of the two
term repo operations that crossed the October
month-end to $45 billion.
With respect to purchases of Treasury bills for
reserve management purposes, the Desk had purchased more than half of the initial $60 billion
monthly amount for October, and propositions at the
five operations conducted to date had been strong.
Respondents to the Desk surveys expected reserve
management purchases of Treasury bills to continue
at the same pace for some time. The combination of
repo operations and bill purchases lifted reserve levels above those observed in early September.
The manager pro tem noted that diminished willingness of some dealers to intermediate across money
markets ahead of the year-end could result in upward
pressure on short-term money market rates. Forward
measures of market pricing continued to indicate
expectations for such pressures around the year-end.
The Desk planned to continue its close monitoring of
reserves and money market conditions, as well as
dealer participation in repo operations, particularly
given balance sheet constraints heading into yearend. The Desk discussed its intentions to further
adjust operations around year-end as needed to mitigate the risk of money market pressures that could
adversely affect policy implementation, and to maintain over time a level of reserve balances at or above
those that prevailed in early September.
The manager pro tem finished by noting that the
Federal Reserve Bank of New York would soon
release a request for public comment on a plan to
publish a series of backward looking Secured Overnight Financing Rate (SOFR) averages and a daily
SOFR index to support the transition away from
instruments based on LIBOR (London interbank

offered rate). Publication of these series was expected
to begin in the first half of 2020.
By unanimous vote, the Committee ratified the
Desk’s domestic transactions over the intermeeting
period. There were no intervention operations in foreign currencies for the System’s account during the
intermeeting period.

Review of Options for Repo Operations to
Support Control of the Federal Funds Rate
The staff briefed participants on the recent experience with using repo operations to support control of
the federal funds rate and on possibly maintaining a
role for repo operations in the monetary policy
implementation framework over the longer run.
Ongoing capacity for repo operations could be
viewed as useful in an ample-reserves regime as a way
of providing insurance against unexpected stresses in
money markets that could drive the federal funds rate
outside the Committee’s target range over a sustained period. The staff presented two potential
approaches for conducting repo operations if the
Committee decided to maintain an ongoing role for
such operations. Under the first approach, the Desk
would conduct modestly sized, relatively frequent
repo operations designed to provide a high degree of
readiness should the need for larger operations arise;
under the second approach, the FOMC would establish a standing fixed-rate facility that could serve as
an automatic money market stabilizer.8 Assessing
these two approaches involved several considerations,
including the degree of assurance of control over the
federal funds rate, the likelihood that participation in
the Federal Reserve’s repo operations could become
stigmatized, the possibility that the operations could
encourage the Federal Reserve’s counterparties to
take on excessive liquidity risks in their portfolios,
and the potential disintermediation of financial
transactions currently undertaken by private counterparties. Regular, modestly sized repo operations
likely would pose relatively little risk of stigma or
moral hazard, but they may provide less assurance of
control over the federal funds rate because it might
be difficult for the Federal Reserve to anticipate
money market pressures and scale up its repo operations accordingly. A standing fixed-rate repo facility
would likely provide substantial assurance of control
over the federal funds rate, but use of the facility
8

The staff briefed the Committee in June 2019 on the possible
role of a standing repo facility in the monetary policy implementation framework.

Minutes of Federal Open Market Committee Meetings | October

could become stigmatized, particularly if the rate was
set at a relatively high level. Conversely, a standing
facility with a rate set at a relatively low level could
result in larger and more frequent repo operations
than would be appropriate. And by effectively standing ready to provide a form of liquidity on an
as-needed basis, such a facility could increase the risk
that some institutions may take on an undesirably
high amount of liquidity risk.
In their comments following the staff presentation,
participants emphasized the importance of maintaining reserves at a level consistent with the Committee’s choice of an ample-reserves monetary policy
implementation framework, in which control over the
level of the federal funds rate is exercised primarily
through the setting of the Federal Reserve’s administered rates and in which active management of the
supply of reserves is not required. Some participants
indicated that, in such an environment, they would
have some tolerance for allowing the federal funds
rate to vary from day to day and to move occasionally outside its target range, especially in those
instances associated with easily identifiable technical
events; a couple of participants expressed discomfort
with such misses.
Participants expressed a range of views on the relative merits of the two approaches described by the
staff for conducting repo operations. Many participants noted that, once an ample supply of reserves is
firmly established, there might be little need for a
standing repo facility or for frequent repo operations.
Some of these participants indicated that a basic
principle in implementing an ample-reserves framework is to maintain reserves on an ongoing basis at
levels that would obviate the need for open market
operations to address pressures in funding markets in
all but exceptional circumstances. Many participants
remarked, however, that even in an environment with
ample reserves, a standing facility could serve as a
useful backstop to support control of the federal
funds rate in the event of outsized shocks to the
system. Several of these participants also suggested
that, if a standing facility were created that allowed
banks to monetize a portion of their securities holdings at times of market stress, banks could possibly
reduce their demand for reserves in normal times,
which could make it feasible for the monetary policy
implementation framework to operate with a significantly smaller quantity of reserves than would otherwise be needed. A couple of participants pointed out
that establishing a standing facility would be similar
to the practice of some other major central banks. A

271

number of participants noted that, before deciding
whether to implement a standing repo facility, additional work would be necessary to assess the likely
implications of different design choices for a standing repo facility, such as pricing, eligible counterparties, and the set of acceptable collateral. Echoing
issues raised at the Committee’s June 2019 meeting,
various participants commented on the need to carefully evaluate these design choices to guard against
the potential for moral hazard, stigma, disintermediation risk, or excessive volatility in the Federal
Reserve’s balance sheet. A couple of other participants suggested that an approach based on modestly
sized, frequent repo operations that could be quickly
and substantially ramped up in response to emerging
market pressures would mitigate the moral hazard,
disintermediation, and stigmatization risks associated
with a standing repo facility.
Participants made no decisions at this meeting on the
longer-run role of repo operations in the amplereserves regime or on an approach for conducting
repo operations over the longer run. They generally
agreed that they should continue to monitor the market effects of the Federal Reserve’s ongoing repo
operations and Treasury bill purchases and that additional analysis of the recent period of money market
dislocations or of fluctuations in the Federal
Reserve’s non-reserve liabilities was warranted. Some
participants called for further research on the role
that the financial regulatory environment or other
factors may have played in the recent dislocations.

Staff Review of the Economic Situation
The information available for the October 29–30
meeting indicated that labor market conditions
remained strong and that real gross domestic product
(GDP) increased at a moderate rate in the third quarter. Consumer price inflation, as measured by the
12-month percentage change in the price index for
personal consumption expenditures (PCE), remained
below 2 percent in August. Survey-based measures of
longer-run inflation expectations were little changed.
Total nonfarm payroll employment expanded at a
slower pace in September than in the previous two
months, but the average pace for the third quarter
was similar to that for the first half of the year. However, the pace of job gains so far this year was slower
than last year, even after accounting for the anticipated effects of the Bureau of Labor Statistics’
benchmark revision to payroll employment, which
will be incorporated in the published data in Febru-

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ary 2020. The unemployment rate moved down to a
50-year low of 3.5 percent in September, while the
labor force participation rate held steady and the
employment-to-population ratio moved up. The
unemployment rates for Asians, Hispanics, and
whites each moved lower in September, but the rate
for African Americans was unchanged; the unemployment rate for each group was below its level at
the end of the previous economic expansion, though
persistent differentials between these rates remained.
The average share of workers employed part time for
economic reasons in September continued to be
below its level in late 2007. The rate of private-sector
job openings declined in August, and the rate of
quits also edged down, but both readings were still at
relatively elevated levels. The four-week moving average of initial claims for unemployment insurance
benefits through mid-October remained near historically low levels. Average hourly earnings for all
employees rose 2.9 percent over the 12 months ending in September, roughly similar to the pace a
year earlier.
Total consumer prices, as measured by the PCE price
index, increased 1.4 percent over the 12 months ending in August. Core PCE price inflation (which
excludes changes in consumer food and energy
prices) was 1.8 percent over that same 12-month
period, while consumer food price inflation was well
below core inflation, and consumer energy prices
declined. The trimmed mean measure of 12-month
PCE price inflation constructed by the Federal
Reserve Bank of Dallas remained at 2 percent in
August. The consumer price index (CPI) rose 1.7 percent over the 12 months ending in September, while
core CPI inflation was 2.4 percent. Recent readings
on survey-based measures of longer-run inflation
expectations—including those from the University of
Michigan Surveys of Consumers, the Blue Chip Economic Indicators, and the Desk’s Survey of Primary
Dealers and Survey of Market Participants—were
little changed, on balance, although the Michigan
survey measure ticked down to the low end of its
recent range.
Real PCE rose solidly in the third quarter following a
stronger gain in the second quarter. Overall consumer spending rose steadily in recent months, and
sales of light motor vehicles through September
maintained their robust second-quarter pace. Key
factors that influence consumer spending—including
the low unemployment rate, further gains in real disposable income, high levels of households’ net worth,
and generally low borrowing rates—were supportive
of solid real PCE growth in the near term. The

Michigan survey measure of consumer sentiment
rose again in October and had mostly recovered from
its August slump, while the Conference Board survey
measure of consumer confidence remained at a
favorable level.
Real residential investment turned up solidly in the
third quarter following six consecutive quarters of
contraction. This upturn was consistent with the rise
in single-family starts in the third quarter, and building permits for such units—which tend to be a good
indicator for the underlying trend in the construction
of such homes—also increased. Both new and existing home sales increased, on net, in August and September. Taken together, the data on construction and
sales suggested that the decline in mortgage rates
since late 2018 was starting to show through to housing activity.
Real nonresidential private fixed investment declined
further in the third quarter. Nominal shipments of
non-defense capital goods excluding aircraft
decreased over August and September, and forwardlooking indicators generally pointed to continued
softness in business equipment spending. Orders for
nondefense capital goods excluding aircraft
decreased over those two months and were still below
the level of shipments, most measures of business
sentiment deteriorated, analysts’ expectations of
firms’ longer-term profit growth declined somewhat
further, and concerns about trade developments continued to weigh on firms’ investment decisions. Business expenditures for nonresidential structures
decreased markedly further in the third quarter, and
the number of crude oil and natural gas rigs in operation—an indicator of business spending for structures in the drilling and mining sector—continued to
decline through mid-October.
Industrial production declined in September and was
notably lower than at the beginning of the year. Production in September was held down by the strike at
General Motors, and automakers’ schedules indicated that assemblies of light motor vehicles would
remain low in October before rebounding in November. Overall manufacturing production appeared
likely to remain soft in coming months, reflecting
generally weak readings on new orders from national
and regional manufacturing surveys, declining
domestic business investment, weak GDP growth
abroad, and a persistent drag from trade
developments.
Total real government purchases rose at a slower pace
in the third quarter than in the second quarter. Real
federal purchases decelerated, reflecting smaller

Minutes of Federal Open Market Committee Meetings | October

increases in both defense and nondefense spending.
Federal hiring of temporary workers for next year’s
decennial census was quite modest during the quarter. Real purchases by state and local governments
also rose at a slower pace, as the boost from a faster
expansion in state and local payrolls was partially offset by a decrease in real construction spending by
these governments.
The nominal U.S. international trade deficit widened
in August, reflecting a subdued pace of export
growth and a moderate pace of import growth.
Export growth was subdued due to lackluster exports
of services and capital goods. Advance estimates for
September suggested that goods imports fell more
than exports, pointing to a narrowing of the monthly
trade deficit. The Bureau of Economic Analysis estimated that net exports made a slight negative contribution to real GDP growth in the third quarter.
Incoming data suggested that growth in the foreign
economies remained subpar in the third quarter. In
several advanced foreign economies (AFEs), indicators showed continued weakness in the manufacturing sector, especially in the euro area and the United
Kingdom. Similarly, GDP growth remained subdued
in China and several other emerging economies in
Asia, and indicators suggested that growth in Latin
America also remained weak. Foreign inflation
appeared to have moderated a bit in the third quarter, reflecting declines in energy prices. Inflation
remained relatively low in most foreign economies.

Staff Review of the Financial Situation
Investor sentiment weakened over the early part of
the intermeeting period, reflecting a few weakerthan-expected domestic data releases, but later
strengthened on increased optimism regarding ongoing trade negotiations between the United States and
China and positive Brexit news. On net, equity prices
and corporate bond spreads were little changed, and
the Treasury yield curve steepened a bit. Financing
conditions for businesses and households remained
generally supportive of spending and economic
activity.
September FOMC communications were viewed as
slightly less accommodative than expected, with
investors reportedly surprised by the Summary of
Economic Projections showing that a majority of
FOMC participants anticipated no further easing
this year. Incoming data early in the intermeeting
period—particularly the disappointing readings on

273

business activity—prompted a decline in the marketimplied path for the policy rate, but that decline was
later partly reversed as market participants apparently grew more optimistic on the prospects for a
U.S.–China trade deal and Brexit negotiations. Late
in the period, quotes on federal funds futures options
contracts indicated that market participants assigned
a very high probability to a 25 basis point reduction
in the target range of the federal funds rate at the
October FOMC meeting. In addition, marketimplied expectations for the federal funds rate at
year-end and next year moved down.
Yields on nominal U.S. Treasury securities moved
down in the early part of the intermeeting period but
later retraced their declines. On net, the Treasury
yield curve steepened a bit, mostly reflecting a modest decline in short-term yields. Measures of inflation
compensation over the next 5 years and 5 to 10 years
ahead based on Treasury Inflation-Protected Securities inched down and remained near multiyear low
levels.
Broad stock price indexes fell by as much as 4 percent
during the first half of the intermeeting period but
recovered afterward, ending the period roughly
unchanged. Option-implied volatility on the S&P 500
index declined slightly and ended the period below
the middle of its historical distribution. On net, corporate credit spreads were little changed.
Domestic short-term funding markets were volatile in
mid-September and exhibited additional, albeit modest, pressures around the September quarter-end and
the mid-October Treasury settlement date. These
pressures were alleviated in part by the Desk’s overnight and term repo operations that began on
September 17. After smoothing through rate volatility over the period, interest rates for overnight unsecured and secured funding declined roughly in line
with the reduction in the target range for the federal
funds rate at the September FOMC meeting and the
associated 30 basis point decrease in the interest on
excess reserves (IOER) rate. The effective federal
funds rate (EFFR) was more volatile than usual over
the intermeeting period, with the EFFR–IOER
spread ranging between 2 basis points and 10 basis
points. Rates on overnight commercial paper (CP)
and short-term negotiable certificates of deposit
declined fairly quickly following the announcement
of Desk operations on September 17, although some
CP rates remained elevated into October. The
FOMC’s October 11 announcement of Treasury bill
purchases and repo operations to maintain reserves

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at or above their early-September level appeared to
improve expectations about funding market conditions through the remainder of the year. These communications reportedly did not materially affect
yields on longer-term Treasury securities.
Financial markets in the AFEs followed a pattern
similar to that seen in the United States. AFE financial conditions tightened early in the intermeeting
period on disappointing activity data, both in the
United States and abroad, and subsequently recovered on perceived better prospects for trade and
Brexit negotiations. Movements in the exchange
value of the dollar against most currencies were relatively modest, and the broad dollar index declined
slightly. Relative to the dollar, the British pound
appreciated on Brexit developments, and the Argentinian peso continued to depreciate amid the country’s political developments.
The mid-September increases in U.S. Treasury repo
rates spilled over to borrowing rates in the international dollar funding market. However, the measures
taken by the Federal Reserve to keep the federal
funds rate in the target range also calmed dollar
funding conditions in the foreign exchange
swap market.
Financing conditions for nonfinancial businesses
remained generally accommodative during the intermeeting period. Gross issuance of corporate bonds,
which was strong in September, experienced a typical
seasonal decline in October. Gross issuance of institutional leveraged loans remained solid but slightly
below 2019 monthly averages. Meanwhile, growth of
commercial and industrial (C&I) loans at banks was
modest in the third quarter as a whole. Respondents
to the October 2019 Senior Loan Officer Opinion
Survey on Bank Lending Practices (SLOOS)
reported that borrower demand weakened for C&I
loans over the third quarter, while lending standards
on such loans were about unchanged. Gross equity
issuance through both initial and seasoned offerings
picked up to a strong pace in September but moderated in October. The credit quality of nonfinancial
corporations deteriorated slightly in recent months
but remained solid on balance. Credit conditions for
both small businesses and municipalities stayed
accommodative on net.
In the commercial real estate (CRE) sector, financing
conditions also remained generally accommodative.
The volume of agency and non-agency commercial
mortgage-backed securities issuance was strong in

September, in part supported by recent declines in
interest rates. Growth of CRE loans on banks’ books
was little changed in the third quarter. Banks in the
October SLOOS reported tighter lending standards
for all types of CRE loans; they also reported weaker
demand for construction lending and stronger
demand for the other CRE lending categories.
Financing conditions in the residential mortgage
market remained accommodative on balance. Mortgage rates were little changed since the September
FOMC meeting and stayed near their lowest level
since mid-2016. In September, home-purchase originations remained around the relatively high level seen
during the previous two months, while refinancing
originations jumped to their highest level since late
2012. In the October SLOOS, banks left their lending
standards basically unchanged for most residential
real estate loan categories over the third quarter.
However, for subprime loans, a moderate net percentage of banks reported tightening standards.
Financing conditions in consumer credit markets
remained generally supportive of household spending, although conditions continued to be tight for
credit card borrowers with nonprime credit scores.
Interest rates on auto loans fell, on net, since the
beginning of the year, and interest rates on credit
card accounts leveled off through August. According
to the October SLOOS, commercial banks tightened
their standards on credit cards and other consumer
loans over the third quarter. Additionally, banks
reported that their standards on auto loans and their
willingness to make consumer installment loans were
about unchanged on balance.
The staff provided an update on its assessments of
potential risks to financial stability. On balance, the
staff characterized the financial vulnerabilities of the
U.S. financial system as moderate. The staff judged
that, for many asset classes, valuation pressures eased
over the past year. Appetite for risk in the leveraged
loan market remained elevated, but less so than last
year, especially for lower-rated loans. In addition,
CRE prices remained high relative to rental income.
In assessing vulnerabilities stemming from borrowing
in the household and business sectors, the staff noted
that, while household borrowing continued to decline
relative to nominal GDP, business leverage remained
at or near record-high levels. The risks associated
with leverage at financial institutions were viewed as
being low, as they have been for some time, largely
because of high capital ratios at large banks. Nonetheless, the staff noted that the resilience of financial

Minutes of Federal Open Market Committee Meetings | October

institutions could be undermined by low interest
rates and banks’ announced plans to increase payouts to shareholders. The staff assessed vulnerabilities stemming from funding risk as modest. In addition, the staff discussed the potential for liquidity
transformation by open-ended mutual funds investing in bank loans to lead to market dislocations
under stress scenarios, while noting that outflows
from such funds have not often been associated with
such dislocations.

Staff Economic Outlook
The projection for U.S. real GDP growth prepared by
the staff for the October FOMC meeting was revised
down a little for the second half of this year relative
to the previous projection. This revision reflected the
estimated effects of the strike at General Motors
along with some other small factors. Even without
this downward revision, real GDP was forecast to
rise more slowly in the second half of the year than
in the first half, mostly because of continued soft
business investment and slower increases in government spending. The medium-term projection for real
GDP growth was essentially unchanged, as revisions
to the staff’s assumptions about factors on which the
forecast was conditioned, such as financial market
variables, were small and offsetting. Real GDP was
expected to decelerate modestly over the medium
term, mostly because of a waning boost from fiscal
policy. Output was forecast to expand at a rate a little
above the staff’s estimate of its potential rate of
growth in 2019 and 2020 and then to slow to a pace
slightly below potential output growth in 2021 and
2022. The unemployment rate was projected to be
roughly flat through 2022 and to remain below the
staff’s estimate of its longer-run natural rate.
The staff’s forecast for core PCE price inflation this
year was revised down a little in response to recent
data. Beyond this year, the projection for core inflation was unrevised, and the forecast for total inflation
was a little lower in 2020 because of a downward
revision in projected consumer energy prices. Both
total inflation and core inflation were forecast to
move up slightly next year, as the low inflation readings early this year were viewed as transitory; nevertheless, both inflation measures were forecast to continue to run somewhat below 2 percent through 2022.
The staff continued to view the uncertainty around
its projections for real GDP growth, the unemployment rate, and inflation as generally similar to the
average of the past 20 years. Moreover, the staff still

275

judged that the risks to the forecast for real GDP
growth were tilted to the downside, with a corresponding skew to the upside for the unemployment
rate. Important factors in that assessment were that
international trade tensions and foreign economic
developments seemed more likely to move in directions that could have significant negative effects on
the U.S. economy than to resolve more favorably
than assumed. In addition, softness in business
investment and manufacturing so far this year was
seen as pointing to the possibility of a more substantial slowing in economic growth than the staff projected. The risks to the inflation projection were also
viewed as having a downward skew, in part because
of the downside risks to the forecast for economic
activity.

Participants’ Views on Current Conditions
and the Economic Outlook
Participants agreed that the labor market had
remained strong over the intermeeting period and
that economic activity had risen at a moderate rate.
Job gains had been solid, on average, in recent
months, and the unemployment rate had remained
low. Although household spending had risen at a
strong pace, business fixed investment and exports
had remained weak. On a 12-month basis, overall
inflation and inflation for items other than food and
energy were running below 2 percent. Market-based
measures of inflation compensation remained low;
survey-based measures of longer-term inflation
expectations were little changed.
Participants generally viewed the economic outlook
as positive. Participants judged that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric
2 percent objective were the most likely outcomes,
and they indicated that their views on these outcomes
had changed little since the September meeting.
Uncertainties associated with trade tensions as well
as geopolitical risks had eased somewhat, though
they remained elevated. In addition, inflation pressures remained muted. The risk that a global growth
slowdown would further weigh on the domestic
economy remained prominent.
In their discussion of the household sector, participants agreed that consumer spending was increasing
at a strong pace. They also generally expected that, in
the period ahead, household spending would likely
remain on a firm footing, supported by strong labor
market conditions, rising incomes, and favorable

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financial conditions. In addition, survey measures of
consumer confidence remained high, and a couple of
participants commented that business contacts in
consumer-facing industries reported strong demand.
Many participants noted that components of household spending that are thought to be particularly sensitive to interest rates had improved, including purchases of consumer durables. In addition, residential
investment had turned up. Most participants who
reported on spending by households in their Districts
also cited favorable conditions for consumer spending, although several participants reported mixed
data on spending or an increase in precautionary savings in their Districts.
In their discussions of the business sector, participants saw trade tensions and concerns about the
global growth outlook as the main factors contributing to weak business investment and exports and the
associated restraint on domestic economic growth.
Moreover, participants generally expected that trade
uncertainty and sluggish global growth would continue to damp investment spending and exports. A
number of participants judged that tight labor market conditions were also causing firms to forego
investment expenditures, or invest in automation systems to reduce the need for additional hiring. However, business sentiment appeared to remain strong
for some industries, particularly those most closely
connected with consumer goods.

on the strength or improvement in labor force participation nationally or in their Districts. However, the
pace of increases in employment had slowed some,
on net, in recent months. On the one hand, the slowing could be interpreted as a natural consequence of
the economy being near full employment. On the
other hand, slowing job gains might also be indicative of some cooling in labor demand, which may be
consistent with an observed decline in the rate of job
openings and decreases in other measures of labor
market tightness. Several participants commented
that the preliminary benchmark revision released in
August by the Bureau of Labor Statistics had indicated that payroll employment gains would likely
show less momentum coming into this year once
those revisions are incorporated in published data
early next year. Growth of wages had also slowed this
year by some measures. Consistent with strong
national data on the labor market, business contacts
in many Districts indicated continued strong labor
demand, with firms still reporting difficulties finding
qualified workers, or broadening their recruiting to
include traditionally marginalized groups.

Participants discussed developments in the manufacturing, energy, and agricultural sectors of the U.S.
economy. Manufacturing production remained weak,
and continuing concerns about global growth and
trade uncertainty suggested that conditions were
unlikely to improve materially over the near term. In
addition, the labor strike at General Motors had disrupted motor vehicle output, and ongoing issues at
Boeing were slowing manufacturing in the commercial aircraft industry. A couple of participants noted
that activity was particularly weak for the energy
industry, in part because of low petroleum prices. In
addition, a few participants noted ongoing challenges
in the agricultural sector, including those associated
with lower crop yields, tariffs, weak export demand,
and difficult financial positions for many farmers.
One bright spot for the agricultural sector was that
some commodity prices had firmed recently.

In their discussion of inflation developments, participants noted that readings on overall and core PCE
inflation, measured on a 12-month change basis, had
continued to run below the Committee’s symmetric
2 percent objective. While survey-based measures of
longer-term inflation expectations were generally
little changed, some measures of households’ inflation expectations had moved down to historically low
levels. Market-based measures of inflation compensation remained low, with some longer-term measures being at or near multi-year lows. Weakness in
the global economy, perceptions of downside risks to
growth, and subdued global inflation pressures were
cited as factors tilting inflation risk to the downside,
and a few participants commented that they expected
inflation to run below 2 percent for some time. Some
other participants, however, saw the recent inflation
data as consistent with their previous assessment that
much of the weakness seen early in the year would be
transitory, or that some recent monthly readings
seemed broadly consistent with the Committee’s
longer-run inflation objective of 2 percent. A couple
of participants noted that some measures of inflation
could temporarily move above 2 percent early next
year because of the transitory effects of tariffs.

Participants judged that conditions in the labor market remained strong, with the unemployment rate
near historical lows and continued solid job gains, on
average. In addition, some participants commented

Participants also discussed risks regarding the outlook for economic activity, which remained tilted to
the downside. Some risks were seen to have eased a
bit, although they remained elevated. There were

Minutes of Federal Open Market Committee Meetings | October

some tentative signs that trade tensions were easing,
the probability of a no-deal Brexit was judged to
have lessened, and some other geopolitical tensions
had diminished. Several participants noted that statistical models designed to gauge the probability of
recession, including those based on information from
the yield curve, suggested that the likelihood of a
recession occurring over the medium term had fallen
somewhat over the intermeeting period. However,
other downside risks had not diminished. In particular, some further signs of a global slowdown in economic growth emerged; weakening in the global
economy could further restrain the domestic
economy, and the risk that the weakness in domestic
business spending, manufacturing, and exports could
give rise to slower hiring and weigh on household
spending remained prominent.
Among those participants who commented on financial stability, most highlighted the risks associated
with high levels of corporate indebtedness and
elevated valuation pressures for a variety of risky
assets. Although financial stability risks overall were
seen as moderate, several participants indicated that
imbalances in the corporate debt market had grown
over the economic expansion and raised the concern
that deteriorating credit quality could lead to sharp
increases in risk spreads in corporate bond markets;
these developments could amplify the effects of an
adverse shock to the economy. Several participants
were concerned that some banks had reduced the
sizes of their capital buffers at a time when they
should be rising. A few participants observed that
valuations in equity and bond markets were high by
historical standards and that CRE valuations were
also elevated. A couple of participants indicated that
market participants may be overly optimistic in the
pricing of risk for corporate debt. A couple of participants judged that the monitoring of financial stability vulnerabilities should also encompass risks
related to climate change.
In their consideration of the monetary policy options
at this meeting, most participants believed that a
reduction of 25 basis points in the target range for
the federal funds rate would be appropriate. In discussing the reasons for such a decision, these participants continued to point to global developments
weighing on the economic outlook, the need to provide insurance against potential downside risks to the
economic outlook, and the importance of returning
inflation to the Committee’s symmetric 2 percent
objective on a sustained basis. A couple of participants who were supportive of a rate cut at this meet-

277

ing indicated that the decision to reduce the federal
funds rate by 25 basis points was a close call relative
to the option of leaving the federal funds rate
unchanged at this meeting.
Many participants judged that an additional modest
easing at this meeting was appropriate in light of persistent weakness in global growth and elevated uncertainty regarding trade developments. Nonetheless,
these participants noted that incoming data had continued to suggest that the economy had proven resilient in the face of continued headwinds from global
developments and that previous adjustments to monetary policy would continue to help sustain economic
growth. In addition, several participants suggested
that a modest easing of policy at this meeting would
likely better align the target range for the federal
funds rate with a variety of indicators used to assess
the appropriate policy stance, including estimates of
the neutral interest rate and the slope of the yield
curve. A couple of participants judged that there was
more room for the labor market to improve. Accordingly, they saw further accommodation as best supporting both of the Committee’s dual-mandate
objectives.
Many participants continued to view the downside
risks surrounding the economic outlook as elevated,
further underscoring the case for a rate cut at this
meeting. In particular, risks to the outlook associated
with global economic growth and international trade
were still seen as significant despite some encouraging geopolitical and trade-related developments over
the intermeeting period. In light of these risks, a
number of participants were concerned that weakness in business spending, manufacturing, and
exports could spill over to labor markets and consumer spending and threaten the economic expansion. A few participants observed that the considerations favoring easing at this meeting were reinforced
by the proximity of the federal funds rate to the ELB.
In their view, providing adequate accommodation
while still away from the ELB would best mitigate the
possibility of a costly return to the ELB.
Many participants also cited the level of inflation or
inflation expectations as justifying a reduction of
25 basis points in the federal funds rate at this meeting. Inflation continued to run below the Committee’s symmetric 2 percent objective, and inflationary
pressures remained muted. Several participants raised
concerns that measures of inflation expectations
remained low and could decline further without a
more accommodative policy stance. A couple of

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106th Annual Report | 2019

these participants, pointing to experiences in Japan
and the euro area, were concerned that persistent
inflation shortfalls could lead to a decline in longerrun inflation expectations and less room to reduce
the federal funds rate in the event of a future recession. In general, the participants who justified further
easing at this meeting based on considerations related
to inflation viewed this action as helping to move
inflation up to the Committee’s 2 percent objective
on a sustained basis and to anchor inflation expectations at levels consistent with that objective.
Some participants favored maintaining the existing
target range for the federal funds rate at this meeting.
These participants suggested that the baseline projection for the economy remained favorable, with inflation expected to move up and stay near the Committee’s 2 percent objective. They also judged that policy
accommodation was already adequate and, in light of
lags in the transmission of monetary policy, preferred
to take some time to assess the economic effects of
the Committee’s previous policy actions before easing policy further. Several participants noted that
downside risks had diminished over the intermeeting
period and saw little indication that weakness in business sentiment was spilling over into labor markets
and consumer spending. A few participants raised
the concern that a further easing of monetary policy
at this meeting could encourage excessive risk-taking
and exacerbate imbalances in the financial sector.
With regard to monetary policy beyond this meeting,
most participants judged that the stance of policy,
after a 25 basis point reduction at this meeting,
would be well calibrated to support the outlook of
moderate growth, a strong labor market, and inflation near the Committee’s symmetric 2 percent objective and likely would remain so as long as incoming
information about the economy did not result in a
material reassessment of the economic outlook.
However, participants noted that policy was not on a
preset course and that they would be monitoring the
effects of the Committee’s recent policy actions, as
well as other information bearing on the economic
outlook, in assessing the appropriate path of the target range for the federal funds rate. A couple of participants expressed the view that the Committee
should reinforce its postmeeting statement with additional communications indicating that another reduction in the federal funds rate was unlikely in the near
term unless incoming information was consistent
with a significant slowdown in the pace of
economic activity.

Committee Policy Action
In their discussion of monetary policy for this meeting, members noted that information received since
the September meeting indicated that the labor market remained strong and that economic activity had
been rising at a moderate rate. Job gains had been
solid, on average, in recent months, and the unemployment rate had remained low. Household spending had been rising at a strong pace. However, business fixed investment and exports remained weak, as
softness in global growth and international trade
developments continued to weigh on those sectors.
On a 12-month basis, both the overall inflation rate
and inflation for items other than food and energy
were running below 2 percent. Market-based measures of inflation compensation remained low. Surveybased measures of longer-term inflation expectations
were little changed.
In light of the implications of global developments
for the economic outlook as well as muted inflation
pressures, most members agreed to lower the target
range for the federal funds rate to 1½ to 1¾ percent
at this meeting. The members who supported this
action viewed it as consistent with helping offset the
effects on aggregate demand of weak global growth
and trade developments, insuring against downside
risks arising from those sources, and promoting a
more rapid return of inflation to the Committee’s
symmetric 2 percent objective. Two members preferred to maintain the current target range for the
federal funds rate at this meeting. These members
indicated that the economic outlook remained positive and that they anticipated, under an unchanged
policy stance, continued strong labor market conditions and solid growth in activity, with inflation
gradually moving up to the Committee’s 2 percent
objective.
Members agreed that, in determining the timing and
size of future adjustments to the target range for the
federal funds rate, the Committee would assess realized and expected economic conditions relative to its
maximum-employment objective and its symmetric
2 percent inflation objective. They also agreed that
those assessments would take into account a wide
range of information, including measures of labor
market conditions, indicators of inflation pressures
and inflation expectations, and readings on financial
and international developments.

Minutes of Federal Open Market Committee Meetings | October

With regard to the postmeeting statement, members
agreed to update the language of the Committee’s
description of incoming data to acknowledge that
investment spending and U.S. exports had remained
weak. In describing the monetary policy outlook,
they also agreed to remove the “act as appropriate”
language and emphasize that the Committee would
continue to monitor the implications of incoming
information for the economic outlook as it assessed
the appropriate path of the target range for the federal funds rate. This change was seen as consistent
with the view that the current stance of monetary
policy was likely to remain appropriate as long as the
economy performed broadly in line with the Committee’s expectations and that policy was not on a
preset course and could change if developments
emerged that led to a material reassessment of the
economic outlook.
At the conclusion of the discussion, the Committee
voted to authorize and direct the Federal Reserve
Bank of New York, until instructed otherwise, to
execute transactions in the SOMA in accordance
with the following domestic policy directive, to be
released at 2:00 p.m.:
“Effective October 31, 2019, the Federal Open
Market Committee directs the Desk to undertake open market operations as necessary to
maintain the federal funds rate in a target range
of 1½ to 1¾ percent. In light of recent and
expected increases in the Federal Reserve’s nonreserve liabilities, the Committee directs the
Desk to purchase Treasury bills at least into the
second quarter of next year to maintain over
time ample reserve balances at or above the level
that prevailed in early September 2019. The
Committee also directs the Desk to conduct
term and overnight repurchase agreement operations at least through January of next year to
ensure that the supply of reserves remains ample
even during periods of sharp increases in nonreserve liabilities, and to mitigate the risk of
money market pressures that could adversely
affect policy implementation. In addition, the
Committee directs the Desk to conduct overnight reverse repurchase operations (and reverse
repurchase operations with maturities of more
than one day when necessary to accommodate
weekend, holiday, or similar trading conventions) at an offering rate of 1.45 percent, in
amounts limited only by the value of Treasury
securities held outright in the System Open Market Account that are available for such opera-

279

tions and by a per-counterparty limit of
$30 billion per day.
The Committee directs the Desk to continue
rolling over at auction all principal payments
from the Federal Reserve’s holdings of Treasury
securities and to continue reinvesting all principal payments from the Federal Reserve’s holdings of agency debt and agency mortgagebacked securities received during each calendar
month. Principal payments from agency debt
and agency mortgage-backed securities up to
$20 billion per month will continue to be reinvested in Treasury securities to roughly match
the maturity composition of Treasury securities
outstanding; principal payments in excess of
$20 billion per month will continue to be reinvested in agency mortgage-backed securities.
Small deviations from these amounts for operational reasons are acceptable.
The Committee also directs the Desk to engage
in dollar roll and coupon swap transactions as
necessary to facilitate settlement of the Federal
Reserve’s agency mortgage-backed securities
transactions.”
The vote also encompassed approval of the statement
below to be released at 2:00 p.m.:
“Information received since the Federal Open
Market Committee met in September indicates
that the labor market remains strong and that
economic activity has been rising at a moderate
rate. Job gains have been solid, on average, in
recent months, and the unemployment rate has
remained low. Although household spending has
been rising at a strong pace, business fixed
investment and exports remain weak. On a
12-month basis, overall inflation and inflation
for items other than food and energy are running below 2 percent. Market-based measures of
inflation compensation remain low; surveybased measures of longer-term inflation expectations are little changed.
Consistent with its statutory mandat

Full text of Annual Report of the Board of Governors of the Federal Reserve System : 2019

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