The U.S. Federal Reserve has just published the minutes from the Federal Open Market Committee’s meeting on September 17-18.

FOMC Fed

Opinions of FOMC members were mixed, but the broader sentiment did not seem to deviate far from the current policy of purchasing additional MBS at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month (and to maintain its existing reinvestment policies). These minutes suggest that when the Fed does decide to taper, it will do so very gradually.

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PRESENT:

Ben Bernanke, Chairman
William C. Dudley, Vice Chairman
James Bullard
Charles L. Evans
Esther L. George
Jerome H. Powell
Eric Rosengren
Jeremy C. Stein
Daniel K. Tarullo
Janet L. Yellen

Christine Cumming, Richard W. Fisher, Narayana Kocherlakota, Sandra Pianalto, and Charles I. Plosser, Alternate Members of the Federal Open Market Committee

Jeffrey M. Lacker, Dennis P. Lockhart, and John C. Williams, Presidents of the Federal Reserve Banks of Richmond, Atlanta, and San Francisco, respectively

Deborah J. Danker, Deputy Secretary
Matthew M. Luecke, Assistant Secretary
David W. Skidmore, Assistant Secretary
Michelle A. Smith, Assistant Secretary
Scott G. Alvarez, General Counsel
Steven B. Kamin, Economist
David W. Wilcox, Economist

Thomas A. Connors, Troy Davig, Michael P. Leahy, Stephen A. Meyer, Geoffrey Tootell, Christopher J. Waller, and William Wascher, Associate Economists

Simon Potter, Manager, System Open Market Account

Michael S. Gibson, Director, Division of Banking Supervision and Regulation, Board of Governors

Nellie Liang, Director, Office of Financial Stability Policy and Research, Board of Governors

James A. Clouse and William Nelson, Deputy Directors, Division of Monetary Affairs, Board of Governors

Jon W. Faust, Special Adviser to the Board, Office of Board Members, Board of Governors

Linda Robertson, Assistant to the Board, Office of Board Members, Board of Governors

Ellen E. Meade and Joyce K. Zickler, Senior Advisers, Division of Monetary Affairs, Board of Governors

Eric M. Engen, Michael T. Kiley, Thomas Laubach, David E. Lebow, and Michael G. Palumbo, Associate Directors, Division of Research and Statistics, Board of Governors; Fabio M. Natalucci, Associate Director, Division of Monetary Affairs, Board of Governors

Joshua Gallin, Deputy Associate Director, Division of Research and Statistics, Board of Governors

Jeremy B. Rudd, Adviser, Division of Research and Statistics, Board of Governors

Christopher J. Gust and Elizabeth Klee, Section Chiefs, Division of Monetary Affairs, Board of Governors

Gordon Werkema, First Vice President, Federal Reserve Bank of Chicago

David Altig, Loretta J. Mester, and Harvey Rosenblum,1 Executive Vice Presidents, Federal Reserve Banks of Atlanta, Philadelphia, and Dallas, respectively

Joyce Hansen, Evan F. Koenig, Spencer Krane, Lorie K. Logan, Mark E. Schweitzer, John A. Weinberg, and Kei-Mu Yi, Senior Vice Presidents, Federal Reserve Banks of New York, Dallas, Chicago, New York, Cleveland, Richmond, and Minneapolis, respectively

Chris Burke and Jonathan P. McCarthy, Vice Presidents, Federal Reserve Bank of New York

Eric T. Swanson, Senior Research Advisor, Federal Reserve Bank of San Francisco

Developments in Financial Markets and the Federal Reserve’s Balance Sheet
The Manager of the System Open Market Account reported on developments in domestic and foreign financial markets as well as the System open market operations during the period since the Federal Open Market Committee (FOMC) met on July 30-31, 2013. The review included a report that the System’s purchases of longer-term assets did not appear to have had an adverse effect on the functioning of the markets for Treasury securities or agency mortgage-backed securities (MBS), and that the Open Market Desk’s operations in both sectors had proceeded smoothly. 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 over the intermeeting period.

In support of the Committee’s longer-run planning for improvements in the implementation of monetary policy, the staff presented an update on the potential for establishing a fixed-rate, full-allotment overnight reverse repurchase agreement (RRP) facility. The presentation summarized initial discussions with financial market firms about how such a facility might affect money market interest rates and intermediation flows, what the relationship might be between the facility rate and other money market rates, and how the different types of firms might view the facility. Overall, the inquiries suggested that the facility could be an effective additional tool for managing money market interest rates and helping to support a floor on those rates. Meeting participants discussed the potential role for an overnight RRP facility, the possible effects on the functioning of the federal funds market or the structure of money markets, and the usefulness of expanding the Desk’s test operations in RRPs. Meeting participants generally supported a proposal to authorize the Desk to conduct a limited exercise in order to provide some insight into the potential usage of an overnight RRP facility as well as additional experience with operational aspects of such a facility. One participant, however, preferred that further analysis be undertaken before proceeding with the exercise. A number of meeting participants emphasized that their interest in these operations reflected an ongoing effort to improve the technical execution of policy and did not signal any change in the Committee’s views about policy going forward. Following the discussion, the Committee unanimously approved the following resolution:

“The Federal Open Market Committee (FOMC) authorizes the Federal Reserve Bank of New York to conduct a series of fixed-rate, overnight reverse repurchase operations involving U.S. Government securities, and securities that are direct obligations of, or fully guaranteed as to principal and interest by, any agency of the United States, for the purpose of assessing operational readiness. The reverse repurchase operations authorized by this resolution shall be (i) offered at a fixed rate that may vary from zero to five basis points, (ii) offered at up to a capped allotment per counterparty of $1 billion per day and (iii) for an overnight term, or such longer term as is warranted to accommodate weekend, holiday, and similar trading conventions. The System Open Market Account Manager will inform the FOMC in advance of the terms of the planned operations. These operations may be announced when authorized by the Chairman, may begin when authorized by the Chairman on or after September 23, 2013, and shall be authorized through the FOMC meeting that ends on January 29, 2014.”

Staff Review of the Economic Situation
The information reviewed for the September 17-18 meeting suggested that economic activity continued to increase at a moderate rate. Private-sector employment rose further in July and August, but the unemployment rate was still elevated. Total consumer price inflation picked up in recent months but continued to be modest, and measures of longer-run inflation expectations remained stable.

Private nonfarm employment continued to expand in July and August, but at a somewhat slower pace than in the first half of the year, while total government employment edged down on balance. The unemployment rate declined further to 7.3 percent in August. The labor force participation rate also decreased, leaving the employment-to-population ratio essentially unchanged in recent months. Other indicators of labor market activity also were mixed. Measures of firms’

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