Text: FOMC Minutes
Below is the text of the minutes from the Federal Open Market Committee's meeting on January 29-30, released on February 20, 2008:
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, 2008 had been received and that these individuals had executed their oaths of office.
The elected members and alternate members were as follows:
Timothy F. Geithner, President of the Federal Reserve Bank of New York, with Christine M. Cumming, First Vice President of the Federal Reserve Bank of New York, as alternate.
Charles I. Plosser, President of the Federal Reserve Bank of Philadelphia, with Jeffrey M. Lacker, President of the Federal Reserve Bank of Richmond, as alternate.
Sandra Pianalto, President of the Federal Reserve Bank of Cleveland, with Charles L. Evans, President of the Federal Reserve Bank of Chicago, as alternate.
Richard W. Fisher, President of the Federal Reserve Bank of Dallas, with Dennis P. Lockhart, President of the Federal Reserve Bank of Atlanta, as alternate.
Gary H. Stern, President of the Federal Reserve Bank of Minneapolis, with Janet L. Yellen, President of the Federal Reserve Bank of San Francisco, as alternate.
By unanimous vote, the following officers of the Federal Open Market Committee were selected to serve until the selection of their successors at the first regularly scheduled meeting of the Committee in 2009:
Ben S. Bernanke Chairman
Timothy F. Geithner Vice Chairman
Brian F. Madigan Secretary and Economist
Deborah J. Danker Deputy Secretary
David W. Skidmore Assistant Secretary
Michelle A. Smith Assistant Secretary
Scott G. Alvarez General Counsel
Thomas C. Baxter, Jr. Deputy General Counsel
Richard M. Ashton Assistant General Counsel
D. Nathan Sheets Economist
David J. Stockton Economist
Thomas A. Connors
William B. English
Steven B. Kamin
Loretta J. Mester
Arthur J. Rolnick
Mark S. Sniderman
Joseph S. Tracy
David W. Wilcox Associate Economists
By unanimous vote, the Committee made a few amendments to its rules and to the Program for Security of FOMC Information. The amendments primarily addressed the Committee's practice of approving the minutes via notation vote, attendance at Committee meetings, and access to Committee information by System employees.
By unanimous vote, the Federal Reserve Bank of New York was selected to execute transactions for the System Open Market Account.
By unanimous vote, William C. Dudley was selected to serve at the pleasure of the Committee as Manager, System Open Market Account, on the understanding that his selection was subject to being satisfactory to the Federal Reserve Bank of New York.
By unanimous vote, the Authorization for Domestic Open Market Operations was reaffirmed in the form shown below:
AUTHORIZATION FOR DOMESTIC OPEN MARKET OPERATIONS
(Reaffirmed January 29, 2008)
1. The Federal Open Market Committee authorizes and directs the Federal Reserve Bank of New York, to the extent necessary to carry out the most recent domestic policy directive adopted at a meeting of the Committee:
(a) To buy or sell U.S. Government securities, including securities of the Federal Financing Bank, and securities that are direct obligations of, or fully guaranteed as to principal and interest by, any agency of the United States in the open market, from or to securities dealers and foreign and international accounts maintained at the Federal Reserve Bank of New York, on a cash, regular, or deferred delivery basis, for the System Open Market Account at market prices, and, for such Account, to exchange maturing U.S. Government and Federal agency securities with the Treasury or the individual agencies or to allow them to mature without replacement;
(b) To buy U.S. Government securities, obligations that are direct obligations of, or fully guaranteed as to principal and interest by, any agency of the United States, from dealers for the account of the System Open Market Account under agreements for repurchase of such securities or obligations in 65 business days or less, at rates that, unless otherwise expressly authorized by the Committee, shall be determined by competitive bidding, after applying reasonable limitations on the volume of agreements with individual dealers.
(c) To sell U.S. Government securities and obligations that are direct obligations of, or fully guaranteed as to principal and interest by, any agency of the United States to dealers for System Open Market Account under agreements for the resale by dealers of such securities or obligations in 65 business days or less, at rates that, unless otherwise expressly authorized by the Committee, shall be determined by competitive bidding, after applying reasonable limitations on the volume of agreements with individual dealers.
2. In order to ensure the effective conduct of open market operations, the Federal Open Market Committee authorizes the Federal Reserve Bank of New York to lend on an overnight basis U.S. Government securities held in the System Open Market Account to dealers at rates that shall be determined by competitive bidding. The Federal Reserve Bank of New York shall set a minimum lending fee consistent with the objectives of the program and apply reasonable limitations on the total amount of a specific issue that may be auctioned and on the amount of securities that each dealer may borrow. The Federal Reserve Bank of New York may reject bids which could facilitate a dealer's ability to control a single issue as determined solely by the Federal Reserve Bank of New York.
3. In order to ensure the effective conduct of open market operations, while assisting in the provision of short-term investments for foreign and international accounts maintained at the Federal Reserve Bank of New York and accounts maintained at the Federal Reserve Bank of New York as fiscal agent of the United States pursuant to Section 15 of the Federal Reserve Act, the Federal Open Market Committee authorizes and directs the Federal Reserve Bank of New York (a) for System Open Market Account, to sell U.S. Government securities to such accounts on the bases set forth in paragraph l(a) under agreements providing for the resale by such accounts of those securities in 65 business days or less on terms comparable to those available on such transactions in the market; and (b) for New York Bank account, when appropriate, to undertake with dealers, subject to the conditions imposed on purchases and sales of securities in paragraph l(b), repurchase agreements in U.S. Government and agency securities, and to arrange corresponding sale and repurchase agreements between its own account and such foreign, international, and fiscal agency accounts maintained at the Bank. Transactions undertaken with such accounts under the provisions of this paragraph may provide for a service fee when appropriate.
4. In the execution of the Committee's decision regarding policy during any intermeeting period, the Committee authorizes and directs the Federal Reserve Bank of New York, upon the instruction of the Chairman of the Committee, to adjust somewhat in exceptional circumstances the degree of pressure on reserve positions and hence the intended federal funds rate. Any such adjustment shall be made in the context of the Committee's discussion and decision at its most recent meeting and the Committee's long-run objectives for price stability and sustainable economic growth, and shall be based on economic, financial, and monetary developments during the intermeeting period. Consistent with Committee practice, the Chairman, if feasible, will consult with the Committee before making any adjustment.
By unanimous vote, the Committee approved the Authorization for Foreign Currency Operations with an amendment to paragraph 1.D. regarding the maximum open position in all foreign currencies. Accordingly, the Authorization for Foreign Currency Operations was adopted, as shown below:
AUTHORIZATION FOR FOREIGN CURRENCY OPERATIONS
(Amended January 29, 2008)
1. The Federal Open Market Committee authorizes and directs the Federal Reserve Bank of New York, for System Open Market Account, to the extent necessary to carry out the Committee's foreign currency directive and express authorizations by the Committee pursuant thereto, and in conformity with such procedural instructions as the Committee may issue from time to time:
A. To purchase and sell the following foreign currencies in the form of cable transfers through spot or forward transactions on the open market at home and abroad, including transactions with the U.S. Treasury, with the U.S. Exchange Stabilization Fund established by Section 10 of the Gold Reserve Act of 1934, with foreign monetary authorities, with the Bank for International Settlements, and with other international financial institutions:
B. To hold balances of, and to have outstanding forward contracts to receive or to deliver, the foreign currencies listed in paragraph A above.
C. To draw foreign currencies and to permit foreign banks to draw dollars under the reciprocal currency arrangements listed in paragraph 2 below, provided that drawings by either party to any such arrangement shall be fully liquidated within 12 months after any amount outstanding at that time was first drawn, unless the Committee, because of exceptional circumstances, specifically authorizes a delay.
D. To maintain an overall open position in all foreign currencies not exceeding $25.0 billion. For this purpose, the overall open position in all foreign currencies is defined as the sum (disregarding signs) of net positions in individual currencies, excluding changes in dollar value due to foreign exchange rate movements and interest accruals. The net position in a single foreign currency is defined as holdings of balances in that currency, plus outstanding contracts for future receipt, minus outstanding contracts for future delivery of that currency, i.e., as the sum of these elements with due regard to sign.
2. The Federal Open Market Committee directs the Federal Reserve Bank of New York to maintain reciprocal currency arrangements ("swap" arrangements) for the System Open Market Account for periods up to a maximum of 12 months with the following foreign banks, which are among those designated by the Board of Governors of the Federal Reserve System under Section 214.5 of Regulation N, Relations with Foreign Banks and Bankers, and with the approval of the Committee to renew such arrangements on maturity:
Foreign bank Amount of arrangement
(millions of dollars equivalent)
Bank of Canada 2,000
Bank of Canada 3,000
Any changes in the terms of existing swap arrangements, and the proposed terms of any new arrangements that may be authorized, shall be referred for review and approval to the Committee.
3. All transactions in foreign currencies undertaken under paragraph 1.A. above shall, unless otherwise expressly authorized by the Committee, be at prevailing market rates. For the purpose of providing an investment return on System holdings of foreign currencies or for the purpose of adjusting interest rates paid or received in connection with swap drawings, transactions with foreign central banks may be undertaken at non-market exchange rates.
4. It shall be the normal practice to arrange with foreign central banks for the coordination of foreign currency transactions. In making operating arrangements with foreign central banks on System holdings of foreign currencies, the Federal Reserve Bank of New York shall not commit itself to maintain any specific balance, unless authorized by the Federal Open Market Committee. Any agreements or understandings concerning the administration of the accounts maintained by the Federal Reserve Bank of New York with the foreign banks designated by the Board of Governors under Section 214.5 of Regulation N shall be referred for review and approval to the Committee.
5. Foreign currency holdings shall be invested to ensure that adequate liquidity is maintained to meet anticipated needs and so that each currency portfolio shall generally have an average duration of no more than 18 months (calculated as Macaulay duration). Such investments may include buying or selling outright obligations of, or fully guaranteed as to principal and interest by, a foreign government or agency thereof; buying such securities under agreements for repurchase of such securities; selling such securities under agreements for the resale of such securities; and holding various time and other deposit accounts at foreign institutions. In addition, when appropriate in connection with arrangements to provide investment facilities for foreign currency holdings, U.S. Government securities may be purchased from foreign central banks under agreements for repurchase of such securities within 30 calendar days.
6. All operations undertaken pursuant to the preceding paragraphs shall be reported promptly to the Foreign Currency Subcommittee and the Committee. The Foreign Currency Subcommittee consists of the Chairman and Vice Chairman of the Committee, the Vice Chairman of the Board of Governors, and such other member of the Board as the Chairman may designate (or in the absence of members of the Board serving on the Subcommittee, other Board members designated by the Chairman as alternates, and in the absence of the Vice Chairman of the Committee, his alternate). Meetings of the Subcommittee shall be called at the request of any member, or at the request of the Manager, System Open Market Account ("Manager"), for the purposes of reviewing recent or contemplated operations and of consulting with the Manager on other matters relating to his responsibilities. At the request of any member of the Subcommittee, questions arising from such reviews and consultations shall be referred for determination to the Federal Open Market Committee.
7. The Chairman is authorized:
A. With the approval of the Committee, to enter into any needed agreement or understanding with the Secretary of the Treasury about the division of responsibility for foreign currency operations between the System and the Treasury;
B. To keep the Secretary of the Treasury fully advised concerning System foreign currency operations, and to consult with the Secretary on policy matters relating to foreign currency operations;
C. From time to time, to transmit appropriate reports and information to the National Advisory Council on International Monetary and Financial Policies.
8. Staff officers of the Committee are authorized to transmit pertinent information on System foreign currency operations to appropriate officials of the Treasury Department.
9. All Federal Reserve Banks shall participate in the foreign currency operations for System 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.
By unanimous vote, the Foreign Currency Directive was reaffirmed in the form shown below:
FOREIGN CURRENCY DIRECTIVE
(Reaffirmed January 29, 2008)
1. System operations in foreign currencies shall generally be directed at countering disorderly market conditions, provided that market exchange rates for the U.S. dollar reflect actions and behavior consistent with IMF Article IV, Section 1.
2. To achieve this end the System shall:
A. Undertake spot and forward purchases and sales of foreign exchange.
B. Maintain reciprocal currency ("swap") arrangements with selected foreign central banks.
C. Cooperate in other respects with central banks of other countries and with international monetary institutions.
3. Transactions may also be undertaken:
A. To adjust System balances in light of probable future needs for currencies.
B. To provide means for meeting System and Treasury commitments in particular currencies, and to facilitate operations of the Exchange Stabilization Fund.
C. For such other purposes as may be expressly authorized by the Committee.
4. System foreign currency operations shall be conducted:
A. In close and continuous consultation and cooperation with the United States Treasury;
B. In cooperation, as appropriate, with foreign monetary authorities; and
C. In a manner consistent with the obligations of the United States in the International Monetary Fund regarding exchange arrangements under IMF Article IV.
By unanimous vote, the Procedural Instructions with Respect to Foreign Currency Operations were reaffirmed in the form shown below:
PROCEDURAL INSTRUCTIONS WITH RESPECT TO FOREIGN CURRENCY OPERATIONS
(Reaffirmed January 29, 2008)
In conducting operations pursuant to the authorization and direction of the Federal Open Market Committee as set forth in the Authorization for Foreign Currency Operations and the Foreign Currency Directive, the Federal Reserve Bank of New York, through the Manager, System Open Market Account ("Manager"), shall be guided by the following procedural understandings with respect to consultations and clearances with the Committee, the Foreign Currency Subcommittee, and the Chairman of the Committee. All operations undertaken pursuant to such clearances shall be reported promptly to the Committee.
1. The Manager shall clear with the Subcommittee (or with the Chairman, if the Chairman believes that consultation with the Subcommittee is not feasible in the time available):
A. Any operation that would result in a change in the System's overall open position in foreign currencies exceeding $300 million on any day or $600 million since the most recent regular meeting of the Committee.
B. Any operation that would result in a change on any day in the System's net position in a single foreign currency exceeding $150 million, or $300 million when the operation is associated with repayment of swap drawings.
C. Any operation that might generate a substantial volume of trading in a particular currency by the System, even though the change in the System's net position in that currency might be less than the limits specified in 1.B.
D. Any swap drawing proposed by a foreign bank not exceeding the larger of (i) $200 million or (ii) 15 percent of the size of the swap arrangement.
2. The Manager shall clear with the Committee (or with the Subcommittee, if the Subcommittee believes that consultation with the full Committee is not feasible in the time available, or with the Chairman, if the Chairman believes that consultation with the Subcommittee is not feasible in the time available):
A. Any operation that would result in a change in the System's overall open position in foreign currencies exceeding $1.5 billion since the most recent regular meeting of the Committee.
B. Any swap drawing proposed by a foreign bank exceeding the larger of (i) $200 million or (ii) 15 percent of the size of the swap arrangement.
3. The Manager shall also consult with the Subcommittee or the Chairman about proposed swap drawings by the System and about any operations that are not of a routine character.
The Manager of the System Open Market Account reported on recent developments in foreign exchange markets. There were no open market operations in foreign currencies for the System's account in the period since the previous meeting. The Manager also reported on developments in domestic financial markets and on System open market operations in government securities and federal agency obligations during the period since the previous meeting. By unanimous vote, the Committee ratified these transactions.
The information reviewed at the January meeting, which included the advance data on the national income and product accounts for the fourth quarter, indicated that economic activity had decelerated sharply in recent months. The contraction in homebuilding intensified in the fourth quarter, the growth in consumer spending slowed, and survey measures of both consumer and business sentiment were at low levels. In addition, industrial production contracted in the fourth quarter. Conditions in the labor market deteriorated noticeably, with private payroll employment posting a small decline in December and the unemployment rate rising. Readings on both headline and core inflation increased in recent months, although the twelve-month change in prices of core personal consumption expenditures in December was about the same as its year-earlier value.
On average, private nonfarm payroll employment in November and December rose at only about half of the average pace seen from July to October. Over 2007 as a whole, the deterioration in labor demand was most pronounced in the construction and financial activities industries, which had been hardest hit by the difficulties in the housing and mortgage markets. Manufacturing employment declined yet again in December, while the decrease in employment in retail trade nearly reversed the sizable increase in that sector recorded in November. Aggregate hours of production or nonsupervisory workers were unchanged in December. The unemployment rate rose to 5.0 percent in December after having been at or near 4.7 percent since September.
Industrial production declined in the fourth quarter, as a drag from motor vehicles and construction-related industries more than offset a positive contribution from other industries. Output in high-tech industries moderated in the fourth quarter, largely because of a deceleration in production of computers and semiconductors. Utilities output climbed for a second consecutive quarter, and mining output was boosted by increases in natural gas extraction and in crude oil.
The rise in real consumer spending moderated in the fourth quarter, with outlays on non-auto consumer goods increasing weakly. Spending on services rose solidly in November (the most recent month available), led by energy services and commissions paid to stockbrokers, but warmer-than-usual temperatures in December likely damped expenditures for energy services in that month. Sales of light motor vehicles were moderate during the fourth quarter. Real disposable personal income was little changed in the fourth quarter, held down by higher consumer energy prices. Also, the wealth-to-income ratio ticked down in the third quarter, and appeared likely to decline again in the fourth quarter, as equity prices had fallen since the end of the third quarter and available indicators pointed to continued declines in house prices in the fourth quarter. In December, readings on consumer sentiment remained at relatively low levels by historical standards.
Both single-family housing starts and permit issuance fell in December. Meanwhile, multifamily housing starts plunged in December, but permit issuance pointed to a rebound in multifamily starts in the near term. New home sales dropped in November and December after having held relatively steady since August, keeping inventories of unsold homes at elevated levels. Sales of existing homes also moved down in December but, on balance, had declined less in recent months than sales of new homes. Demand for housing through the end of 2007 likely continued to be restrained by tight financing conditions for jumbo and nonprime mortgages.
Real spending on equipment and software rose at a sluggish rate in the fourth quarter after having posted a solid increase in the third quarter. Sales of medium and heavy trucks edged up after falling to a four-year low. Spending on high-tech capital goods increased at a moderate pace over the second half of last year. Outside of the transportation and high-tech sectors, spending on equipment appeared to have declined last quarter after having posted sizable gains over the summer. Orders and shipments rose somewhat in the fourth quarter, but imports in the first two months of the quarter were below their average in the third quarter. Nonresidential construction remained vigorous in the fourth quarter. However, indicators of future spending in this sector pointed to a slowdown in coming months, with a decline in architectural billings, a rise in retail-sector vacancy rates, and survey reports that contractors were experiencing more difficulty in obtaining funding. More generally, surveys of business conditions and sentiment deteriorated and suggested that capital spending would be reduced in the near term.
Real nonfarm inventory investment excluding motor vehicles appeared to have stepped up from its average rate over the first three quarters of 2007. In November, the ratio of manufacturing and trade book-value inventories (excluding motor vehicles) to sales ticked down.
The U.S. international trade deficit widened slightly in October and then more substantially in November, as increases in imports in both months more than offset increases in exports. The increases in imports almost entirely reflected a jump in the value of imported oil. Non-oil goods imports were boosted by a large increase in imports of consumer goods and small increases in several other categories, which more than offset a steep decline in imports of non-oil industrial supplies. Imports of automotive products and capital goods recorded modest gains, with the increase in capital goods primarily reflecting a jump in imports of telecommunications equipment. Imports of services grew strongly. Exports in both months were boosted by higher exports of services. Exports of industrial supplies also recorded a strong gain, aided by a large increase in exports of fuels in November. Higher exports of semiconductors, aircraft, and machinery pushed up exports of capital goods, while exports of agricultural goods increased only slightly following a large jump in the third quarter. In contrast, exports of consumer goods fell from their third-quarter level.
Economic growth in the advanced foreign economies appeared to have slowed in the fourth quarter, with recent data on household expenditures and retail sales weakening on balance and consumers and businesses considerably less upbeat about growth prospects. In Japan, the estimate of real GDP growth in the third quarter was revised down, and business sentiment declined in December amidst concerns about high oil prices. In the euro area, retail sales growth declined in October and November, and consumer and business surveys in November and December pointed to economic weakness. In the United Kingdom, although real GDP grew solidly in the fourth quarter, the estimate of third-quarter real GDP growth was revised down. In Canada, indicators suggested that growth in economic activity moderated in the fourth quarter. Private employment shrank in December after having posted very strong growth in November. Incoming data on emerging-market economies pointed, on balance, to a slowing of growth in the fourth quarter. Overall, growth in emerging Asia appeared to have moderated somewhat in the fourth quarter, with trade balances declining in several countries as exports slowed. Readings on economic activity in Latin America were more mixed. Incoming data suggested that growth slowed in Mexico in the fourth quarter. In Brazil , third-quarter growth was solid, but indicators for the fourth quarter were mixed. Economic activity appeared to be strong in Argentina in both the third and fourth quarters.
In the United States, headline consumer price inflation stepped up noticeably in November and December from the low rates posted in the summer. Part of the increase reflected the rapid rise in energy prices, but prices of core personal consumption expenditures (PCE) also moved up faster in those months than they had earlier in the year. The pickup in core PCE inflation over the second half of 2007 reflected an acceleration in prices that had been unusually soft earlier in the year, such as prices for apparel, prescription drugs, and nonmarket services. For the year as a whole, core PCE prices increased at about the same rate as they had in 2006. Household survey measures of expectations for year-ahead inflation picked up in November and remained at that level in December and January. Households' longer-term inflation expectations rose in December but ticked down in January. Average hourly earnings increased faster in November and December than they had in October, although over the twelve months that ended in December, this wage measure rose a bit more slowly than the elevated pace posted in 2006.