FOMC Minutes from Meeting of April 29-30
The following is the text of the minutes from the Federal Open Market Committee's meeting of April 29 to 30, issued on Wednesday:
A meeting of the Federal Open Market Committee was held in the offices of the Board of Governors of the Federal Reserve System in Washington, D.C., on Tuesday, April 29, 2008 at 2:00 p.m. and continued on Wednesday, April 30, 2008 at 9:00am ET.
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.
By unanimous vote, the Committee extended for one year beginning in mid-December 2008 the reciprocal currency ("swap") arrangements with the Bank of Canada and the Banco de Mexico. The arrangement with the Bank of Canada is in the amount of $2 billion equivalent and that with the Banco de Mexico is in the amount of $3 billion equivalent. Both arrangements are associated with the Federal Reserve's participation in the North American Framework Agreement of 1994.
The vote to renew the System's participation in the swap arrangements maturing in December was taken at this meeting because of the provision that each party must provide six months' prior notice of an intention to terminate its participation.
In view of continuing strains in interbank and other financial markets, the Committee took up proposals to expand several of the liquidity arrangements that had been put in place in recent months.
Chairman Bernanke indicated his intention to increase the overall size of the Term Auction Facility under delegated authority from the Board of Governors, and he proposed increases in the swap lines with the European Central Bank and Swiss National Bank to help address pressures in short-term dollar funding markets.
Meeting participants discussed the possible costs and benefits of a proposed broadening of eligible collateral for the Term Securities Lending Facility (TSLF). On balance, the Committee agreed that expanding the range of eligible collateral for the TSLF might help to increase the effectiveness of the facility and so further promote the orderly functioning of financial markets.
By unanimous votes, the Committee approved the following three resolutions:
-The Federal Open Market Committee directs the Federal Reserve Bank of New York to increase the amount available from the System Open Market Account under the existing reciprocal currency arrangement ("swap" arrangement) with the European Central Bank to an amount not to exceed $50 billion. Within that aggregate limit, draws of up to $25 billion are hereby authorized. The current swap arrangement shall be extended until Jan. 30, 2009, unless further extended by the Federal Open Market Committee.
-The Federal Open Market Committee directs the Federal Reserve Bank of New York to increase the amount available from the System Open Market Account under the existing reciprocal currency arrangement ("swap" arrangement) with the Swiss National Bank to an amount not to exceed $12 billion. Within that aggregate limit, draws of up to $6 billion are hereby authorized. The current swap arrangement shall be extended until January 30, 2009, unless further extended by the Federal Open Market Committee.
-In connection with the Term Securities Lending Facility, the Federal Reserve Bank of New York may accept pledges of AAA-rated asset-backed securities (in addition to the other assets previously authorized by the FOMC) as collateral against loans of U.S. Government securities.
The information reviewed at the April meeting, which included the advance data on the national income and product accounts for the first quarter, indicated that economic growth had remained weak so far this year. Labor market conditions had deteriorated further, and manufacturing activity was soft.
Housing activity had continued its sharp descent, and business spending on both structures and equipment had turned down. Consumer spending had grown very slowly, and household sentiment had tumbled further. Core consumer price inflation had slowed in recent months, but overall inflation remained elevated.
Labor demand continued to weaken in March. Private payroll employment fell in March at a rate similar to that in January and February. The reduction in jobs was again widespread, with losses registered at firms in the construction, manufacturing, and professional and business services sectors. Employment at firms in the nonbusiness services sector, which includes health care, continued to rise.
Aggregate hours of private production or nonsupervisory workers moved up in March but posted a decline for the first quarter as a whole after having contracted slightly in the first two months of the year. The unemployment rate rose to 5.1 percent in March, significantly above its level a year ago, and the labor force participation rate was little changed.
Although industrial production rose in March, production over the first quarter as a whole was soft, having declined, on average, in January and February.
Gains in manufacturing output of consumer and high-tech goods in March were partially offset by a sharp drop in production of motor vehicles and parts and by ongoing weakness in the output of construction-related industries. The output of utilities rebounded in March following a weather-related drop in February, and mining output moved up after exhibiting weakness earlier in the year. The factory utilization rate edged up in March but stayed well below its recent high in the third quarter of 2007.
Real consumer spending expanded slowly in the first quarter. Real outlays on durable goods, including automobiles, were estimated to have declined in March, but expenditures on nondurable goods were thought to have edged up, boosted by a sizable increase in real outlays for gasoline. For the quarter as a whole, however, real expenditures on both durable and nondurable goods declined.
Real disposable personal income also grew slowly in the first quarter, restrained by rapidly rising prices for energy and food. The ratio of household wealth to disposable income appeared to have moved down again in the first quarter, damped by the appreciable net decline in broad equity prices over that period and by further reductions in house prices.
Measures of consumer sentiment fell sharply in March and April; the April reading of consumer sentiment published in the Reuters/University of Michigan Survey of Consumers was near the low levels posted in the early 1990s.