Federal Reserve — FOMC Statement (USA, 2021)

Minutes of the Federal Open Market Committee April 27 28, 2021 A joint meeting of the Federal Open Market Committee and the Board of Governors was held by videoconfer- ence on Tuesday, April 27, 2021, at 9:30 a.m. and con- tinued on Wednesday, April 28, 2021, at 9:00 a.m.1 PRESENT: Jerome H. Powell, Chair John C. Williams, Vice Chair Thomas I. Barkin Raphael W. Bostic Michelle W. Bowman Lael Brainard Richard H. Clarida Mary C. Daly Charles L. Evans Randal K. Quarles Christopher J. Waller James Bullard, Esther L. George, Naureen Hassan, Loretta J. Mester, and Eric Rosengren, Alternate Members of the Federal Open Market Committee Patrick Harker, Robert S. Kaplan, and Neel Kashkari, Presidents of the Federal Reserve Banks of Philadelphia, Dallas, and Minneapolis, respectively James A. Clouse, Secretary Matthew M. Luecke, Deputy Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Michael Held, Deputy General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Ann E. Misback, Secretary, Office of the Secretary, Board of Governors Matthew J. Eichner,2 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 Sally Davies, Deputy Director, Division of International Finance, Board of Governors Jon Faust, Senior Special Adviser to the Chair, Division of Board Members, Board of Governors Joshua Gallin, Special Adviser to the Chair, Division of Board Members, Board of Governors William F. Bassett, Antulio N. Bomfim, Wendy E. Dunn, Burcu Duygan-Bump, Jane E. Ihrig, Kurt F. Lewis, and Chiara Scotti, Special Advisers to the Board, Division of Board Members, Board of Governors Carol C. Bertaut, Senior Associate Director, Division of International Finance, Board of Governors; David Bowman, Senior Associate Director, Division of Monetary Affairs, Board of Governors; Diana Hancock, Senior Associate Director, Division of Research and Statistics, Board of Governors; Elizabeth Klee, Senior Associate Director, Division of Financial Stability, Board of Governors David Altig, Kartik B. Athreya, Brian M. Doyle, Brett Berger,2 Senior Adviser, Division of Rochelle M. Edge, Eric M. Engen, Anna Paulson, and William Wascher, Associate Economists Lorie K. Logan, Manager, System Open Market Account International Finance, Board of Governors; Ellen E. Meade, Senior Adviser, Division of Monetary Affairs, Board of Governors; Jeremy B. Rudd, Senior Adviser, Division of Research and Statistics, Board of Governors Patricia Zobel, Deputy Manager, System Open Market Marnie Gillis DeBoer and Min Wei, Associate Account Directors, Division of Monetary Affairs, Board of Governors; Glenn Follette, Associate Director, 1 The Federal Open Market Committee is referenced as the  FOMC  and the  Committee  in these minutes. 2 Attended through the discussion of repurchase agreement arrangements. _____________________________________________________________________________________________Page 1 Division of Research and Statistics, Board of Governors Reserve Banks of Philadelphia, Kansas City, and Cleveland, respectively Ricardo Correa2 and Stephanie E. Curcuru,2 Deputy Associate Director, Division of International Finance, Board of Governors; Eric C. Engstrom, Deputy Associate Director, Division of Monetary Affairs, Board of Governors; Jeffrey D. Walker,2 Deputy Associate Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors Jennifer Gallagher, Special Assistant to the Board, Division of Board Members, Board of Governors Brian J. Bonis, Michiel De Pooter,2 Giovanni Favara, Laura Lipscomb,2 and Zeynep Senyuz, Assistant Directors, Division of Monetary Affairs, Board of Governors; Byron Lutz and Matthias Paustian, Assistant Directors, Division of Research and Statistics, Board of Governors Anne Baum, Carlos Garriga, Samuel Schulhofer-Wohl,2 Mark L.J. Wright, and Nathaniel Wuerffel,2 Senior Vice Presidents, Federal Reserve Banks of New York, St. Louis, Chicago, Minneapolis, and New York, respectively Matthew Nemeth,2 Pia Orrenius, Nicolas Petrosky- Nadeau, and Matthew D. Raskin,2 Vice Presidents, Federal Reserve Bank of New York, Dallas, San Francisco, and New York, respectively Robert Lerman2 and William E. Riordan,2 Assistant Vice Presidents, Federal Reserve Banks of New York and New York, respectively Mark Choi2 and Ellen Correia-Golay,2 Markets Officers, Federal Reserve Banks of New York and New York, respectively Penelope A. Beattie,2 Section Chief, Office of the Fatih Karahan and Jenny Tang, Senior Economists, Secretary, Board of Governors Mark A. Carlson,2 Senior Economic Project Manager, Division of Monetary Affairs, Board of Governors David H. Small, Project Manager, Division of Monetary Affairs, Board of Governors Michele Cavallo, Jonathan E. Goldberg, Edward Herbst, and Krista Schwarz, Principal Economists, Division of Monetary Affairs, Board of Governors Randall A. Williams, Lead Information Manager, Division of Monetary Affairs, Board of Governors Courtney Demartini,2 Lead Financial Institution Policy Analyst, Division of Monetary Affairs, Board of Governors Anthony Sarver,2 Senior Financial Institution Policy Analyst, Division of Monetary Affairs, Board of Governors Kenneth C. Montgomery, First Vice President, Federal Reserve Bank of Boston Michael Dotsey, Joseph W. Gruber, and Ellis W. Tallman, Executive Vice Presidents, Federal Federal Reserve Banks of New York and Boston, respectively Developments in Financial Markets and Open Market Operations The System Open Market Account (SOMA) manager first discussed developments in financial markets over the intermeeting period. Financial conditions eased modestly as market participants continued to focus on progress toward economic reopening as well as support- ive monetary and fiscal policy. Equity prices rose, with the S&P 500 index reaching a record high, while Treas- ury yields, the dollar, and credit spreads declined mod- estly. The equity gains were broad based across sectors, though shares of small caps, as captured by the Russell 2000 index, declined. News regarding losses associated with a highly levered family investment office affected the equity prices of some large financial firms, but the broader financial market effects appeared limited. After rising sharply in recent months, longer-term Treas- ury yields declined modestly over the intermeeting pe- riod, even as market expectations for U.S. growth con- tinued to be revised higher. Contacts reported that the earlier increases in yields drew in a range of investors, including foreign institutions, pension funds, and insur- ance companies. Against this backdrop, term premiums as measured by term structure models and based on es- Page 2Federal Open Market Committee_____________________________________________________________________________________________ timates using the Open Market Desk s surveys of pri- mary dealers and market participants moved slightly lower. Nonetheless, market participants were attentive to the potential for rising yields going forward, and, in recent months, Desk survey respondents had increased the probability they attach to higher yields at the end of 2021. Regarding expectations for the policy outlook, the mar- ket- and survey-implied paths of the federal funds rate were both relatively little changed over the intermeeting period, and the modal survey path in later years contin- ued to imply that the target range would gradually in- crease to a level just over 2 percent in 2026. Expecta- tions for the path of asset purchases were also stable, and market participants remained focused on the Commit- tee s communications about progress toward its goals. According to the median survey responses, the Federal Reserve s net purchases of Treasury and agency securi- ties were expected to end three quarters after the first reduction in the pace of asset purchases, and the first increase in the target range for the federal funds rate was expected to occur three quarters after that. Recent financial market developments across advanced economies reflected differing expectations for economic growth and monetary policy. Some countries that were expected to recoup COVID-19-related output losses earlier than others had seen larger yield increases and more appreciation in their currencies in recent months. Over the intermeeting period, the Bank of Canada an- nounced a reduction in the pace of its asset purchases and brought forward its forecast of when conditions would be met for an increase in its policy rate. The manager turned next to money markets and the Federal Reserve s balance sheet. Reserve balances in- creased further this intermeeting period to a record level of $3.9 trillion. The effective federal funds rate was steady at 7 basis points. However, amid ongoing strong demand for safe short-term investments and reduced Treasury bill supply, the Secured Overnight Financing Rate (SOFR) stood at 1 basis point throughout the pe- riod. The overnight reverse repurchase agreement (ON RRP) facility continued to effectively support pol- icy implementation, and take-up peaked at more than $100 billion. A modest amount of trading in overnight repurchase agreement (repo) markets occurred at nega- tive rates, although this development appeared to largely reflect technical factors. The SOMA manag