Federal Reserve — FOMC Statement (USA, 2021)

Minutes of the Federal Open Market Committee July 27 28, 2021 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve Sys- tem was held by videoconference on Tuesday, July 27, 2021, at 9:00 a.m. and continued on Wednesday, July 28, 2021, at 9:00 a.m.1 Patricia Zobel, Deputy Manager, System Open Market Account Ann E. Misback, Secretary, Office of the Secretary, Board 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 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 Shaghil Ahmed, Kartik B. Athreya, Brian M. Doyle, Rochelle M. Edge, Beverly Hirtle, and William Wascher, Associate Economists Lorie K. Logan, Manager, System Open Market Account 1 In these minutes, the Federal Open Market Committee is referenced as the  FOMC  and the  Committee ; the Board of Governors of the Federal Reserve System is referenced as the  Board.  Matthew J. Eichner,2 Director, Division of Reserve Bank Operations and Payment Systems, Board; Mi- chael S. Gibson, Director, Division of Supervision and Regulation, Board; Andreas Lehnert, Director, Division of Financial Stability, Board Jon Faust3 and Joshua Gallin, Senior Special Advisers to the Chair, Division of Board Members, Board William F. Bassett, Antulio N. Bomfim, Burcu Duygan- Bump, Jane E. Ihrig, Kurt F. Lewis, Chiara Scotti, and Nitish R. Sinha, Special Advisers to the Board, Division of Board Members, Board Elizabeth Klee, Senior Associate Director, Division of Financial Stability, Board; David E. Lebow, Michael G. Palumbo, and John J. Stevens, Senior Associate Directors, Division of Research and Statistics, Board; Min Wei, Senior Associate Director, Division of Monetary Affairs, Board Brett Berger,2 Senior Adviser, Division of International Finance, Board; Ellen E. Meade and Edward Nelson, Senior Advisers, Division of Monetary Affairs, Board Christopher J. Gust, Associate Director, Division of Monetary Affairs, Board; Paul R. Wood, Associate Director, Division of International Finance, Board Stephanie E. Curcuru2 and Andrea Raffo, Deputy Associate Directors, Division of International Finance, Board; Laura Lipscomb2 and Zeynep Senyuz, Deputy Associate Directors, Division of Monetary Affairs, Board; Norman J. Morin and Karen M. Pence, Deputy Associate Directors, Division of Research and Statistics, Board; Jeffrey 2 Attended through the discussion of asset purchases. 3 Attended Wednesday s session only. _____________________________________________________________________________________________Page 1 D. Walker,2 Deputy Associate Director, Division of Reserve Bank Operations and Payment Systems, Board Jennifer Gallagher, Special Assistant to the Board, Division of Board Members, Board Brian J. Bonis and Etienne Gagnon,2 Assistant Direc- tors, Division of Monetary Affairs, Board Alyssa G. Anderson2 and Andrew Meldrum,2 Section Chiefs, Division of Monetary Affairs, Board; Penelope A. Beattie,4 Section Chief, Office of the Secretary, Board Mark A. Carlson, Senior Economic Project Manager, Division of Monetary Affairs, Board David H. Small, Project Manager, Division of Monetary Affairs, Board Erin E. Ferris2 and Andrei Zlate, Principal Economists, Division of Monetary Affairs, Board Randall A. Williams, Lead Information Manager, Division of Monetary Affairs, Board Isabel Cair , Senior Economist, Division of Monetary Affairs, Board James M. Trevino,2 Senior Economic Modeler, Division of Monetary Affairs, Board Isaiah C. Ahn, Senior Staff Assistant, Division of Monetary Affairs, Board Kathleen O. Paese, First Vice President, Federal Reserve Bank of St. Louis Michael Dotsey, Joseph W. Gruber, and Ellis W. Tallman, Executive Vice Presidents, Federal Reserve Banks of Philadelphia, Kansas City, and Cleveland, respectively Anne Baum, Spencer Krane, David C. Wheelock, Mark L.J. Wright, and Nathaniel Wuerffel,2 Senior Vice Presidents, Federal Reserve Banks of New York, 4 Attended through the discussion of economic developments and the outlook. Chicago, St. Louis, Minneapolis, and New York, respectively Dina Marchioni,2 Thomas Mertens, Jon Willis, and Mark A. Wynne, Vice Presidents, Federal Reserve Banks of New York, San Francisco, Atlanta, and Dallas, respectively Jeffrey Moore2 and Brett Rose,2 Assistant Vice Presidents, Federal Reserve Bank of New York Daniel Cooper, Senior Economist and Policy Advisor, Federal Reserve Bank of Boston Ellen Correia-Golay2 and Brian Greene,2 Markets Officers, Federal Reserve Bank of New York Developments in Financial Markets and Open Market Operations The manager turned first to a discussion of develop- ments in financial markets. Although there were notable moves in some asset prices over the intermeeting period, overall financial conditions ended the period little changed at historically accommodative levels. Market participants seemed to interpret communications associ- ated with the June FOMC meeting as signaling a less ac- commodative path of monetary policy than had been an- ticipated. Implied rates on interest rate futures initially rose following the meeting but subsequently retraced, and expectations regarding the path of the target federal funds rate over the next few years ended the period only modestly changed. Longer-term yields fell notably over the period, with the declines concentrated in far-forward rates. A significant portion of these movements seemed to reflect changes in term premiums. Market participants pointed to a number of factors as driving the movement in longer- term yields, most prominently including Federal Reserve policy communications, investor positioning, and changes in expectations regarding the course of the pan- demic. With respect to the path of net asset purchases, respond- ents to the Open Market Desk s surveys of primary deal- ers and market participants expected communications on asset purchases to evolve gradually, with signals an- ticipated over coming months regarding both the Com- mittee s assessment of conditions constituting  substan- Page 2Federal Open Market Committee_____________________________________________________________________________________________ tial further progress  and details on tapering plans. Al- most 60 percent of respondents anticipated the first re- duction in the pace of net asset purchases to come in January, though, on average, respondents placed some- what more weight than in the June surveys on the possi- bility of tapering beginning somewhat earlier. With re- spect to the pace of tapering, respondents continued to anticipate that the Committee would take a gradual ap- proach. While market participants discussed the possi- bility of an earlier or faster-than-proportional reduction in the pace of net purchases of agency mortgage-backed securities (MBS), most survey respondents appeared to expect the timing and pace of tapering of net purchases of agency MBS and Treasury securities to be similar. The manager turned next to a discussion of develop- ments in operations and money markets over the period. Following the June meeting, overnight rates rose in line with the technical adjustment in administered rates and were relatively stable for the remainder of the period. Overnight reverse repurchase agreement (ON RRP) take-up jumped by over $200 billion after the technical adjustment took effect, as government-sponsored enter- prises moved balances held in unremunerated Federal Reserve deposit accounts into the higher-yielding ON RRP investments. Government money market funds also increased their participation in the facility amid a continued decline in Treasury bills outstanding and downward pressure on overnight rates. Overall, market participants reported that the technical adjustment went smoothly and that, with overnight rates having moved further away from zero, concerns about the functioning of short-term funding markets had diminished. Looking ahead, market participants were beginning to focus on the potential effects of changes in the Treasury General Account at the Federal Reserve and Treasury bill issuance over coming months in connection with the debt ceiling. The manager noted that, if a number of counterparties reached the per-counterparty limit on their ON RRP investments and downward pressure on overnight rates emerged, it may become appropriate to lift the limit. Establishment of Standing Repurchase Agreement Facilities Finally, the manager summarized the proposed terms for the standing repurchase agreement (repo) facility (SRF) and the Foreign and International Monetary Authorities (FIMA) Repo Facility. In questions and comments fol- lowing the manager s briefing, participants expressed broad support for the establishment of the SRF and FIMA Repo Facility. The vast majority of participants supported the proposed terms, although a few partici- pants raised questions, including whether the proposed aggregate cap of $50