Federal Reserve — FOMC Statement (USA, 2023)

Minutes of the Federal Open Market Committee June 13 14, 2023 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve Sys- tem was held in the offices of the Board of Governors on Tuesday, June 13, 2023, at 10:30 a.m. and continued on Wednesday, June 14, 2023, at 9:00 a.m.1 Julie Ann Remache, Deputy Manager, System Open Market Account Jose Acosta, Senior Communications Analyst, Division of Information Technology, Board Attendance Jerome H. Powell, Chair John C. Williams, Vice Chair Michael S. Barr Michelle W. Bowman Lisa D. Cook Austan D. Goolsbee Patrick Harker Philip N. Jefferson Neel Kashkari Lorie K. Logan Christopher J. Waller Thomas I. Barkin, Raphael W. Bostic, Mary C. Daly, and Loretta J. Mester, Alternate Members of the Committee James Bullard and Susan M. Collins, Presidents of the Federal Reserve Banks of St. Louis and Boston, respectively Kelly J. Dubbert, Interim President of the Federal Reserve Bank of Kansas City Joshua Gallin, Secretary Matthew M. Luecke, Deputy Secretary Brian J. Bonis, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Richard Ostrander, Deputy General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Roc Armenter, James A. Clouse, Brian M. Doyle, Beverly J. Hirtle, Andrea Raffo, Chiara Scotti, and William Wascher, Associate Economists Roberto Perli, Manager, System Open Market Account Gianni Amisano, Assistant Director, Division of Research and Statistics, Board Philippe Andrade, Senior Economist and Policy Advisor, Federal Reserve Bank of Boston Alyssa Arute,2 Manager, Division of Reserve Bank Operations and Payment Systems, Board Penelope A. Beattie,3 Section Chief, Office of the Secretary, Board Carol C. Bertaut, Senior Adviser, Division of International Finance, Board Jennifer J. Burns, Deputy Director, Division of Supervision and Regulation, Board Marco Cagetti, Assistant Director, Division of Research and Statistics, Board Mark A. Carlson, Adviser, Division of Monetary Affairs, Board Juan C. Climent, Special Adviser to the Board, Division of Board Members, Board Daniel M. Covitz, Deputy Director, Division of Research and Statistics, Board Stephanie E. Curcuru, Deputy Director, Division of International Finance, Board Ahmet Degerli, Economist, Division of Monetary Affairs, Board Cynthia L. Doniger, Principal Economist, Division of Monetary Affairs, Board Rochelle M. Edge, Deputy Director, Division of Monetary Affairs, Board Jon Faust, Senior Special Adviser to the Chair, Division of Board Members, Board 1 The Federal Open Market Committee is referenced as the  FOMC  and the  Committee  in these minutes; the Board of Governors of the Federal Reserve System is referenced as the  Board  in these minutes. 2 Attended through the discussion of developments in finan- cial markets and open market operations. 3 Attended through the discussion of the economic and finan- cial situation and all of Wednesday s session. Page 1_____________________________________________________________________________________________ Erin E. Ferris, Principal Economist, Division of Michelle M. Neal, Head of Markets, Federal Reserve Monetary Affairs, Board Bank of New York Jonas Fisher, Senior Vice President, Federal Reserve Edward Nelson, Senior Adviser, Division of Monetary Bank of Chicago Affairs, Board Glenn Follette, Associate Director, Division of Nicolas Petrosky-Nadeau, Vice President, Federal Research and Statistics, Board Reserve Bank of San Francisco Jennifer Gallagher, Assistant to the Board, Division of Achilles Sangster II, Senior Information Manager, Board Members, Board Division of Monetary Affairs, Board Carlos Garriga, Senior Vice President, Federal Reserve Zeynep Senyuz, Deputy Associate Director, Division Bank of St. Louis of Monetary Affairs, Board David Glancy,4 Principal Economist, Division of Margie Shanks, Deputy Secretary, Office of the Monetary Affairs, Board Secretary, Board Christopher J. Gust, Associate Director, Division of Nitish Ranjan Sinha, Special Adviser to the Board, Monetary Affairs, Board Division of Board Members, Board Valerie S. Hinojosa, Section Chief, Division of A. Lee Smith, Senior Vice President, Federal Reserve Monetary Affairs, Board Bank of Kansas City Jane E. Ihrig, Special Adviser to the Board, Division of Hiroatsu Tanaka,5 Senior Economist, Division of Board Members, Board Monetary Affairs, Board Michael T. Kiley, Deputy Director, Division of Mary H. Tian, Group Manager, Division of Monetary Financial Stability, Board Affairs, Board Don H. Kim,2 Senior Adviser, Division of Monetary Robert L. Triplett III, First Vice President, Federal Affairs, Board Reserve Bank of Dallas Edward S. Knotek II, Senior Vice President, Federal Clara Vega, Special Adviser to the Board, Division of Reserve Bank of Cleveland Board Members, Board Andreas Lehnert, Director, Division of Financial Daniel J. Vine, Principal Economist, Division of Stability, Board Research and Statistics, Board Paul Lengermann, Assistant Director, Division of Jeffrey D. Walker,2 Associate Director, Division of Research and Statistics, Board Kurt F. Lewis, Special Adviser to the Board, Division of Board Members, Board Geng Li, Assistant Director, Division of Research and Statistics, Board Laura Lipscomb, Special Adviser to the Board, Division of Board Members, Board Brent Meyer, Assistant Vice President, Federal Reserve Bank of Atlanta Bernardo C. Morais, Principal Economist, Division of International Finance, Board Reserve Bank Operations and Payment Systems, Board Fabian Winkler, Principal Economist, Division of Monetary Affairs, Board Alexander L. Wolman, Vice President, Federal Reserve Bank of Richmond Paul R. Wood, Special Adviser to the Board, Division of Board Members, Board Rebecca Zarutskie, Special Adviser to the Board, Division of Board Members, Board 4 Attended Tuesday s session only. 5 Attended from the discussion of the economic and financial situation through the end of Tuesday s session. Page 2Federal Open Market Committee_____________________________________________________________________________________________ Developments in Financial Markets and Open Market Operations The manager turned first to a review of developments in financial markets. Policy-sensitive rates increased over the intermeeting period, reflecting indications of contin- ued resilience in the economy, persistently elevated core inflation, and reduced downside tail risks following the resolution of the debt limit. The shift in policy expecta- tions contributed significantly to higher Treasury yields. The increase in nominal yields primarily reflected higher real rates rather than inflation compensation. Broad eq- uity prices rose, although the outperformance was con- centrated in a handful of companies with a large market capitalization. Cyclical sectors fared better than sectors that tend to appreciate in a downturn, suggesting some reduced investor concern about downside risks to growth. Investor sentiment about the banking sector improved as perceived tail risks regarding regional banks appeared to have receded. Equity prices for regional banks rose over the intermeeting period but were still well below early March levels. Financial conditions in- dexes were roughly unchanged, as higher rates and a stronger dollar were offset by higher equity prices and narrower credit spreads. The vast majority of respondents to the Open Market Desk s Surveys of Primary Dealers and Market Partici- pants expected no rate change at this meeting. While the median path from the surveys pointed to no rate changes through early 2024, there was significant dispersion across respondents, and respondents saw a clear proba- bility of additional tightening at coming meetings. Re- spondents  average probability distribution for the level of the peak policy rate shifted higher since the May meet- ing and respondents on average assigned about 60 per- cent probability to the peak being above the current tar- get range. The market-implied path for the policy rate continued to show some decline this year but less so than it had in recent months. Measures of uncertainty about the path of the policy rate derived from options remained very elevated, though they came down some over the intermeeting period. Desk survey respondents still saw a recession occurring in the near term as quite likely, but the expected timing was again pushed later, as economic data pointed to the continued resilience of economic activity. Overall, re- spondents generally continued to expect that any down- turn would be neither deep nor prolonged. With regard to inflation expectations, respondents marked up their projections for quarterly core personal consumption ex- penditures (PCE) inflation in the second and third quar- ters of this year, while projections for later quarters were little changed. The manager then turned to money market develop- ments and policy implementation. The median respond- ent to the Desk surveys expected the three-month bill yield to increase slightly relative to the similar-maturity overnight index swap (OIS) rate and to remain above it into the fourth quarter. This expectation likely reflected a combination of rising net supply of bills as part of the Treasury Department s plan to rebuild the Treasury General Account (TGA) following the resolution of the debt limit and expectations for healthy investor demand for bills. The overnight reverse repurchase agreement (ON RRP) f