Federal Reserve — FOMC Statement (USA, 2023)

Minutes of the Federal Open Market Committee July 25 26, 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, July 25, 2023, at 10:00 a.m. and continued on Wednesday, July 26, 2023, at 9:00 a.m.1 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 Susan M. Collins, President of the Federal Reserve Bank of Boston Kelly J. Dubbert and Kathleen O Neill Paese, Interim Presidents of the Federal Reserve Banks of Kansas City and St. Louis, respectively Joshua Gallin, 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 Shaghil Ahmed, James A. Clouse, Eric M. Engen, Anna Paulson, Andrea Raffo, and William Wascher, Associate Economists Roberto Perli, Manager, System Open Market Account Julie Ann Remache, Deputy Manager, System Open Market Account David Altig, Executive Vice President, Federal Reserve Bank of Atlanta Penelope A. Beattie,2 Section Chief, Office of the Secretary, Board Brent Bundick, Senior Research and Policy Advisor, Federal Reserve Bank of Kansas City Juan C. Climent, Special Adviser to the Board, Division of Board Members, Board Stephanie E. Curcuru,3 Deputy Director, Division of International Finance, Board Rochelle M. Edge, Deputy Director, Division of Monetary Affairs, Board Matthew J. Eichner,4 Director, Division of Reserve Bank Operations and Payment Systems, Board Eric C. Engstrom, Associate Director, Division of Monetary Affairs and Division of Research and Statistics, Board Huberto M. Ennis, Group Vice President, Federal Reserve Bank of Richmond Erin E. Ferris, Principal Economist, Division of Monetary Affairs, Board Glenn Follette, Associate Director, Division of Research and Statistics, Board Jennifer Gallagher, Assistant to the Board, Division of Board Members, Board Peter M. Garavuso, Senior Information Manager, Division of Monetary Affairs, Board Carlos Garriga, Senior Vice President, Federal Reserve Bank of St. Louis Michael S. Gibson, Director, Division of Supervision and Regulation, 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 the economic and finan- cial situation and all of Wednesday s session. 3 Attended Tuesday s session only. 4 Attended through the discussion of developments in finan- cial markets and open market operations. _____________________________________________________________________________________________Page 1 Christine Graham,5 Special Adviser to the Board, Paolo A. Pesenti, Director of Monetary Policy Division of Board Members, Board Research, Federal Reserve Bank of New York Luca Guerrieri, Associate Director, Division of Damjan Pfajar, Group Manager, Division of Monetary International Finance, Board Affairs, Board Christopher J. Gust, Associate Director, Division of Samuel Schulhofer-Wohl, Senior Vice President, Monetary Affairs, Board Federal Reserve Bank of Dallas Valerie S. Hinojosa, Section Chief, Division of Donald Keith Sill, Senior Vice President, Federal Monetary Affairs, Board Reserve Bank of Philadelphia Jane E. Ihrig, Special Adviser to the Board, Division of Nitish Ranjan Sinha, Special Adviser to the Board, Board Members, Board Division of Board Members, Board Callum Jones, Senior Economist, Division of Monetary Dafina Stewart, Special Adviser to the Board, Division Affairs, Board of Board Members, Board Michael T. Kiley, Deputy Director, Division of Gustavo A. Suarez, Assistant Director, Division of Financial Stability, Board Research and Statistics, Board David E. Lebow, Senior Associate Director, Division Brett Takacs, Senior Communications Analyst, of Research and Statistics, Board Division of Information Technology, Board Sylvain Leduc, Director of Research, Federal Reserve Jenny Tang, Vice President, Federal Reserve Bank of Bank of San Francisco Boston Andreas Lehnert, Director, Division of Financial Willem Van Zandweghe, Assistant Vice President, Stability, Board Federal Reserve Bank of Cleveland Kurt F. Lewis, Special Adviser to the Board, Division Annette Vissing-J rgensen, Senior Adviser, Division of of Board Members, Board Monetary Affairs, Board Dan Li, Assistant Director, Division of Monetary Jeffrey D. Walker,4 Associate Director, Division of Affairs, Board Laura Lipscomb, Special Adviser to the Board, Division of Board Members, Board David L pez-Salido, Senior Associate Director, Division of Monetary Affairs, Board Ann E. Misback, Secretary, Office of the Secretary, Board Juan M. Morelli, Economist, Division of Monetary Affairs, Board Norman J. Morin, Deputy Associate Director, Division of Research and Statistics, Board Michelle M. Neal, Head of Markets, Federal Reserve Bank of New York Edward Nelson, Senior Adviser, Division of Monetary Affairs, Board 5 Attended through the discussion of the economic and finan- cial situation. Reserve Bank Operations and Payment Systems, Board 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 Developments in Financial Markets and Open Market Operations The manager turned first to a review of developments in financial markets over the intermeeting period. Market participants interpreted data releases as generally demonstrating economic resilience and a further easing of inflation pressures. The market-implied peak for the federal funds rate rose in response to data pointing to a robust economy but retraced part of that move after the June consumer price index (CPI) release was interpreted by market participants as softer than anticipated. Even as market prices shifted to indicate a slightly more re- Page 2Federal Open Market Committee_____________________________________________________________________________________________ strictive expected policy path, broader financial condi- tions eased a bit, reflecting in large part gains in equity prices and tighter credit spreads. Notably, share prices for bank equity also appreciated over the intermeeting period as concerns about the banking sector continued to dissipate. Spot and forward measures of inflation compensation based on Treasury Inflation-Protected Securities were little changed over the intermeeting pe- riod at levels broadly consistent with the Committee s 2 percent longer-run goal, and longer-term survey- and market-based measures continued to point to inflation expectations being firmly anchored. Market-implied peak policy rates in most advanced foreign economies (AFEs) rose further this period, and the dollar depreci- ated modestly. Respondents to the Open Market Desk s Survey of Pri- mary Dealers and Survey of Market Participants in July continued to place significant probability of a recession occurring by the end of 2024. However, the timing of a recession expected by survey respondents was again pushed later, and the probability of avoiding a recession through 2024 grew noticeably. Survey respondents an- ticipated that both headline and core personal consump- tion expenditures (PCE) inflation will decline to 2 per- cent by the end of 2025. There was a strong anticipation, evident in both market- based measures and responses to the Desk s surveys, that the Committee would raise the target range 25 basis points at the July FOMC meeting. Most survey respond- ents had a modal expectation that a July rate hike would be the last of this tightening cycle, although most re- spondents also perceived that additional monetary pol- icy tightening after the July FOMC meeting was possible. As inferred from their responses, survey respondents ex- pected real rates to increase through the first half of 2024 and to remain above their expectations for the long-run neutral levels for a few years. The manager then turned to money market develop- ments and policy implementation. The overnight re- verse repurchase agreement (ON RRP) facility contin- ued to work as intended over the intermeeting period and had been instrumental in providing an effective floor under the federal funds rate and supporting other money market rates; those rates remained stable over the period. Following the suspension of the debt ceiling in early June, the Treasury Department issued securities, notably Treasury bills, to replenish the Treasury General Account (TGA). The resulting greater availability of Treasury bills, which were priced at rates slightly above the current and expected ON RRP rates, induced a net decline in ON RRP balances for the period. A further decline in ON RRP balances was deemed probable amid sustained projected Treasury bill issuance, further reduc- tions in the size of the Federal Reserve s balance sheet in accordance with the previously announced Plans for Reducing the Size of the Federal Reserve s Balance Sheet, and a possible further reduction in policy uncer- tainty that could incentivize money