Federal Reserve — FOMC Statement (USA, 2023)

Minutes of the Federal Open Market Committee October 31 November 1, 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, October 31, 2023, at 10:00 a.m. and contin- ued on Wednesday, November 1, 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 Adriana D. Kugler Lorie K. Logan Christopher J. Waller Thomas I. Barkin, Raphael W. Bostic, Mary C. Daly,2 Loretta J. Mester, and Sushmita Shukla, Alternate Members of the Committee Susan M. Collins and Jeffrey R. Schmid, Presidents of the Federal Reserve Banks of Boston and Kansas City, respectively Kathleen O Neill Paese, Interim President of the Federal Reserve Bank of St. Louis 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 Shaghil Ahmed, James A. Clouse, Brian M. Doyle, Anna Paulson, Andrea Raffo, Chiara Scotti, and William Wascher, Associate Economists Roberto Perli, Manager, System Open Market Account Julie Ann Remache, Deputy Manager, System Open Market Account Stephanie R. Aaronson, Senior Associate Director, Division of Research and Statistics, Board Jose Acosta, Senior System Administrator II, Division of Information Technology, Board Alyssa Arute,3 Manager, Division of Reserve Bank Operations and Payment Systems, Board Kartik B. Athreya, Executive Vice President, Federal Reserve Bank of Richmond Penelope A. Beattie,4 Section Chief, Office of the Secretary, Board David Bowman, Senior Associate Director, Division of Monetary Affairs, Board Yao-Chin Chao, Deputy Associate Secretary, Office of the Secretary, Board Satyajit Chatterjee, Vice President, Federal Reserve Bank of Philadelphia Juan C. Climent, Special Adviser to the Board, Division of Board Members, Board Stephanie E. Curcuru, Deputy Director, Division of International Finance, Board Ryan Decker, Special Adviser to the Board, Division of Board Members, Board Cynthia L. Doniger, Principal Economist, Division of Monetary Affairs, Board Rochelle M. Edge, Deputy Director, Division of Monetary Affairs, Board Matthew J. Eichner,3 Director, Division of Reserve Bank Operations and Payment Systems, Board Eric C. Engstrom, Associate Director, Division of Monetary Affairs, 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 Wednesday s session only. 3 Attended through the discussion of developments in finan- cial markets and open market operations. 4 Attended through the discussion of the economic and fi- nancial situation. _____________________________________________________________________________________________Page 1 Jon Faust, Senior Special Adviser to the Chair, Division Kenneth C. Montgomery, First Vice President, Federal of Board Members, Board Reserve Bank of Boston Ron Feldman, First Vice President, Federal Reserve Norman J. Morin, Deputy Associate Director, Division Bank of Minneapolis of Research and Statistics, Board Andrew Figura, Associate Director, Division of Michelle M. Neal, Head of Markets, Federal Reserve Research and Statistics, Board Bank of New York Glenn Follette, Associate Director, Division of Fernanda Nechio, Vice President, Federal Reserve Research and Statistics, Board Bank of San Francisco Jenn Gallagher, Assistant to the Board, Division of Matthias Paustian, Assistant Director, Division of Board Members, Board Research and Statistics, Board Michael S. Gibson, Director, Division of Supervision Argia Sbordone, Research Department Head, Federal and Regulation, Board Reserve Bank of New York Christine Graham,4 Special Adviser to the Board, Nitish Ranjan Sinha, Special Adviser to the Board, Division of Board Members, Board Division of Board Members, Board Joseph W. Gruber, Executive Vice President, Federal Ellis W. Tallman, Executive Vice President, Federal Reserve Bank of Kansas City Reserve Bank of Cleveland Michael Hendley,3 Associate Director, Federal Reserve Robert J. Tetlow, Senior Adviser, Division of Monetary Bank of New York Affairs, Board Valerie S. Hinojosa, Section Chief, Division of Skander Van den Heuvel, Associate Director, Division Monetary Affairs, Board of Financial Stability, Board Matteo Iacoviello, Senior Associate Director, Division Francisco Vazquez-Grande, Group Manager, Division of International Finance, Board of Monetary Affairs, Board Jane E. Ihrig, Special Adviser to the Board, Division of Clara Vega, Special Adviser to the Board, Division of Board Members, Board Board Members, Board Michael T. Kiley, Deputy Director, Division of David C. Wheelock, Senior Vice President, Federal Financial Stability, Board Reserve Bank of St. Louis Don H. Kim, Senior Adviser, Division of Monetary Randall A. Williams, Group Manager, Division of Affairs, Board Monetary Affairs, Board Christopher Kurz, Assistant Director and Chief, Division of Research and Statistics, Board Jonathan Willis, Vice President, Federal Reserve Bank of Atlanta Sylvain Leduc, Director of Research, Federal Reserve Paul R. Wood, Special Adviser to the Board, Division Bank of San Francisco of Board Members, Board Andreas Lehnert, Director, Division of Financial Egon Zakrajsek, Executive Vice President, Federal Stability, Board Reserve Bank of Boston Kurt F. Lewis, Special Adviser to the Chair, Division of Rebecca Zarutskie, Special Adviser to the Board, Board Members, Board Division of Board Members, Board Laura Lipscomb, Special Adviser to the Board, Division of Board Members, Board Andrei Zlate, Group Manager, Division of Monetary Affairs, Board Joshua Louria, Group Manager, Division of Monetary Affairs, Board Andrew Meldrum, Assistant Director, Division of Monetary Affairs, 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. Finan- cial conditions continued to tighten, driven by higher Page 2Federal Open Market Committee_____________________________________________________________________________________________ yields on Treasury securities as well as by lower equity prices and a stronger dollar, which themselves partly re- flected higher interest rates. Because earnings expecta- tions had held up well in recent months, the effect of higher interest rates on equity prices likely took place largely through valuations. The rise since July in yields on longer-dated nominal Treasury securities was mostly attributable to increases in real yields. There were small increases in inflation compensation, but the levels of spot and forward rates were within historical ranges. The manager also noted that survey measures pointed to generally stable inflation expectations, especially at longer horizons, and that in- flation expectations remained well anchored. Staff analysis and responses from the Open Market Desk s Survey of Primary Dealers and Survey of Market Participants suggested that the bulk of the increase since July in the 10-year nominal Treasury yield could be at- tributed to a higher term premium, though higher policy expectations at longer horizons could also have played a role. The manager also noted that liquidity conditions in the Treasury market had not changed materially since July, suggesting that Treasury market liquidity had not been an important driver of the increase in yields. The manager turned next to expectations for monetary policy. Both market pricing and responses to the Desk s surveys implied that market participants expected that the federal funds rate was at or near its peak and would be held there at least until the June 2024 FOMC meeting; there was a roughly 30 percent probability of a 25 basis point increase at either the December or January FOMC meeting. Regarding balance sheet policy, the surveys showed that respondents had pushed out the date they expected balance sheet runoff to stop, perhaps partly in response to policymakers  communications that balance sheet runoff could continue even after the Committee begins to reduce the target range for the federal funds rate. The manager then turned to developments in money markets and Desk operations. Balance sheet runoff con- tinued to proceed smoothly over the intermeeting period through reduced holdings of Treasury securities, agency debt, and agency mortgage-backed securities. The con- tinued repayment by the Federal Deposit Insurance Cor- poration of discount window loans extended to banks that were placed into receivership also contributed to re- duced Federal Reserve assets. On the liabilities side of the balance sheet, usage of the overnight reverse repur- chase agreement (ON RRP) facility declined further, as money market mutual funds continued to absorb new Treasury bill issuance and appeared to increase invest- ment in the private market for repurchase agreements (repos) as well. Overall, the reduced usage of the ON RRP facility released more reserves than the reduc- tion in Federal Reserve assets and the increase in the Treasury Gen