Federal Reserve — FOMC Statement (USA, 2021)

Minutes of the Federal Open Market Committee November 2 3, 2021 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, November 2, 2021, at 1:00 p.m. and contin- ued on Wednesday, November 3, 2021, at 9:00 a.m.1 Lorie K. Logan, Manager, System Open Market Account Patricia Zobel, Deputy Manager, System Open Market Account Attendance Ann E. Misback, Secretary, Office of the Secretary, 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 Kenneth C. Montgomery, Alternate Members of the Committee Patrick Harker and Neel Kashkari, Presidents of the Federal Reserve Banks of Philadelphia, and Minneapolis, respectively Meredith Black, Interim President of the Federal Reserve Bank of Dallas 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 Board Matthew J. Eichner,2 Director, Division of Reserve Bank Operations and Payment Systems, Board; Michael S. Gibson, Director, Division of Supervision and Regulation, Board; Andreas Lehnert, Director, Division of Financial Stability, Board Daniel M. Covitz, Deputy Director, Division of Re- search and Statistics, Board; Sally Davies, Deputy Director, Division of International Finance, Board Jon Faust 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 Linda Robertson, Assistant to the Board, Division of Board Members, Board David L pez-Salido, Senior Associate Director, Division of Monetary Affairs, Board Edward Nelson and Annette Vissing-J rgensen, Senior Advisers, Division of Monetary Affairs, Board; Jeremy B. Rudd, Senior Adviser, Division of Research and Statistics, Board Shaghil Ahmed, Brian M. Doyle, Rochelle M. Edge, Anna Paulson, and William Wascher, Associate Economists Glenn Follette, Associate Director, Division of Re- search and Statistics, Board; Christopher J. Gust, Associate Director, Division of Monetary Affairs, 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. _____________________________________________________________________________________________Page 1 Board; Jeffrey D. Walker,2 Associate Director, Di- vision of Reserve Bank Operations and Payment Systems, Board Edward S. Prescott, Senior Economic and Policy Advisor, Federal Reserve Bank of Cleveland Karel Mertens, Senior Economic Policy Advisor, Skander Van den Heuvel, Deputy Associate Director, Federal Reserve Bank of Dallas Division of Financial Stability, Board Gianni Amisano, Byron Lutz, and Raven Molloy, Assistant Directors, Division of Research and Statistics, Board; Brian J. Bonis, Giovanni Favara, and Dan Li, Assistant Directors, Division of Monetary Affairs, Board Penelope A. Beattie,3 Section Chief, Office of the Secretary, Board David H. Small, Project Manager, Division of Monetary Affairs, Board Randall A. Williams, Group Manager, Division of Monetary Affairs, Board Michele Cavallo, Principal Economist, Division of Monetary Affairs, Board Callum Jones and Arsenios Skaperdas, Senior Economists, Division of Monetary Affairs, Board Jose Acosta, Senior Communications Analyst, Division of Information Technology, Board Isaiah C. Ahn, Senior Staff Assistant, Division of Monetary Affairs, Board Ron Feldman, First Vice President, Federal Reserve Bank of Minneapolis Joseph W. Gruber and Geoffrey Tootell, Executive Vice Presidents, Federal Reserve Banks of Kansas City and Boston, respectively Anne Baum, Carlos Garriga, Paolo A. Pesenti, and Mark L.J. Wright, Senior Vice Presidents, Federal Reserve Banks of New York, St. Louis, New York, and Minneapolis, respectively Satyajit Chatterjee and Alexander L. Wolman, Vice Presidents, Federal Reserve Banks of Philadelphia and Richmond, respectively 3 Attended Tuesday s session only. Mark Spiegel, Senior Policy Advisor, Federal Reserve Bank of San Francisco Brent Meyer, Policy Advisor and Economist, Federal Reserve Bank of Atlanta Discussion of Financial Markets and Open Market Operations The manager turned first to a discussion of global finan- cial markets. Sovereign yields rose sharply across many advanced economies with much of the increase concen- trated in measures of inflation compensation. In the United States, the five-year measure of inflation com- pensation based on Treasury Inflation Protected Securi- ties (TIPS) rose by around 45 basis points. Far forward measures of inflation compensation also rose, but by modest amounts. In the Open Market Desk s surveys of primary dealers and market participants, the median forecast for headline PCE inflation in 2021 was revised up notably. Median forecasts beyond 2021move up by less, although the average of the probabilities reported by survey respondents placed on higher inflation out- comes at these horizons increased modestly. Policy sensitive rates increased across most advanced economies. The central banks of Norway and New Zea- land raised their policy rates early in the period, and pol- icy communications from the Bank of England and the Bank of Canada pointed to the potential for earlier pol- icy firming than had been expected, contributing to the upward movement of global rates. The Reserve Bank of Australia ended its yield target for the April 2024 gov- ernment bond. That central bank signaled that condi- tions for raising the policy rate could be met in 2023 but were unlikely to be achieved in the earlier timeframe im- plied by market pricing. Some European Central Bank communications also suggested that market rates were likely not consistent with the outlook for policy. In the United States, the market-implied path of the fed- eral funds rate rose, implying an earlier date for raising the target range for the federal funds rate and a faster pace of rate hikes than was the case in September. Op- tion-implied volatility on short-dated interest rates in- creased, reportedly reflecting greater uncertainty over Page 2Federal Open Market Committee_____________________________________________________________________________________________ the path of the federal funds rate. Desk survey re- sponses also indicated expectations for an earlier in- crease in the target range, although the median respond- ent s modal expectation shifted by less than market pric- ing. The median survey respondent s modal expectation for the federal funds rate at the end of 2025 was little changed suggesting that investors had not revised their expectations for the cumulative extent of policy firming over the next four years. Expectations for a reduction in the pace of net asset purchases coalesced further, and most survey respondents expected the tapering of asset purchases to start with the November purchase schedule with monthly reductions of $10 billion and $5 billion in Treasury securities and agency mortgage-backed securi- ties (MBS), respectively. Over the intermeeting period, U.S. equity indexes rose and the one-month option-implied volatility on the S&P 500 the VIX fell to post-pandemic lows. Con- tinued strong earnings underpinned the rise in equity prices, with firms posting profits near historical highs. Despite signs of robust risk appetite, market participants continued to note prominent risks to the outlook, in- cluding ongoing challenges in the Chinese property sec- tor. Turning to Desk operations, the manager noted that, should the Committee decide to announce a reduction in the pace of net asset purchases at this meeting, the Desk would issue a monthly purchase schedule on No- vember 12 reflecting this change. The mid-December purchase schedule, to be released just before the next FOMC meeting, would reflect additional reductions of the same size. Treasury securities and agency MBS would continue to be purchased across sectors and cou- pons consistent with current practice. If similar reductions in the net purchase pace were im- plemented in subsequent months, the System Open Market Account (SOMA) portfolio would peak around next June at about $8.5 trillion. In terms of composition, Treasury securities and agency MBS would constitute roughly 70 percent and 30 percent of the SOMA port- folio, respectively roughly in line with the shares of Treasury securities and agency MBS in the total stock of these securities outstanding and the SOMA portfolio would be more heavily weighted toward Treasury secu- rities than after the conclusion of the third large-scale asset purchase program (LSAP 3) following the global financial crisis. The maturity composition of SOMA Treasury coupon holdings would also be fairly close to that of the outstanding universe of Treasury securities, and the weighted average maturity would be shorter than after L