Federal Reserve — FOMC Statement (USA, 2021)

Minutes of the Federal Open Market Committee June 15 16, 2021 A joint meeting of the Federal Open Market Committee and the Board of Governors was held by videoconfer- ence on Tuesday, June 15, 2021, at 9:00 a.m. and contin- ued on Wednesday, June 16, 2021, at 9:00 a.m.1 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 Federal Open Market 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 Ann E. Misback, Secretary, Office of the Secretary, Board of Governors Michael S. Gibson, Director, Division of Supervision and Regulation, Board of Governors; Andreas Lehnert, Director, Division of Financial Stability, Board of Governors Daniel M. Covitz, Deputy Director, Division of Research and Statistics, Board of Governors; Sally Davies, Deputy Director, Division of International Finance, Board of Governors Jon Faust, Senior Special Adviser to the Chair, Division of Board Members, Board of Governors Joshua Gallin, Special Adviser to the Chair, Division of Board Members, Board of Governors William F. Bassett, Antulio N. Bomfim, Wendy E. Dunn, 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 of Governors Carol C. Bertaut, Senior Associate Director, Division of International Finance, Board of Governors; Marnie Gillis DeBoer and David L pez-Salido, Senior Associate Directors, Division of Monetary Affairs, Board of Governors; Elizabeth Klee, Senior Associate Director, Division of Financial Stability, Board of Governors; David E. Lebow, Senior Associate Director, Division of Research and Statistics, Board of Governors Shaghil Ahmed, Kartik B. Athreya, Rochelle M. Edge, Eric M. Engen, and William Wascher, Associate Economists Lorie K. Logan, Manager, System Open Market Account Brett Berger, 2 Senior Adviser, Division of International Finance, Board of Governors; Ellen E. Meade and Edward Nelson, Senior Advisers, Division of Monetary Affairs, Board of Governors; Jeremy B. Rudd, Senior Adviser, Division of Research and Statistics, Board of Governors Patricia Zobel, Deputy Manager, System Open Market Andrew Figura, Associate Director, Division of Account Research and Statistics, Board of Governors; 1 The Federal Open Market Committee is referenced as the  FOMC  and the  Committee  in these minutes. 2 Attended through the discussion of developments in finan- cial markets and open market operations. Page 1_____________________________________________________________________________________________ Christopher J. Gust, Associate Director, Division of Monetary Affairs, Board of Governors Randall A. Williams, Lead Information Manager, Division of Monetary Affairs, Board of Governors Stephanie E. Curcuru2 and Andrea Raffo, Deputy Associate Directors, Division of International Finance, Board of Governors; Laura Lipscomb,2 Deputy Associate Director, Division of Monetary Affairs, Board of Governors; Steve Spurry,2 Deputy Associate Director, Division of Supervision and Regulation, Board of Governors; Jeffrey D. Walker,2 Deputy Associate Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors Jennifer Gallagher, Special Assistant to the Board, Division of Board Members, Board of Governors Brian J. Bonis, Etienne Gagnon, and Dan Li, Assistant Directors, Division of Monetary Affairs, Board of Governors Charles Fleischman, Adviser, Division of Research and Statistics, Board of Governors Penelope A. Beattie,3 Section Chief, Office of the Secretary, Board of Governors Alyssa Arute,2 Manager, Division of Reserve Bank Operations and Payment Systems, Board of Governors Courtney Demartini,2 Lead Financial Institution Policy Analyst, Division of Monetary Affairs, Board of Governors Anthony M. Diercks, Senior Economist, Division of Monetary Affairs, Board of Governors Joseph W. Gruber and Ellis W. Tallman, Executive Vice Presidents, Federal Reserve Banks of Kansas City and Cleveland, respectively Anne Baum, Carlos Garriga, Susan McLaughlin,2 Anna Nordstrom,2 Giovanni Olivei, Paolo A. Pesenti, Julie Ann Remache,2 Robert G. Valletta, and Mark L.J. Wright, Senior Vice Presidents, Federal Reserve Banks of New York, St. Louis, New York, New York, Boston, New York, New York, San Francisco, and Minneapolis, respectively Roc Armenter, Jennifer S. Crystal,2 Jonas Fisher, and Matthew Nemeth,2 Vice Presidents, Federal Reserve Banks of Philadelphia, New York, Chicago, and New York, respectively Jason A. Miu,2 Assistant Vice President, Federal Reserve Bank of New York Karel Mertens, Senior Economic Policy Advisor, Sriya Anbil,2 Group Manager, Division of Monetary Federal Reserve Bank of Dallas Affairs, Board of Governors Mark A. Carlson,2 Senior Economic Project Manager, Division of Monetary Affairs, Board of Governors David H. Small, Project Manager, Division of Monetary Affairs, Board of Governors David M. Byrne, Principal Economist, Division of Research and Statistics, Board of Governors; Michele Cavallo, Bernd Schlusche, Mary Tian, and Francisco Vazquez-Grande, Principal Economists, Division of Monetary Affairs, Board of Governors; Alberto Queralto, Principal Economist, Division of International Finance, Board of Governors 3 Attended through the discussion of economic developments and the outlook. Kristopher Gerardi, Financial Economist and Senior Advisor, Federal Reserve Bank of Atlanta Haitham Jendoubi,2 Policy and Markets Analysis Manager, Federal Reserve Bank of New York Discussion of Repurchase Agreement Arrange- ments Participants resumed their discussion from the April 2021 FOMC meeting of considerations related to the es- tablishment of a domestic standing repurchase agree- ment (repo) facility (SRF) and a standing Foreign Inter- national Monetary Authorities (FIMA) repo facility. Building on discussion at previous meetings, the staff presented considerations for how these facilities might be designed. The design considerations were guided by Page 2Federal Open Market Committee_____________________________________________________________________________________________ participants  general desire to have these facilities play a backstop role in fostering effective implementation of monetary policy and supporting smooth functioning of markets. In April, participants highlighted the im- portance of designing these facilities in a way that would leave ample room for private market activity while min- imizing the potential for stigma, promote equitable ac- cess to an appropriately broad set of counterparties, and be governed by the FOMC. With these principles and goals in mind, the staff presented potential terms for each facility. The staff presentation on the potential design of a do- mestic SRF included establishing the minimum bid rate at 25 basis points the top of the target range for the federal funds rate. The staff briefing suggested counter- parties for the facility would include primary dealers and would be extended over time to include banks that ex- pressed interest in participation. The staff presentation noted that such a facility could be limited to only U.S. Treasury securities or could accept all securities currently accepted in open market operations (OMOs), which in- clude Treasury securities, agency securities, and agency mortgage-backed securities (MBS). The briefing noted that, on the one hand, restricting eligible collateral for a domestic SRF to U.S. Treasury securities could mitigate concerns that an SRF could encourage counterparties to take on greater liquidity risk. On the other hand, accept- ing agency securities and agency MBS in an SRF would be consistent with the structure of current repo opera- tions and could help address a greater range of potential repo market pressures from spilling over into the federal funds market. The proposed design for a standing FIMA repo facility was similar in structure to the existing temporary FIMA repo facility. Under the draft terms, the range of eligible counterparties for the FIMA repo facility would con- tinue to include foreign official institutions, largely com- prising central banks, subject to individual approval. The eligible collateral would continue to be limited to U.S. Treasury securities. The draft terms envisioned that the rate for the FIMA repo facility would be set equal to the top of the target range for the federal funds rate, a rate equal to the minimum bid rate in the draft terms for the domestic SRF. In their discussion of considerations related to the de- sign of a domestic SRF, a substantial majority restated their view, conveyed at the April 2021 meeting, that the potential benefits of such a facility outweighed the po- tential costs. Participants broadly supported the terms presented by the staff for such a facility. Several partic- ipants noted the importance of setting the minimum bid