Federal Reserve — FOMC Statement (USA, 2021)

Minutes of the Federal Open Market Committee March 16 17, 2021 A joint meeting of the Federal Open Market Committee and the Board of Governors was held by videoconfer- ence on Tuesday, March 16, 2021, at 11:00 a.m. and con- tinued on Wednesday, March 17, 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, 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 Shaghil Ahmed, Kartik B. Athreya, Brian M. Doyle, Rochelle M. Edge, Eric M. Engen, Sylvain Leduc, Anna Paulson, and William Wascher, Associate Economists Lorie K. Logan, Manager, System Open Market Account Patricia Zobel, Deputy Manager, System Open Market Account Matthew J. Eichner,2 Director, Division of Reserve Bank Operations and Payment Systems, 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 Margie Shanks, Deputy Secretary, Office of the Secretary, 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, and Chiara Scotti, Special Advisers to the Board, Division of Board Members, Board of Governors Elizabeth Klee, Senior Associate Director, Division of Financial Stability, Board of Governors; David E. Lebow and Michael G. Palumbo, Senior Associate Directors, Division of Research and Statistics, Board of Governors Don H. Kim and Ellen E. Meade, Senior Advisers, Division of Monetary Affairs, Board of Governors Glenn Follette, Associate Director, Division of Research and Statistics, Board of Governors; David L pez-Salido, Associate Director, Division of Monetary Affairs, Board of Governors Stephanie E. Curcuru, Deputy Associate Director, Division of International Finance, Board of Governors; Christopher J. Gust, Deputy Associate Director, Division of Monetary Affairs, Board of Governors; Norman J. Morin and Paul A. Smith, Deputy Associate Directors, Division of Research and Statistics, Board of Governors; Jeffrey D. Walker,2 Deputy Associate Director, Division of 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_____________________________________________________________________________________________ Reserve Bank Operations and Payment Systems, Board of Governors Brent Bundick, Research and Policy Advisor, Federal Reserve Bank of Kansas City Jennifer Gallagher, Special Assistant to the Board, Michael Koslow,2 Markets Officer, Federal Reserve Division of Board Members, Board of Governors Bank of New York Brian J. Bonis, Michiel De Pooter, and Zeynep Senyuz,2 Fernando M. Martin, Research Officer, Federal Reserve Assistant Directors, Division of Monetary Affairs, Board of Governors Bank of St. Louis Alyssa G. Anderson,2 Section Chief, Division of Federal Reserve Bank of New York William G. O Boyle,2 Policy and Markets Manager, Monetary Affairs, Board of Governors; Penelope A. Beattie,2 Section Chief, Office of the Secretary, Board of Governors Mark A. Carlson, Senior Economic Project Manager, Division of Monetary Affairs, Board of Governors David H. Small, Project Manager, Division of Monetary Affairs, Board of Governors Michele Cavallo, Sebastian Infante, and Ander Perez- Orive, Principal Economists, Division of Monetary Affairs, Board of Governors Randall A. Williams, Lead Information Manager, Division of Monetary Affairs, Board of Governors Anthony Sarver,2 Senior Financial Institution Policy Analyst, Division of Monetary Affairs, Board of Governors Ellen J. Bromagen, First Vice President, Federal Reserve Bank of Chicago Michael Dotsey, Executive Vice President, Federal Reserve Bank of Philadelphia Anne Baum, Edward S. Knotek II, Giovanni Olivei, Paula Tkac, and Mark L.J. Wright, Senior Vice Presidents, Federal Reserve Banks of New York, Cleveland, Boston, Atlanta, and Minneapolis, respectively Kathryn B. Chen2 and Jonathan P. McCarthy, Vice Presidents, Federal Reserve Bank of New York Brett Rose,2 Assistant Vice President, Federal Reserve Bank of New York Anthony Murphy, Senior Economic Policy Advisor, Federal Reserve Bank of Dallas Michael Junho Lee,2 Economist, Federal Reserve Bank of New York Action to Adopt Changes to the Committee s Rules Regarding Availability of Information By unanimous vote, the Committee approved a final rule that revises its Rules Regarding Availability of Infor- mation, which are the Committee s Freedom of Infor- mation Act (FOIA) rules. The revised FOIA rules, which include a range of minor and technical updates, will become effective 30 days after the forthcoming pub- lication of the final rule in the Federal Register. Developments in Financial Markets and Open Market Operations The manager turned first to a discussion of financial market developments. In the United States, the trend toward higher longer-term yields observed in recent months accelerated over the intermeeting period, and far-forward real rates based on Treasury Inflation- Protected Securities (TIPS) rose considerably. Market participants highlighted an improving economic out- look, bolstered by passage of the American Rescue Plan (ARP) and progress on vaccinations, as underlying the increase in yields. Model- and survey-based estimates suggested that a significant portion of the increase in yields was associated with an increase in term premiums. Higher term premiums could reflect the outlook for more expansive fiscal policy and an associated upward revision in the expected path for Treasury debt out- standing. Increased uncertainty over the outlook for longer-term interest rates as well as technical factors may also have contributed to the rise in term premiums. The Treasury market functioned well over most of the pe- riod, although measures of market liquidity deteriorated somewhat toward the end of February. Conditions gradually improved, although some measures of market liquidity had not fully returned to earlier levels. Page 2Federal Open Market Committee_____________________________________________________________________________________________ Rates implied by interest rate futures maturing over the next several years rose notably over the intermeeting pe- riod, reportedly reflecting a reassessment by market par- ticipants of the expected path of the target range for the federal funds rate. Since the January meeting, the date of the first increase in the target range for the federal funds rate implied by a straight read of market pricing moved notably earlier to the first quarter of 2023, and the implied target rate at the end of 2023 rose around 50 basis points. However, responses to the Open Mar- ket Desk surveys suggested more modest changes to policy rate expectations. The probability-weighted mean survey expectation for the target rate at the end of 2023 rose only around 5 basis points. Expectations for economic conditions at the time of the first increase in the target range, as measured by the Desk surveys, appeared to remain broadly consistent with the Committee s policy framework and forward guidance. Expectations from the Desk surveys for the path of asset purchases were little changed. Contacts noted that these expectations have been held steady by policymaker communications emphasizing both the need to see realized progress toward the Committee s goals and the intent to communicate well in advance of the time when progress could be judged substantial enough to warrant a change in the pace of purchases. Alongside the rise in U.S. yields, broad U.S. equity price indexes increased moderately, with the largest gains in cyclically sensitive sectors. The rise in U.S. yields was also accompanied by increases in sovereign yields in other advanced economies. Some central banks re- sponded to these yield increases with adjustments to op- erations; others suggested that the rising yields reflected improvements in the outlook. The deputy manager discussed the evolution of the Fed- eral Reserve s balance sheet and related developments in money markets. Reserve balances rose more than $400 billion, on net, over the intermeeting period to $3.7 trillion, while Treasury bills outstanding decreased more than $200 billion. Against this backdrop, the ef- fective federal funds rate softened modestly, while re- purchase agreement (repo) rates declined to a greater ex- tent. Moreover, market participants projected that re- serves would grow at a historically rapid pace in com