Federal Reserve — FOMC Statement (USA, 2021)

Minutes of the Federal Open Market Committee September 21 22, 2021 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve Sys- tem was held by videoconference on Tuesday, Septem- ber 21, 2021, at 1:00 p.m. and continued on Wednesday, September 22, 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 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 David Altig, Brian M. Doyle, Rochelle M. Edge, 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 Ann E. Misback, Secretary, Office of the Secretary, 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 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 Marnie Gillis DeBoer, Senior Associate Director, Division of Monetary Affairs, Board; Susan V. Foley,2 Senior Associate Director, Division of Reserve Bank Operations and Payment Systems, Board; Diana Hancock and David E. Lebow, Senior Associate Directors, Division of Research and Statistics, Board Don H. Kim, 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 Andrew Figura and Elizabeth K. Kiser, Associate Directors, Division of Research and Statistics, Board; Paul R. Wood, Associate Director, Division of International Finance, 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 developments in finan- cial markets and open market operations. (This footnote was corrected on November 26, 2021, to replace an erroneous ref- erence to a  discussion of asset purchases. ) Page 1_____________________________________________________________________________________________ Eric C. Engstrom, Deputy Associate Director, Division of Monetary Affairs, Board; Patrick E. McCabe, Deputy Associate Director, Division of Research and Statistics, Board; Skander Van den Heuvel, Deputy Associate Director, Division of Financial Stability, Board; Jeffrey D. Walker,2 Deputy Associate Director, Division of Reserve Bank Operations and Payment Systems, Board Brian J. Bonis and Etienne Gagnon, Assistant Directors, Division of Monetary Affairs, Board Penelope A. Beattie,3 Section Chief, Office of the Secretary, Board; Deepa D. Datta,4 Section Chief, Division of International Finance, Board Michele Cavallo, Camelia Minoiu, and Anna Orlik, Principal Economists, Division of Monetary Affairs, Board Randall A. Williams, Lead Information Manager, Division of Monetary Affairs, Board David Na, Senior Financial Institution Policy Analyst, Division of Monetary Affairs, Board Meredith Black, First Vice President, Federal Reserve Bank of Dallas Michael Dotsey and Joseph W. Gruber, Executive Vice Presidents, Federal Reserve Banks of Philadelphia and Kansas City, respectively Anne Baum, Carlos Garriga, Edward S. Knotek II, Giovanni Olivei, and Mark L.J. Wright, Senior Vice Presidents, Federal Reserve Banks of New York, St. Louis, Cleveland, Boston, and Minneapolis, respectively Matthew D. Raskin,2 Vice President, Federal Reserve Bank of New York Andreas L. Hornstein, Senior Advisor, Federal Reserve Bank of Richmond Alex Richter, Economic Policy Advisor and Senior Economist, Federal Reserve Bank of Dallas 3 Attended Tuesday s session only. Keshav Dogra, Senior Economist, Federal Reserve Bank of New York Developments in Financial Markets and Open Market Operations The manager turned first to a discussion of financial market developments over the period. Domestic finan- cial conditions were little changed, on net, and remained highly accommodative. The spread of the Delta variant of the COVID-19 virus weighed on the near-term growth outlook and median respondents to the Open Market Desk s Survey of Primary Dealers marked down projections for gross domestic product (GDP) growth and revised up projections for inflation this year. None- theless, expectations for the trajectory of growth beyond 2021 were little changed. Implied forward inflation compensation two to four years ahead based on Treas- ury Inflation-Protected Securities (TIPS) increased mod- estly over the intermeeting period. Regarding the outlook for monetary policy, market par- ticipants noted policymaker communications suggesting that tapering of asset purchases could begin this year and end by mid-2022. Around half of respondents to the Desk s surveys of primary dealers and market partici- pants viewed December as the most likely timing of the first reduction in the net pace of purchases, although re- spondents also attached significant probability to the first reduction coming in November. Median expecta- tions for the pace of net purchases were consistent with a gradual tapering of net purchases being completed in July of next year, about one to two months earlier than in the previous surveys. Expectations for the target fed- eral funds rate based on survey responses and interest rate futures moved up slightly since the previous meet- ing. Several central banks announced reductions in the pace of their asset purchase programs or eventual plans for their balance sheets once asset purchases had been com- pleted. These announcements were broadly in line with market participants  expectations and elicited only a modest reaction in financial markets. In Latin America and emerging Europe, some central banks recently tight- ened policy to address rising inflation pressures. Inves- tors remained focused on other vulnerabilities in emerg- ing markets, and concerns had grown recently about the possible implications of developments in China. The manager turned next to a discussion of money mar- kets and Federal Reserve operations. Domestic funding 4 Attended the discussion of economic developments and the outlook. Page 2Federal Open Market Committee_____________________________________________________________________________________________ conditions were stable over the period. The federal funds rate edged lower amid ongoing increases in re- serves, but it remained well within the target range; the Secured Overnight Financing Rate (SOFR) was steady at 5 basis points. Participation in the overnight reverse re- purchase agreement (ON RRP) facility increased to an average of just over $1 trillion over the period, driven primarily by increased usage by government money mar- ket funds. Market participants were attentive over the period to negotiations on the debt limit. Yields on Treasury bills maturing in mid-October to mid-Novem- ber had become modestly elevated as investors reduced exposures to securities that could be at risk for delayed payments. Market participants noted information in the public domain about measures the Federal Reserve and the Treasury could take around a debt limit event. They pointed, in particular, to the October 2013 FOMC meet- ing minutes, which highlighted that the Federal Reserve would use normal procedures in its operations, both as the debt limit nears and in the event of a delayed pay- ment. Market participants also focused on a 2013 report by the Treasury Market Practices Group (TMPG), which outlined a process that could be used to delay principal payments on Treasury securities by rolling forward the operational maturity date in order to maintain the ability to transfer such securities over Fedwire . The TMPG report noted that such a procedure would help support ongoing functioning of markets for securities with de- layed payments. This would maintain their eligibility in open market operations under normal procedures. Nev- ertheless, market participants emphasized that, even with these procedures, a delayed payment would create severe and broad-based market disruption. In light of increased usage of the ON RRP facility and the potential for continued downward pressure on short-term interest rates over the near term, the manager next discussed a staff proposal to increase the per- counterparty limit for the ON RRP facility to $160 bil- lion. Staff analysis suggested that the proposed increase was likely to be sufficient to support effective policy im- plementation for most foreseeable circumsta