Federal Reserve — FOMC Statement (USA, 2024)

1 Minutes of the Federal Open Market Committee November 6 7, 2024 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held in the offices of the Board of Governors on Wednesday, November 6, 2024, at 10:00 a.m. and continued on Thursday, November 7, 2024, at 9:00 a.m.1 Developments in Financial Markets and Open Market Operations The manager turned first to a review of developments in financial markets. Nominal Treasury yields rose notably over the period; factors driving the increases in yields included stronger-than-expected data releases and monetary policy communications that were interpreted as signaling a more gradual pace of policy easing than previously thought. The rise at short maturities reflected increases in both real yields and inflation compensation, while the rise at longer maturities was primarily driven by increases in real yields. Broad equity prices also rose over the period, likely reflecting in part the solid incoming data and consequent lower odds of a weakening in the economic outlook. The VIX, which measures 30-day option-implied volatility of broad equity prices, had moved higher in the period leading up to the November elections and then decreased following Election Day. The manager noted that the federal funds rate path had shifted up notably over the period, as measured by both the options-implied modal path and the futures-implied average path. Although the futures-implied path remained below the options-implied path at longer horizons, the gap between the two paths narrowed, likely reflecting market participants  judgment that risks had become less skewed toward the downside. In the Open Market Desk s Survey of Primary Dealers and Survey of Market Participants, a large majority of respondents had a modal expectation of a 25 basis point cut at this meeting and another 25 basis point cut at the December meeting. Further out, there was considerably more uncertainty. For example, although the mean of the average respondent s probability distribution for the federal funds rate at the trough of this easing cycle was close to the average respondent s expected longer-run level of the federal funds rate, respondents placed substantial weight on a wide range of outcomes. The manager also discussed balance sheet policy expectations. The average of the survey responses indicated that the modal expectation regarding the timing of the end of balance sheet runoff had 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 November 6 7, 2024 shifted a bit later, to May 2025. These responses remained dispersed, though roughly two-thirds of respondents expected an end to runoff in either the first or the second quarter of 2025. Survey results indicated that respondents expected balance sheet runoff to continue alongside rate cuts for several more months; the surveys therefore suggested that the Committee s two policy tools the policy rate and the balance sheet were not seen as working at cross-purposes. Regarding international developments, the manager noted that policy rate expectations for the year- end declined in most advanced foreign economies (AFEs), with the exception of Australia and the U.K. The widening of differentials with U.S. interest rates had likely contributed to an increase in the trade- weighted dollar index, which reached its highest level this year. The manager then turned to money markets and Desk operations. Unsecured overnight rates remained stable over the intermeeting period. In secured funding markets, rates on overnight repurchase agreements (repo) increased sharply and were volatile around the September quarter-end but, on other dates, generally stayed just above the rate offered at the overnight reverse repurchase agreement (ON RRP) facility. Market contacts attributed the pressures seen around the quarter-end to a combination of typical balance sheet constraints associated with financial reporting dates and a large net settlement of Treasury coupon securities that took place on the same day. Overall, developments in the repo market at the end of September and in early October appeared to conform with the typical quarter-end pattern, although the spike in repo rates observed on those days was the largest in the post-pandemic period. The September quarter-end also saw the first non-test use of the standing repo facility (SRF), with two counterparties borrowing $2.6 billion. The manager noted that the relatively small utilization was not surprising, as repo rates in the noncentrally cleared segment of the triparty repo market in which the facility operates did not exceed the SRF rate for the most part. The manager also observed that there was a substantial volume of trades taking place above the SRF rate around quarter-end in other segments of the repo market. The manager indicated that, with dealers typically earning a spread in their intermediation activity, this outcome was not surprising. The manager suggested that considerations related to market structure also helped explain why repo rates were above the SRF rate in those segments at quarter-end. Overall, the manager judged that the SRF performed about in line with the Desk s expectations. Usage of the ON RRP facility declined about $140 billion over the intermeeting period. This decline appeared to be driven primarily by additional net Treasury bill supply in recent weeks, which made Treasury bill yields more attractive. The manager also noted that, of late, the largest ON RRP participants had substantially reduced their participation at the facility, leading to a less concentrated configuration of ON RRP take-up than had been the case for some time. Minutes of the Federal Open Market Committee 3 Over the intermeeting period, pricing in the federal funds market continued to be insensitive to day-to- day changes in the supply of reserves. The manager noted that this outcome was consistent with reserves remaining abundant and that various other indicators pointed to the same conclusion. The staff also provided an informational briefing to the Committee on two considerations related to the management of the balance sheet over the near term. The first consideration focused on the possibility of a technical adjustment to the ON RRP offering rate. The staff reviewed developments with respect to the usage of the ON RRP facility. The staff also noted that lowering the ON RRP offering rate 5 basis points would align the ON RRP offering rate with the bottom of the target range for the federal funds rate and would probably put some downward pressure on other money market rates. The second consideration focused on the possible implications for the composition of Federal Reserve liabilities stemming from the federal debt limit potentially being reinstated in 2025. The staff presentation highlighted the fact that, should this event occur, a drawdown in the Treasury General Account (TGA) balances would increase the sum of reserves and ON RRP balances, and that a subsequent rebuilding of TGA balances would have the reverse effect. The staff noted that these substantial shifts could mask the effects of ongoing balance sheet runoff on money market conditions and pose challenges in assessing reserve conditions. By unanimous vote, the Committee ratified the Desk s domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System s account during the intermeeting period. Staff Review of the Economic Situation The information available at the time of the meeting indicated that real gross domestic product (GDP) had expanded solidly so far this year. The pace of job gains had moderated since the beginning of the year, and the unemployment rate had moved up, on net, but remained low. Consumer price inflation was well below its year-earlier pace. Consumer price inflation as measured by the 12-month change in the price index for personal consumption expenditures (PCE) had moved lower in August and September. Total PCE price inflation was 2.1 percent in September, and core PCE price inflation which excludes changes in energy prices and many consumer food prices was 2.7 percent. Recent data suggested that labor market conditions remained solid. Average monthly nonfarm payroll gains in the third quarter were similar to those seen in the second quarter. October job gains were held down noticeably by the effects of strikes and hurricanes. The unemployment rate had edged down slightly since August and was 4.1 percent in October; the labor force participation rate also 4 November 6 7, 2024 ticked down over this period, and the employment-to-population ratio was unchanged on net. The unemployment rates for African Americans and for Hispanics moved down; both rates were above those for Asians and for Whites. The ratio of job vacancies to unemployment was 1.1 in October, slightly lower than its level just before the pandemic. Average hourly earnings for all employees rose 4 percent over the 12 months ending in October, down 0.3 percentage point relative to a year earlier, and the 12-month change in the employment cost index of hourly compensation for private industry workers was 3.6 percent in September, down 0.7 percentage point from its year-earlier pace. According to the advance release, real GDP posted a solid gain in the third quarter that was similar to its second-quarter pace. Real private domestic final purchases which comprises PCE and private fixed investment and which often provides a better signal than