Federal Reserve — FOMC Statement (USA, 2025)

FOMC Minutes of the Federal Open Market Committee June 17 18, 2025 F E D E R A L R E S E R V E S Y S T E M Minutes of the Federal Open Market Committee June 17 18, 2025 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 Tuesday, June 17, 2025, at 9:00 a.m. and continued on Wednesday, June 18, 2025, at 9:00 a.m.1 Review of Monetary Policy Strategy, Tools, and Communications Committee participants continued their discussions related to their review of the Federal Reserve s monetary policy framework, with a focus on issues related to assessing the risks and uncertainty that are relevant for monetary policy and the potential implications of these issues for the FOMC s policy strategy and communications. The staff reviewed qualitative and quantitative tools that are commonly used to measure uncertainty about the economic outlook and the balance of risks, drawing on U.S. and international experience. The staff then discussed monetary policy strategies that aim to be robust to a variety of economic environments and ways in which risk-management considerations can be incorporated into monetary policy analysis and decisionmaking. The staff also considered the role of scenario analysis as a tool to communicate to the public risks and uncertainty around the economic outlook and their implications for monetary policy. Participants noted that risks and uncertainty are important factors affecting their decisionmaking and emphasized the need for a policy strategy that aims to achieve the Committee s maximum- employment and price-stability objectives across a wide range of highly uncertain developments. Participants acknowledged that risks and uncertainty about the economy are pervasive and pose challenges to both the design and communication of monetary policy. They remarked that measuring and assessing risks and uncertainty are difficult and that the Committee has been well served by relying on a wide range of indicators, as well as information from business and community contacts, to gauge evolving risks, especially during periods of heightened uncertainty. Participants remarked that effective communications about risks and uncertainty help the public understand the Committee s decisions and enhance the transparency, accountability, and effectiveness of monetary policy decisions. Participants had a preliminary discussion about a range of 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 June 17-18, 2025 issues related to enhancing the Committee s suite of communication tools, including possible changes to the Summary of Economic Projections (SEP) and a potential broader use of alternative scenarios. Participants highlighted, however, the challenges associated with adjustments to these tools and noted that any revisions to the Committee s communication policies would need to be considered carefully and receive broad support across participants. Participants agreed to continue their discussions of ways to enhance the Committee s communication tools and practices once they completed their review of their Statement on Longer-Run Goals and Monetary Policy Strategy. Participants expected that they would complete that review by late summer. Developments in Financial Markets and Open Market Operations The manager turned first to a review of financial market developments. Over the intermeeting period, policy expectations and Treasury yields rose modestly, credit spreads narrowed, and equity prices increased. Markets were attentive to the de-escalation of trade tensions; generally weaker-than- expected economic data releases, with the notable exception of the May employment report; and prospects for fiscal expansion. These factors, on net, resulted in some paring back of investors  perception of downside risk to growth and upside risk to inflation. Results from the Open Market Desk s Survey of Market Expectations were consistent with this interpretation: The median respondent s expectations for real gross domestic product (GDP) growth and personal consumption expenditures (PCE) inflation for 2025 retraced some of the moves that occurred after the April tariff announcements, though growth expectations were still materially lower and inflation expectations remained higher relative to the March survey. The median respondent s modal path for the federal funds rate in the June survey shifted higher through 2026 and implied two 25 basis point rate cuts both this year and next year. Market-based policy expectations were largely consistent with survey results, with both the futures-based average federal funds rate path and the options-based modal federal funds rate path shifting higher over the intermeeting period. Overall, the changes in the intermeeting period brought policy expectations for the next few quarters back close to where they stood at the time of the March FOMC meeting. However, futures-based policy expectations beyond the next few quarters had not fully retraced the decline seen over the previous intermeeting period, suggesting that perceived medium- and longer- term downside risks to growth remained larger than before the April tariff announcements. Nominal Treasury yields rose 15 to 20 basis points, on net, over the intermeeting period. The manager observed that the rise in shorter-maturity yields was consistent with the upward shift in the expected policy rate path. The rise in longer-maturity yields appeared to reflect, in part, market participants  increasing fiscal concerns: In response to a Desk survey question about the top factors behind the Minutes of the Federal Open Market Committee 3 respondents  forecast of the 10-year yield over the next two years, the fiscal outlook was the factor cited by the largest number of respondents. Market-implied inflation compensation for the year ahead fell about 20 basis points over the intermeeting period, while longer-term inflation compensation measures were little changed. Liquidity conditions for nominal Treasury securities had improved as volatility declined following the stress seen in the previous intermeeting period. The events of April, and the more recent focus in markets around fiscal sustainability issues, did not appear to have affected demand for Treasury securities at auction; an index of auction performance derived from a number of metrics indicated that auction performance had improved modestly over the past several quarters and was currently in line with the longer-run average. Regarding foreign exchange developments, the broad trade-weighted dollar index fell further during the intermeeting period despite increases in U.S. equity prices and short-term Treasury yields. The manager noted that dollar depreciation continued to be consistent with larger downside revisions to the U.S. growth outlook relative to other major economies, which induced increased currency hedging flows by foreign investors in U.S. assets. The manager also remarked that the sensitivity of the foreign exchange value of the dollar to domestic economic surprises had not fundamentally changed. The available data continued to suggest stability in foreign holdings of U.S. assets. The manager turned next to money markets and Desk operations. Unsecured overnight rates remained stable over the intermeeting period. Rates in the repurchase agreement (repo) market were softer relative to the previous intermeeting period, including at the May month-end, as reductions in net Treasury bill issuance amid the ongoing debt limit situation resulted in increased demand for repo. With the softness in repo making the overnight reverse repurchase agreement (ON RRP) facility more attractive on a relative basis, usage of the ON RRP facility had been broadly stable, except for the typical spike at month-end. Since the start of the debt issuance suspension period in January, the Treasury General Account (TGA) had declined nearly $420 billion, ON RRP balances had increased about $75 billion, and reserves had increased $150 billion. Key indicators continued to suggest that reserves, which stood at nearly $3.5 trillion, were well into the abundant range. Once the debt limit was addressed, however, the TGA was likely to be rebuilt fairly quickly, which would drain liquidity from the system and result in fast declines in both ON RRP and reserve balances. The manager also discussed the trajectory of the System Open Market Account (SOMA) portfolio. Since balance sheet runoff commenced in June 2022, SOMA securities holdings had fallen almost $2  trillion. As a percentage of GDP, the portfolio had declined to close to where it had been at the start of the pandemic. The corresponding drain in Federal Reserve liabilities had largely come out of balances at the ON RRP facility, while reserve levels had been relatively little changed over that period. 4 June 17-18, 2025 Respondents to the June Desk survey, on average, expected runoff to end in February of next year, a month later compared with the previous survey, with an expected size of the SOMA portfolio of $6.2 trillion, or about 20 percent of GDP. At that point, the respondents, on average, expected reserves to be at $2.9 trillion and the ON RRP balance to be low. The manager noted that, starting on June 26, the Desk will begin adding regular morning standing repo facility (SRF) operations to the existing afternoon operations. The additional operations are intended to further enhance the effect