Federal Reserve — FOMC Statement (USA, 2023)

Minutes of the Federal Open Market Committee September 19 20, 2023 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve Sys- tem was held in the offices of the Board of Governors on Tuesday, September 19, 2023, at 10:30 a.m. and con- tinued on Wednesday, September 20, 2023, at 9:00 a.m.1 Attendance Jerome H. Powell, Chair John C. Williams, Vice Chair Michael S. Barr Michelle W. Bowman Lisa D. Cook Austan D. Goolsbee Patrick Harker Philip N. Jefferson Neel Kashkari Adriana D. Kugler Lorie K. Logan Christopher J. Waller Thomas I. Barkin, Raphael W. Bostic, Mary C. Daly, and Loretta J. Mester, Alternate Members of the Committee Susan M. Collins and Jeffrey R. Schmid, Presidents of the Federal Reserve Banks of Boston and Kansas City, respectively Kathleen O Neill Paese, Interim President of the Federal Reserve Bank of St. Louis Joshua Gallin, Secretary Matthew M. Luecke, Deputy Secretary Brian J. Bonis, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Richard Ostrander, Deputy General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Shaghil Ahmed,2 Roc Armenter, James A. Clouse, Brian M. Doyle, Eric M. Engen,3 Andrea Raffo, Chiara Scotti, and William Wascher, Associate Economists Roberto Perli, Manager, System Open Market Account Julie Ann Remache, Deputy Manager, System Open Market Account Stephanie R. Aaronson, Senior Associate Director, Division of Research and Statistics, Board Jose Acosta, Senior System Administrator II, Division of Information Technology, Board Andrea Ajello, Section Chief, Division of Monetary Affairs, Board Penelope A. Beattie,4 Section Chief, Office of the Secretary, Board Ellen J. Bromagen, First Vice President, Federal Reserve Bank of Chicago Mark A. Carlson, Adviser, Division of Monetary Affairs, Board Daniel Cooper, Vice President, Federal Reserve Bank of Boston Daniel M. Covitz, Deputy Director, Division of Research and Statistics, Board Stephanie E. Curcuru, Deputy Director, Division of International Finance, Board Rochelle M. Edge, Deputy Director, Division of Monetary Affairs, Board Matthew J. Eichner,5 Director, Division of Reserve Bank Operations and Payment Systems, Board Eric C. Engstrom, Associate Director, Division of Monetary Affairs, Board Jon Faust, Senior Special Adviser to the Chair, Division of Board Members, Board Charles A. Fleischman, Adviser, Division of Research and Statistics, 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 Wednesday s session only. 3 Attended Tuesday s session only. 4 Attended through the discussion of the economic and finan- cial situation. 5 Attended through the discussion of developments in finan- cial markets and open market operations. Page 1_____________________________________________________________________________________________ Glenn Follette, Associate Director, Division of Raven Molloy, Deputy Associate Director, Division of Research and Statistics, Board Research and Statistics, Board Jennifer Gallagher, Assistant to the Board, Division of Michelle M. Neal, Head of Markets, Federal Reserve Board Members, Board Bank of New York Carlos Garriga, Senior Vice President, Federal Reserve Anna Orlik, Principal Economist, Division of Bank of St. Louis Monetary Affairs, Board Michael S. Gibson, Director, Division of Supervision Damjan Pfajfar, Group Manager, Division of Monetary and Regulation, Board Affairs, Board Joseph W. Gruber, Executive Vice President, Federal Pierre-Daniel G. Sarte, Senior Advisor, Federal Reserve Reserve Bank of Kansas City Bank of Richmond Valerie S. Hinojosa, Section Chief, Division of Nitish Ranjan Sinha, Special Adviser to the Board, Monetary Affairs, Board Division of Board Members, Board Matteo Iacoviello,3 Senior Associate Director, Division Dafina Stewart, Special Adviser to the Board, Division of International Finance, Board of Board Members, Board Jane E. Ihrig, Special Adviser to the Board, Division of Clara Vega, Special Adviser to the Board, Division of Board Members, Board Board Members, Board Michael T. Kiley, Deputy Director, Division of Jeffrey D. Walker,5 Associate Director, Division of Financial Stability, Board Don H. Kim,5 Senior Adviser, Division of Monetary Affairs, Board Edward S. Knotek II, Senior Vice President, Federal Reserve Bank of Cleveland Spencer Krane, Senior Vice President, Federal Reserve Bank of Chicago Andreas Lehnert, Director, Division of Financial Stability, Board Paul Lengermann, Assistant Director, Division of Research and Statistics, Board Kurt F. Lewis, Special Adviser to the Board, Division Reserve Bank Operations and Payment Systems, Board Min Wei, Special Adviser to the Board, Division of Board Members, Board Jonathan Willis, Vice President, Federal Reserve Bank of Atlanta Donielle A. Winford, Information Manager, Division of Monetary Affairs, Board Paul R. Wood, Special Adviser to the Board, Division of Board Members, Board Rebecca Zarutskie, Special Adviser to the Board, Division of Board Members, Board of Board Members, Board Andrei Zlate, Group Manager, Division of Monetary Dan Li, Assistant Director, Division of Monetary Affairs, Board Laura Lipscomb, Special Adviser to the Board, Division of Board Members, Board Zheng Liu, Vice President, Federal Reserve Bank of San Francisco David L pez-Salido, Senior Associate Director, Division of Monetary Affairs, Board Jonathan P. McCarthy, Economic Research Advisor, Federal Reserve Bank of New York Ann E. Misback, Secretary, Office of the Secretary, Board Affairs, Board Developments in Financial Markets and Open Market Operations The manager turned first to a review of developments in financial markets over the intermeeting period. U.S. data releases generally pointed to greater economic resilience than previously thought, and the reaction in market pric- ing implied both a higher expected trajectory for the pol- icy rate at longer horizons and higher term premiums. Policy-sensitive rates rose moderately, and longer-dated forward rates displayed larger increases. Ten-year Treas- ury yields ended the period more than 40 basis points higher, and broad measures of equity prices fell. Bank equity prices underperformed over the period, but taking a somewhat longer view, investor sentiment toward the Page 2Federal Open Market Committee_____________________________________________________________________________________________ banking sector appeared to have largely stabilized, with less differentiation of equity price movements across bank types. The dollar broadly appreciated against ad- vanced-economy currencies over the period, as stronger U.S. data supported moderately increased yield differen- tials against these economies amid perceptions that pol- icy rates were at or near their peaks. In China, signs of strain in the property sector increased, and optimism about growth diminished further, on net, although broader markets, including global commodity markets, did not appear to show elevated concern about China- related risks. U.S. financial conditions tightened, with higher longer-term rates, lower equity prices, and a stronger dollar contributing roughly equally to the in- crease in various financial conditions indexes. In addressing the increase in nominal yields on longer- run Treasury securities over the intermeeting period, the manager noted that the rise in real yields exceeded that of nominal yields over the period, implying a small de- cline in inflation compensation. Inflation expectations appeared to remain very well anchored. Market partici- pants cited various factors for the rise in longer-term nominal yields, including stronger-than-expected eco- nomic data, a possible increase in the neutral policy rate, greater economic and policy uncertainty, and larger- than-expected borrowing by the Treasury. Household and corporate borrowing rates increased over the period, generally rising in line with Treasury yields. Still, market participants noted that, with house- hold and corporate borrowers having a limited need to refinance debt in the near term, it could take more time for past monetary policy actions to fully pass through to these sectors. Regarding expectations for the September FOMC meet- ing, the manager noted that responses to the Open Mar- ket Desk s Survey of Primary Dealers and Survey of Market Participants and market pricing all pointed to a virtual certainty of no change in the policy rate. In addi- tion, modal expectations for the policy rate from the sur- veys were that the current target range would be main- tained until the May 2024 FOMC meeting, compared with March in the previous survey, with a roughly one- in-three chance of a 25 basis point increase by the No- vember FOMC meeting. For horizons beyond the mid- dle of next year, the modal path from the surveys was notably lower than the market-implied path. The manager turned next to developments in money markets and Desk operations. Usage of the overnight reverse repurchase agreement (ON RRP) facility contin- ued to decline over the intermeeting period, largely re- flecting reduced participation by government and prime money market funds even as these funds continued to see inflows. Increased supply of money market instru- ments, especially Treasury bills, contributed to a slight increas