Fomc Minutes 20191211

Page 1
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Minutes of the Federal Open Market Committee

December 10–11, 2019
A joint meeting of the Federal Open Market Committee Lorie K. Logan, Manager, System Open Market
and the Board of Governors was held in the offices of Account 2
the Board of Governors of the Federal Reserve System
in Washington, D.C., on Tuesday, December 10, 2019, Ann E. Misback, Secretary, Office of the Secretary,
at 10:00 a.m. and continued on Wednesday, December Board of Governors
11, 2019, at 9:00 a.m. 1
Eric Belsky, 3 Director, Division of Consumer and
PRESENT: Community Affairs, Board of Governors; Matthew
Jerome H. Powell, Chair J. Eichner, 4 Director, Division of Reserve Bank
John C. Williams, Vice Chair Operations and Payment Systems, Board of
Michelle W. Bowman Governors; Michael S. Gibson, Director, Division
Lael Brainard of Supervision and Regulation, Board of
James Bullard Governors; Andreas Lehnert, Director, Division of
Richard H. Clarida Financial Stability, Board of Governors
Charles L. Evans
Esther L. George Trevor A. Reeve, Deputy Director, Division of
Randal K. Quarles Monetary Affairs, Board of Governors
Eric Rosengren
Jon Faust, Senior Special Adviser to the Chair, Office
Patrick Harker, Robert S. Kaplan, Neel Kashkari, of Board Members, Board of Governors
Loretta J. Mester, and Michael Strine, Alternate
Members of the Federal Open Market Committee Joshua Gallin, Special Adviser to the Chair, Office of
Board Members, Board of Governors
Thomas I. Barkin, Raphael W. Bostic, and Mary C.
Daly, Presidents of the Federal Reserve Banks of Brian M. Doyle, Wendy E. Dunn, Joseph W. Gruber,
Richmond, Atlanta, and San Francisco, respectively Ellen E. Meade, and Ivan Vidangos, Special
Advisers to the Board, Office of Board Members,
James A. Clouse, Secretary Board of Governors
Matthew M. Luecke, Deputy Secretary
David W. Skidmore, Assistant Secretary Linda Robertson, Assistant to the Board, Office of
Michelle A. Smith, Assistant Secretary Board Members, Board of Governors
Mark E. Van Der Weide, General Counsel
Michael Held, Deputy General Counsel Shaghil Ahmed, Senior Associate Director, Division of
Steven B. Kamin, Economist International Finance, Board of Governors; Diana
Thomas Laubach, Economist Hancock, Senior Associate Director, Division of
Stacey Tevlin, Economist Research and Statistics, Board of Governors
Rochelle M. Edge, Eric M. Engen, Christopher J. Antulio N. Bomfim and Robert J. Tetlow, Senior
Waller, William Wascher, Jonathan L. Willis, and Advisers, Division of Monetary Affairs, Board of
Beth Anne Wilson, Associate Economists Governors
1 The Federal Open Market Committee is referenced as the 3 Attended through the discussion of the review of the mone-
“FOMC” and the “Committee” in these minutes. tary policy framework.
2 The Committee appointed Lorie K. Logan to serve as the 4 Attended through the discussion of developments in finan-
manager of the System Open Market Account at the conclu- cial markets and open market operations.
sion of the meeting.
Page 2 Federal Open Market Committee
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Eric C. Engstrom, Senior Adviser, Division of Becky C. Bareford, First Vice President, Federal
Research and Statistics, and Deputy Associate Reserve Bank of Richmond
Director, Division of Monetary Affairs, Board of
Governors David Altig, Michael Dotsey, Jeffrey Fuhrer,3 and
Sylvain Leduc, Executive Vice Presidents, Federal
Elizabeth K. Kiser, Associate Director, Division of Reserve Banks of Atlanta, Philadelphia, Boston,
Research and Statistics, Board of Governors; and San Francisco, respectively
Elizabeth Klee, Associate Director, Division of
Financial Stability, Board of Governors; David Todd E. Clark, Marc Giannoni,3 and Spencer Krane,
López-Salido, Associate Director, Division of Senior Vice Presidents, Federal Reserve Banks of
Monetary Affairs, Board of Governors Cleveland, Dallas, and Chicago, respectively
Glenn Follette, Patrick E. McCabe, 5 and John M. Jonathan P. McCarthy, Alexander L. Wolman, and
Roberts, Deputy Associate Directors, Division of Patricia Zobel, Vice Presidents, Federal Reserve
Research and Statistics, Board of Governors; Banks of New York, Richmond, and New York,
Matteo Iacoviello and Andrea Raffo, 6 Deputy respectively
Associate Directors, Division of International
Finance, Board of Governors; Jeffrey D. Walker,3 Thomas D. Tallarini, Jr., Assistant Vice President,
Deputy Associate Director, Division of Reserve Federal Reserve Bank of Minneapolis
Bank Operations and Payment Systems, Board of
Governors Karel Mertens,3 Senior Economic Policy Advisor,
Federal Reserve Bank of Dallas
Etienne Gagnon, Assistant Director, Division of
Monetary Affairs, Board of Governors; Paul Daniel Cooper, Senior Economist and Policy Advisor,
Lengermann, Assistant Director, Division of Federal Reserve Bank of Boston
Research and Statistics, Board of Governors
Scott Davis, Senior Research Economist and Advisor,
Penelope A. Beattie,3 Section Chief, Office of the Federal Reserve Bank of Dallas
Secretary, Board of Governors; Seung J. Lee, 7
Section Chief, Division of International Finance, Julie Hotchkiss,3 Research Economist and Senior
Board of Governors Advisor, Federal Reserve Bank of Atlanta
David H. Small, Project Manager, Division of Review of Monetary Policy Strategy, Tools, and
Monetary Affairs, Board of Governors Communication Practices
Participants continued to discuss issues related to the
Michele Cavallo and Kurt F. Lewis, Principal ongoing review of the Federal Reserve’s monetary policy
Economists, Division of Monetary Affairs, Board strategy, tools, and communication practices. The staff
of Governors; Laura J. Feiveson,3 Principal summarized the feedback received through the Fed Lis-
Economist, Division of Research and Statistics, tens initiative, a series of 14 public-facing events con-
Board of Governors ducted around the country with a broad range of indi-
viduals and groups. These events engaged with the pub-
Nils Goernemann,3 Senior Economist, Division of lic directly on issues pertaining to the dual-mandate ob-
International Finance, Board of Governors jectives of maximum employment and stable prices.
Representatives from underserved communities who
Donielle A. Winford, Information Management participated in the Fed Listens events generally saw the
Analyst, Division of Monetary Affairs, Board of current strong labor market as providing significant ben-
Governors efits to their communities, most notably by creating
5 Attended Tuesday’s session only. 7Attended the discussion of economic developments and the
6 Attended through the discussion of developments in finan- outlook.
cial markets and open market operations, and from the dis-
cussion of current monetary policy through the end of the
meeting.
Minutes of the Meeting of December 10–11, 2019 Page 3
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greater opportunities for individuals who have experi- these simulations, downturns lead to larger contractions
enced difficulty finding jobs in the past. Nevertheless, in aggregate demand than would be the case if all house-
these representatives noted that the benefits from cur- holds could borrow to support their consumption
rent labor market conditions flowing to people in their spending in response to a loss in income. The amplifi-
communities were less than those implied by national cation of recessionary shocks was especially large when
statistics, and they expressed concerns that the recent the monetary policy response was constrained by the ef-
gains might not be sustained in the event of an economic fective lower bound (ELB) on the policy interest rate.
downturn. Business representatives reported experienc- Overall, the analysis suggested that the costs of reces-
ing challenges finding qualified workers and described sions, as well as the benefits of economic stabilization,
several initiatives to attract and retain workers, including might be larger than suggested by models that did not
training programs and a willingness to employ individu- account for differences across households regarding
als who are unlikely to have been considered in less fa- their access to credit.
vorable labor market conditions. Inflation develop-
Participants agreed that the Fed Listens outreach efforts
ments elicited fewer comments at these events and were
had informed their understanding of the goals and
generally seen as posing less of a challenge than labor
tradeoffs associated with monetary policy and had pro-
market conditions. Representatives of retirees men-
vided highly useful input into their deliberations. Several
tioned difficulties associated with the rising costs of
participants voiced their desire to continue the conver-
health care and prescription drugs, whereas those repre-
sations initiated at the Fed Listens events. Participants
senting low- and middle-income communities pointed
also shared their appreciation of the feedback they re-
to the rising costs of basic necessities such as housing,
ceive on a regular basis from members of the public, in-
utilities, and food. Business representatives emphasized
cluding through the Federal Reserve System’s extensive
the importance of low and stable inflation for planning
networks of contacts and community outreach efforts.
and decisionmaking. Event participants were concerned
A few participants emphasized that policymakers’ en-
about rising costs of living and generally perceived low
gagement with the public helps build trust, fosters trans-
inflation as desirable from that perspective. Event par-
parency, and reinforces the credibility of the Federal Re-
ticipants were asked about monetary policymakers’ con-
serve.
cerns regarding overall inflation running persistently be-
low 2 percent; they noted that the Federal Reserve could Participants generally saw the feedback from Fed Listens
better communicate its reasons for these concerns. events as reinforcing the importance of sustaining the
When asked about the effects of changes in interest economic expansion so that the effects of a persistently
rates, representatives of underserved communities said strong job market reach more of those who, in the past,
that such changes had little effect on many members of had experienced difficulty finding employment. Several
their communities who have limited or no access to participants mentioned that sustaining strong labor mar-
credit. Representatives of retirees conveyed a more neg- ket conditions helps workers build skills and cement
ative view of low interest rates, given the greater reliance their attachment to the labor force in a manner that
of wealthier retirees on interest income. Business repre- might reduce the scarring effects of future downturns
sentatives generally found the low interest rate environ- and might increase the maximum sustainable level of
ment beneficial. employment over the longer run. A number of partici-
pants also emphasized that sustaining strong labor mar-
The staff briefing also included an analysis of distribu-
ket conditions is helpful for meeting the Committee’s
tional considerations for monetary policy. Consistent
symmetric 2 percent inflation goal.
with the feedback received at the Fed Listens events, the
evidence reviewed by the staff showed that workers who Some participants spoke to some of the challenges asso-
are young, less educated, African American, or Hispanic ciated with assessing the maximum level of employment.
tend to face a greater-than-average risk of losing their A few participants noted that aggregate statistics mask
jobs during recessions. The staff used simulations from significant heterogeneity in labor market outcomes. A
a specific macroeconomic model to explore how heter- few others pointed to the continued absence of signifi-
ogeneity of households might affect the transmission of cant wage and price pressure—traditionally seen as a
economic shocks and changes in monetary policy to the symptom of a tight labor market—even as the unem-
economy. The staff’s simulations embedded the as- ployment rate had moved below most estimates of its
sumption that households have limited ability to borrow, longer-run level. A few participants raised the possibility
which makes some households’ consumption spending that the maximum sustainable level of employment had
more sensitive to changes in income. As a result, in
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increased as the expansion continued to draw workers pursuit of maximum employment and stable prices ulti-
who would otherwise not be in the labor force. mately benefit all groups. Participants viewed the role
of monetary policy as supporting a strong, stable econ-
Regarding inflation, participants recognized that seg-
omy that benefits all Americans. Various participants
ments of the public generally do not regard the fact that
noted that monetary policy is a blunt instrument whose
aggregate inflation is running modestly below the Com-
effects cannot be targeted to specific communities. Sev-
mittee’s 2 percent goal as a problem. A few participants
eral participants remarked that while monetary policy ac-
noted that the public’s view on this issue was under-
tions can improve the conditions of vulnerable commu-
standable from the perspective of households and busi-
nities, notably by supporting a strong job market, these
nesses going about their daily lives in an economy with
actions may not reduce inequality in wealth and income.
low and stable inflation. That said, a couple of partici-
For these and other reasons, many participants empha-
pants cautioned that inflation could emerge as a concern
sized that policies other than monetary policy are appro-
among members of the public if it became more volatile
priate to directly address inequality. In addition, a couple
or ran at levels substantially away from the Committee’s
of participants cautioned that maintaining accommoda-
goal. Many participants also warned about the macro-
tive financial conditions could be counterproductive if
economic consequences of not achieving 2 percent on a
doing so fueled financial imbalances and exacerbated the
sustained basis. In particular, if inflation ran persistently
next economic downturn.
below the Committee’s objective, longer-term inflation
expectations could drift down, resulting in lower actual Participants agreed that their review of monetary policy
inflation. With lower inflation, nominal interest rates strategy, tools, and communication practices would con-
would be lower as well and therefore closer to the ELB. tinue at future meetings and, as a result, that the Com-
As a result, the scope for monetary policy to support the mittee would not reaffirm its existing Statement on
economy in a future downturn through interest rate cuts Longer-Run Goals and Monetary Policy Strategy at the
would be reduced, a situation that would likely worsen January 2020 meeting. The Committee plans to revisit
economic outcomes for households and businesses. In this statement closer to the conclusion of the review,
light of these considerations, participants generally likely around the middle of 2020.
agreed that they need to communicate more clearly to
Developments in Financial Markets and Open Mar-
the public their rationale for, and commitment to,
ket Operations
achieving 2 percent inflation on a sustained basis and of
The System Open Market Account manager first re-
ensuring that longer-run inflation expectations are an-
viewed developments in financial markets over the inter-
chored at levels consistent with this objective. To ensure
meeting period. Market prices appeared to respond
the effectiveness of these and other communications,
mainly to signs of stabilization in the U.S. and global
several participants stressed that the Federal Reserve
economies and to developments associated with trade
needs to adapt its communications to various audiences.
policy. Market participants noted some risks to the out-
A few participants emphasized that communications
look including Brexit and geopolitical factors.
about the Committee’s resolve to return inflation to
2 percent need to be backed with actions and results to Regarding expectations for U.S. monetary policy, the
ensure that the public sees these communications as Open Market Trading Desk’s surveys and market-based
credible. indicators pointed to a very high perceived likelihood of
no change in the target range for the federal funds rate
With respect to the role of distributional considerations
at this meeting. The expected path of the federal funds
in the pursuit of the dual-mandate objectives, several
rate implied by the medians of survey respondents’
participants noted that it was important for policymakers
modal forecasts remained essentially flat through 2020.
to be cognizant of how monetary policy affects different
Survey- and market-implied uncertainty about the near-
segments of the population. Most participants com-
term outlook for monetary policy declined, with market
mented on the large costs that recessions and high un-
commentary attributing the decrease in part to the Com-
employment impose on communities, notably on their
mittee’s October communications. Survey respondents
most vulnerable constituents, and stressed the need for
placed a higher probability on a reduction in the target
monetary policy to seek to avoid recessions in the first
range over 2020 than an increase.
place or reduce their severity when they occur. A num-
ber of these participants emphasized that, while mone- The manager turned next to a review of money market
tary policy actions can have different effects across developments since the October meeting, starting with
groups, monetary policy actions that are driven by the an update on the implementation of the Committee’s
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strategy to ensure ample reserves. Reserve management stance of monetary policy. The manager also discussed
purchases of Treasury bills continued at a pace of expectations to gradually transition away from active
$60 billion per month, with propositions remaining repo operations next year as Treasury bill purchases sup-
strong and little discernible effect on market function- ply a larger base of reserves. The calendar of repo oper-
ing. While these purchases accumulated, the Desk con- ations starting in mid-January could reflect a gradual re-
tinued to conduct regular repurchase agreement (repo) duction in active repo operations. The manager indi-
operations in order to maintain reserves at or above the cated that some repos might be needed at least through
level that prevailed in early September. Repos outstand- April, when tax payments will sharply reduce reserve lev-
ing from these Desk operations totaled roughly $215 bil- els.
lion per day, consisting of both overnight and term op-
As reserves remain ample, the manager noted that it may
erations.
become appropriate at some point to implement a tech-
As reserve levels increased, the distribution of reserves nical adjustment to the IOER rate and the offered rate
across bank types became comparable with where it was on overnight reverse repurchase (ON RRP) agreements.
in early September. The federal funds rate and other Should conditions warrant this adjustment, the IOER
overnight money market rates fell modestly and were rate could move closer to the middle of the target range
close to the interest on excess reserves (IOER) rate for for the federal funds rate, and the ON RRP rate could
most of the period. The intraday dispersion of rates was be realigned with the bottom of the target range.
also lower than when reserves were at similar levels be-
The manager also noted that the Federal Reserve Bank
fore September. In addition to helping keep reserves
of New York communicated to its customers that the
ample, repo operations likely have reduced pressures in
remuneration rate on the foreign repo pool will be re-
money markets and the dispersion in money market
vised to be generally equivalent to the overnight reverse
rates.
repo rate. This action may reduce activity in the pool to
With respect to conditions around year-end, the man- some extent and increase the level of reserves.
ager noted that forward measures of market pricing con-
By unanimous vote, the Committee ratified the Desk’s
tinued to indicate expectations of temporary upward
domestic transactions over the intermeeting period.
pressures on some secured rates. Money market rates
There were no intervention operations in foreign curren-
are often volatile around year-end, and Federal Reserve
cies for the System’s account during the intermeeting pe-
operations are not intended to eliminate all year-end
riod.
pressures but rather to ensure that reserve supply re-
mains ample and to mitigate the risk that such pressures Staff Review of the Economic Situation
could adversely affect the implementation of monetary The information available for the December 10–11
policy. The Desk had already conducted three longer- meeting indicated that labor market conditions remained
term repo operations spanning year-end—for a total of strong and that real gross domestic product (GDP) was
$75 billion—and planned to announce an additional increasing at a moderate rate in the second half of 2019.
longer-term operation, as well as increase the amount of Consumer price inflation, as measured by the 12-month
overnight repo offered around the year-end date. The percentage change in the price index for personal con-
manager reported that the Desk is closely monitoring re- sumption expenditures (PCE), remained below 2 per-
serves and money market conditions and that it is pre- cent in October. Survey-based measures of longer-run
pared to adjust plans as needed. inflation expectations were little changed.
The manager discussed two operational considerations Total nonfarm payroll employment surged in Novem-
around policy implementation. The first involved the ber, boosted in part by the return of auto workers who
risk that future Treasury bill purchases could have a had previously been on strike in October. The average
larger effect on liquidity in the Treasury bill market in pace of job gains over the three months ending in No-
light of expected seasonal declines in bill issuance and vember, which is unaffected by the strike, was stronger
the Federal Reserve’s growing ownership share of out- than earlier in 2019. However, the rate of increase in
standing bills. If this risk were to materialize, the Federal payrolls so far this year was slower than last year, even
Reserve could consider expanding the universe of secu- accounting for the anticipated effects of the Bureau of
rities purchased for reserve management purposes to in- Labor Statistics’ benchmark revision to payroll employ-
clude coupon-bearing Treasury securities with a short ment, which will be incorporated in the published data
time to maturity. Purchases of these short-dated securi- in February 2020. The unemployment rate ticked up in
ties would not affect broader financial conditions or the October but then moved back down to its 50-year low
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of 3.5 percent in November; the labor force participa- ployment rate, the upward trend in real disposable in-
tion rate and the employment-to-population ratio held come, high levels of households’ net worth, and gener-
steady, on balance, over those two months. The unem- ally low interest rates—were supportive of solid real
ployment rates for African Americans, Asians, Hispan- PCE growth in the near term. The Michigan survey
ics, and whites were little changed, on net, over the past measure of consumer sentiment rose again in early De-
two months; the unemployment rate for each group was cember to an upbeat level and had more than recovered
below its level at the end of the previous economic ex- from its drop in August; the Conference Board survey
pansion, though persistent differentials between these measure of consumer confidence remained at a favora-
rates remained. The average share of workers employed ble level in November.
part time for economic reasons in November stayed be-
Real residential investment appeared to be increasing
low its level in late 2007. Both the rate of private-sector
further after rising solidly in the third quarter. Both
job openings and the rate of quits edged down in Sep-
starts and building permit issuance for single-family
tember, but these readings were still at fairly elevated lev-
homes increased in October, and starts of multifamily
els. The four-week moving average of initial claims for
units also rose. Existing home sales continued to in-
unemployment insurance benefits through late Novem-
crease in October, although new home sales edged down
ber remained near historically low levels. In general, re-
following a solid gain in the third quarter. All told, the
cent measures of nominal wage growth continued to be
data on construction and sales continued to suggest that
moderate. Total labor compensation per hour in the
the decline in mortgage rates since late 2018 has been
business sector increased 3.7 percent over the four quar-
boosting housing activity.
ters ending in the third quarter. The employment cost
index for private-sector workers rose 2.7 percent over Real nonresidential private fixed investment remained
the 12 months ending in September, while average weak overall after declining in the second and third quar-
hourly earnings for all employees increased 3.1 percent ters. Nominal shipments and new orders of nondefense
over the 12 months ending in November. capital goods excluding aircraft increased solidly in Oc-
tober following a string of decreases, although many for-
Total consumer prices, as measured by the PCE price
ward-looking indicators pointed to continued softness in
index, increased 1.3 percent over the 12 months ending
business equipment spending. Most measures of busi-
in October. Core PCE price inflation (which excludes
ness sentiment were still downbeat, analysts’ expecta-
changes in consumer food and energy prices) was
tions of firms’ longer-term profit growth edged down
1.6 percent over that same 12-month period, while con-
further, and concerns about trade developments contin-
sumer food price inflation was lower than core inflation
ued to weigh on firms’ investment decisions. Nominal
and consumer energy prices declined. The trimmed
business expenditures for nonresidential structures out-
mean measure of 12-month PCE price inflation con-
side of the drilling and mining sector continued to de-
structed by the Federal Reserve Bank of Dallas remained
cline in October, and the total number of crude oil and
at 2 percent in October. The consumer price index
natural gas rigs in operation—an indicator of business
(CPI) rose 2.1 percent over the 12 months ending in No-
spending for structures in the drilling and mining sec-
vember, while core CPI inflation was 2.3 percent. Re-
tor—fell further through early December.
cent readings on survey-based measures of longer-run
inflation expectations—including those from the Uni- Industrial production decreased in October and re-
versity of Michigan Surveys of Consumers, the Survey mained notably lower than at the beginning of the year.
of Professional Forecasters, the Survey of Consumer Production in October continued to be held down by
Expectations from the Federal Reserve Bank of New the strike at General Motors, although the end of the
York, and the Desk’s Survey of Primary Dealers and Sur- strike and automakers’ schedules suggested that assem-
vey of Market Participants—were little changed, on bal- blies of light motor vehicles would rebound in Novem-
ance; the Michigan survey measure ticked back down in ber. Overall manufacturing production appeared likely
early December to the bottom of its recent range after to remain soft in coming months, reflecting generally
ticking up in November. weak readings on new orders from national and regional
manufacturing surveys, declining domestic business in-
Real PCE continued to expand in October following a
vestment, slow economic growth abroad, and a persis-
strong gain in the third quarter. Sales of light motor ve-
tent drag from trade developments.
hicles rose markedly in November. Key factors that in-
fluence consumer spending—including the low unem-
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Total real government purchases were increasing slowly Nominal Treasury yields fluctuated over the intermeet-
in the fourth quarter. Nominal defense spending in Oc- ing period but, on net, the Treasury curve was little
tober pointed to only a modest rise in real federal gov- changed. Measures of inflation compensation over the
ernment purchases. Real purchases by state and local next 5 years and 5 to 10 years ahead based on Treasury
governments looked to be moving roughly sideways; Inflation-Protected Securities increased slightly from
state and local payrolls expanded modestly, on net, over near multiyear low levels.
October and November, and nominal construction
Broad stock price indexes increased moderately over the
spending by these governments was about flat in Octo-
intermeeting period amid movements largely attributed
ber.
to trade-related developments and stronger-than-
The nominal U.S. international trade deficit narrowed in expected U.S. employment reports. Option-implied vol-
October. Exports fell a little, with declines in all export atility on the S&P 500 index increased modestly but re-
categories except for services and industrial supplies. mained near the low end of its historical distribution.
Imports fell much more, and the declines were broad On net, corporate credit spreads narrowed slightly.
based, with the largest contributions coming from im-
Conditions in short-term funding markets were stable
ports of consumer goods and automotive products.
over the intermeeting period. Interest rates for over-
Available trade data suggested that the contribution of
night secured and unsecured loans fell in line with the
net exports to real GDP growth, which was slightly neg-
25 basis point decrease in the target range for the federal
ative in the third quarter, would turn somewhat positive
funds rate at the October FOMC meeting. Trading in
in the fourth quarter.
money markets was orderly, with volumes in normal
Foreign economic growth slowed further in the third ranges and spreads narrower relative to the IOER rate.
quarter amid continued weakness in the global manufac- Pressures on rates at October month-end and Novem-
turing sector. Recent monthly indicators pointed to a ber mid-month—both days with sizable settlements of
stabilization in the pace of economic growth in China Treasury auctions—were muted compared with other
and several advanced foreign economies. However, recent Treasury issuance days. The Desk’s open market
other indicators suggested that social unrest weighed operations aimed at maintaining ample reserves pro-
heavily on economic activity in several countries, most ceeded smoothly.
notably in Hong Kong, and that weakness persisted in
As in U.S. markets, sentiment in foreign financial mar-
parts of Latin America. Foreign inflation picked up
kets fluctuated in response to news on U.S.–China trade
somewhat as energy prices stabilized, although inflation
negotiations. Most foreign equity price indexes and
remained relatively low in most foreign economies.
long-term sovereign yields in Germany, the United
Staff Review of the Financial Situation Kingdom, and Japan increased modestly on net. The
Investor sentiment fluctuated over the intermeeting pe- broad dollar index ended the period little changed. Po-
riod largely in response to ongoing trade negotiations be- litical unrest in Hong Kong and Latin America garnered
tween the United States and China. On net, equity prices some financial market attention and led to a weakening
increased moderately while corporate bond spreads nar- of some Latin American currencies, notably the Chilean
rowed slightly. Yields on nominal Treasury securities peso, but the imprint on broader financial markets was
were little changed. Financing conditions for businesses limited.
and households remained supportive of spending and
Financing conditions for nonfinancial businesses re-
economic activity.
mained accommodative. Gross issuance of corporate
Federal Reserve communications over the intermeeting bonds was robust, on average, in October and Novem-
period were viewed as suggesting that additional near- ber. Gross issuance of institutional leveraged loans re-
term changes to the target range for the federal funds mained near recent monthly averages. Meanwhile, com-
rate were less likely than had previously been expected. mercial and industrial loans held by banks contracted in
A straight read of the probability distribution for the fed- October but increased modestly in November. The
eral funds rate implied by options prices suggested that credit quality of nonfinancial corporations deteriorated
investors assigned a high probability to the target range slightly in recent months but remained solid overall. Af-
remaining unchanged at the December FOMC meeting. ter particularly strong gross equity issuance in Septem-
Forward rates implied by overnight index swap quotes ber, initial public offerings declined and seasoned offer-
declined slightly, on net, and implied about a 25 basis ings remained solid in October and November. Credit
point decline in the federal funds rate by the end of 2020.
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conditions for both small businesses and municipalities 2022 and to remain below the staff’s estimate of its
stayed accommodative. longer-run natural rate.
In the commercial real estate (CRE) sector, financing The staff’s forecast for total PCE price inflation in 2019
conditions also remained generally accommodative. was revised down a bit, as a downward revision to core
Commercial mortgage-backed securities (CMBS) PCE prices in response to recent data was partly offset
spreads widened slightly over the intermeeting period by an upward revision to consumer energy prices. Be-
but remained near the low end of their post-crisis range. yond 2019, core inflation was expected to be above its
Agency and non-agency CMBS issuance increased in pace this year, and this projection was revised up a touch
October to a post-crisis high. CRE loan growth at banks because of the slightly tighter resource utilization in the
also increased in October relative to recent quarters. current forecast. The projection for total inflation in
2020 was a little lower than for core inflation due to a
Financing conditions in the residential mortgage market
projected decline in consumer energy prices. Over the
remained accommodative over the intermeeting period.
remainder of the medium-term projection, total inflation
Mortgage rates were little changed since the October
was expected to be about the same as core inflation, al-
FOMC meeting. Consistent with this year’s decline in
though both inflation measures were forecast to con-
mortgage rates, home-purchase originations and refi-
tinue to run a bit below 2 percent through 2022.
nancing originations both rose. Mortgage credit stand-
ards were little changed. The staff continued to view the uncertainty around its
projections for real GDP growth, the unemployment
Financing conditions in consumer credit markets re-
rate, and inflation as generally similar to the average of
mained generally supportive of growth in consumer
the past 20 years. The staff viewed the downside risks
spending, although conditions continued to be tight for
to economic activity as having eased a bit since the pre-
nonprime borrowers. Auto loans increased, consistent
vious forecast but still judged that the risks to the fore-
with significant declines in auto loan interest rates this
cast for real GDP growth were tilted to the downside,
year. Credit card debt grew at a solid pace, and interest
with a corresponding skew to the upside for the unem-
rates on credit card debt began to fall. Consumer
ployment rate. Important factors influencing this assess-
asset-backed securities issuance was strong through Oc-
ment were that international trade tensions and foreign
tober as spreads stabilized at levels that were somewhat
economic developments seemed more likely to move in
above their post-crisis averages.
directions that could have significant negative effects on
Staff Economic Outlook the U.S. economy than to resolve more favorably than
The projection for U.S. real GDP growth prepared by assumed. In addition, softness in business investment
the staff for the December FOMC meeting was revised and manufacturing production so far this year were seen
up a little for the second half of 2019 relative to the pre- as pointing to the possibility of a more substantial slow-
vious projection. This revision primarily reflected in- ing in economic growth than the staff projected. The
coming data for household spending and business in- risks to the inflation projection were also viewed as hav-
vestment that were somewhat stronger than expected. ing a downward skew, in part because of the downside
Even with this upward revision, real GDP was forecast risks to the forecast for economic activity.
to rise more slowly in the second half of the year than in
Participants’ Views on Current Conditions and the
the first half, mostly because of continued soft business
Economic Outlook
investment and slower increases in government spend-
In conjunction with this FOMC meeting, members of
ing. The forecast for real GDP growth over the medium
the Board of Governors and Federal Reserve Bank pres-
term was also revised up a bit, on balance, primarily in
idents submitted their projections of the most likely out-
response to a somewhat higher projected path for equity
comes for real GDP growth, the unemployment rate,
prices. Nevertheless, real GDP growth was still ex-
and inflation for each year from 2019 through 2022 and
pected to slow modestly in the coming years, largely be-
over the longer run, based on their individual assess-
cause of a fading boost from fiscal policy. Output was
ments of the appropriate path for the federal funds rate.
forecast to expand at a rate a little above the staff’s esti-
The longer-run projections represented each partici-
mate of its potential rate of growth in 2019 through 2021
pant’s assessment of the rate to which each variable
and then to slow to a pace slightly below potential output
would be expected to converge, over time, under appro-
growth in 2022. The unemployment rate was projected
priate monetary policy and in the absence of further
to be roughly flat at around its current level through
shocks to the economy. These projections are described
_____________________________________________________________________________________________
in the Summary of Economic Projections (SEP), which uncertainty regarding international trade, which might
is an addendum to these minutes. mitigate the effects of such uncertainty on future busi-
ness spending.
Participants agreed that the labor market had remained
strong over the intermeeting period and that economic A number of participants commented on challenges fac-
activity had risen at a moderate rate. Job gains had been ing the energy and agriculture sectors. A few partici-
solid, on average, in recent months, and the unemploy- pants remarked that activity in the energy sector was es-
ment rate had remained low. Although household pecially weak, reflecting low petroleum prices, low prof-
spending had risen at a strong pace, business fixed in- itability, and tight financing conditions for energy-
vestment and exports had remained weak. On a producing firms. Several participants noted that the ag-
12-month basis, overall inflation and inflation for items ricultural sector also faced a number of difficulties, in-
other than food and energy were running below 2 per- cluding those associated with trade developments, weak
cent. Market-based measures of inflation compensation export demand, and challenging financial positions for
remained low; survey-based measures of longer-term in- many farmers. A couple of participants noted that farm
flation expectations were little changed. subsidies from the federal government were offsetting a
portion of the financial strain on farmers.
Participants generally expected sustained expansion of
economic activity, strong labor market conditions, and Participants judged that conditions in the labor market
inflation near the Committee’s symmetric 2 percent ob- remained strong, with the unemployment rate at a
jective as the most likely outcomes. This outlook re- 50-year low, job gains remaining solid, and some
flected, at least in part, the support provided by the cur- measures of labor force participation increasing further.
rent stance of monetary policy. Nevertheless, global de- The unemployment rate was likely to remain low going
velopments, related to both persistent uncertainty re- forward, and various participants remarked that there
garding international trade and weakness in economic were some indications that further strengthening in
growth abroad, continued to pose some risks to the out- overall labor market conditions was possible without
look, and inflation pressures remained muted. creating undesirable pressures on resources. In particu-
lar, a number of participants noted that the labor force
In their discussion of the household sector, participants
participation rate could rise further still. Moreover,
agreed that spending had increased at a strong pace.
measures of wage growth had generally remained mod-
They generally expected that consumption spending
erate. However, a few participants commented that in-
would likely remain on a firm footing, supported by
creases in the labor force would likely moderate as slack
strong labor market conditions, rising incomes, and solid
in the labor market diminished. In addition, a couple of
consumer confidence. In addition, residential invest-
participants remarked that the preliminary benchmark
ment had continued to pick up, reflecting, in part, the
revision released in August by the Bureau of Labor Sta-
effects of lower mortgage rates. Many participants com-
tistics had indicated that payroll employment gains
mented that business contacts in consumer-related in-
would likely show less momentum coming into this year
dustries reported strong demand or that contacts were
once those revisions are incorporated in published data
optimistic about the holiday retail spending season.
early next year. A couple of other participants thought
However, some participants observed that recent data
it was important to better understand the quality of jobs
on retail sales or motor vehicle spending had decelerated
being created. Business contacts in many Districts indi-
slightly.
cated continued strong labor demand, with firms report-
With respect to the business sector, participants saw ing difficulties in finding qualified workers or broaden-
trade developments and concerns about the global eco- ing their recruiting to include traditionally marginalized
nomic growth outlook as the main factors contributing groups. A number of participants noted that wage pres-
to weak business investment and exports. Participants sures were evident for some industries in their Districts,
generally expected these factors to continue to damp and a couple of participants commented that firms were
business investment and exports. They expressed simi- responding to those pressures in a variety of ways, in-
lar concerns about activity in manufacturing industries. cluding investing in technology that could serve as a sub-
A few participants noted that the current weakness in stitute for labor.
capital expenditures could lead to a slower pace of
In their discussion of inflation developments, partici-
productivity growth in future years. A few others ob-
pants noted that recent readings on overall and core
served that businesses were diversifying their supply
PCE inflation, measured on a 12-month change basis,
chains or investing in technology to adapt to persistent
had continued to run below 2 percent. Survey-based
_____________________________________________________________________________________________
measures of longer-term inflation expectations were lit- A number of participants agreed that maintaining the
tle changed, and market-based measures of inflation current stance of monetary policy would give the Com-
compensation remained low. A few participants committee some time to assess the full effects on the econ-
mented on factors that may temporarily exert upward omy of its policy decisions and communications over the
pressure on some measures of inflation in the coming course of this year along with other information bearing
months. Assessing all these factors, participants gener- on the economic outlook. Participants also discussed
ally expected that inflation would return to the 2 percent how maintaining the current stance of policy for a time
objective as the economic expansion continued and re- could be helpful for cushioning the economy from the
source utilization remained high. However, weakness global developments that have been weighing on eco-
abroad and subdued global inflation pressures were cited nomic activity and for returning inflation to the Com-
as sources of risk to this assessment. Participants who mittee’s symmetric objective of 2 percent. Participants
expressed less confidence that inflation would return generally expressed concerns regarding inflation contin-
promptly to the 2 percent objective commented that in- uing to fall short of 2 percent. Although a number of
flation had averaged less than 2 percent over the past participants noted that some of the factors currently
several years even as resource utilization had increased holding down inflation were likely to prove transitory,
or that global or technology-related factors were exerting various participants were concerned that indicators were
downward pressure on inflation that could be difficult suggesting that the level of longer-term inflation expec-
to overcome. tations was too low.
Participants also discussed risks regarding the outlook A few participants raised the concern that keeping inter-
for economic activity. While many saw the risks as tilted est rates low over a long period might encourage exces-
somewhat to the downside, some risks were seen to have sive risk-taking, which could exacerbate imbalances in
eased over recent months. In particular, there were the financial sector. These participants offered various
some tentative signs that trade tensions with China were perspectives on the relationship between financial stabil-
easing, and the probability of a no-deal Brexit was judged ity and policies that keep interest rates persistently low.
to have lessened further. In addition, there were indica- They remarked that such policies could be inconsistent
tions that the prospects for global economic growth may with sustaining maximum employment, could make the
be stabilizing. A number of participants observed that next recession more severe than otherwise, or could
the domestic economy was showing resilience in the face strengthen the case for the active use of macroprudential
of headwinds from global developments. Moreover, sta- tools to guard against emerging imbalances.
tistical models designed to gauge the probability of re-
Various participants remarked on issues related to the
cession using financial market data, including those
implementation of monetary policy, highlighting topics
based on information from the Treasury yield curve,
for further discussion at future meetings. Among the
suggested that the likelihood of a recession occurring
topics mentioned were the potential role of a standing
over the medium term had fallen noticeably in recent
repo facility in an ample-reserves regime, the setting of
months. However, new uncertainties had emerged re-
administered rates, and the composition of the Federal
garding trade policy with Argentina, Brazil, and France,
Reserve’s holdings of Treasury securities over the longer
and political tensions in Hong Kong persisted.
run.
In their consideration of monetary policy at this meeting,
Committee Policy Action
participants judged that it would be appropriate to main-
In their discussion of monetary policy for this meeting,
tain the target range for the federal funds rate at 1½ to
members noted that information received since the
1¾ percent to support sustained expansion of economic
FOMC met in October indicated that the labor market
activity, strong labor market conditions, and inflation
remained strong and that economic activity had been ris-
near the Committee’s symmetric 2 percent objective. As
ing at a moderate rate. Job gains had been solid, on av-
reflected in their SEP projections, participants regarded
erage, in recent months, and the unemployment rate had
the current stance of monetary policy as likely to remain
remained low. Although household spending had been
appropriate for a time as long as incoming information
rising at a strong pace, business fixed investment and ex-
about the economy remained broadly consistent with the
ports remained weak. On a 12-month basis, overall in-
economic outlook. Of course, if developments emerged
flation and inflation for items other than food and en-
that led to a material reassessment of the outlook, the
ergy were running below 2 percent. Market-based
stance of policy would need to adjust in a way that fos-
measures of inflation compensation remained low;
tered the Committee’s dual-mandate objectives.
_____________________________________________________________________________________________
survey-based measures of longer-term inflation expecta- “Effective December 12, 2019, the Federal
tions were little changed. Open Market Committee directs the Desk to
undertake open market operations as necessary
Members agreed to maintain the target range for the fed-
to maintain the federal funds rate in a target
eral funds rate at 1½ to 1¾ percent. Members judged
range of 1½ to 1¾ percent. In light of recent
that the current stance of monetary policy is appropriate
and expected increases in the Federal Reserve’s
to support sustained expansion of economic activity,
non-reserve liabilities, the Committee directs
strong labor market conditions, and inflation near the
the Desk to continue purchasing Treasury bills
Committee’s symmetric 2 percent objective.
at least into the second quarter of 2020 to main-
Members also agreed that, in determining the timing and tain over time ample reserve balances at or
size of future adjustments to the target range for the fed- above the level that prevailed in early September
eral funds rate, the Committee would assess realized and 2019. The Committee also directs the Desk to
expected economic conditions relative to its maximum continue conducting term and overnight repur-
employment objective and its symmetric 2 percent infla- chase agreement operations at least through
tion objective. And they concurred that this assessment January 2020 to ensure that the supply of re-
would take into account a wide range of information, in- serves remains ample even during periods of
cluding measures of labor market conditions, indicators sharp increases in non-reserve liabilities, and to
of inflation pressures and inflation expectations, and mitigate the risk of money market pressures that
readings on financial and international developments. could adversely affect policy implementation.
In addition, the Committee directs the Desk to
With regard to the postmeeting statement, members
conduct overnight reverse repurchase opera-
agreed to state that they judged that “the current stance
tions (and reverse repurchase operations with
of monetary policy is appropriate” to support the
achievement of the Committee’s policy objectives. maturities of more than one day when necessary
to accommodate weekend, holiday, or similar
Members discussed their options regarding references to
trading conventions) at an offering rate of
global developments and muted inflation pressures in
1.45 percent, in amounts limited only by the
the statement. In their judgment, these factors, cited in
previous postmeeting statements as part of the rationale value of Treasury securities held outright in the
System Open Market Account that are available
for adjusting the stance of policy, remained salient fea-
for such operations and by a per-counterparty
tures of the outlook. Accordingly, they agreed to cite
limit of $30 billion per day.
them in the sentence indicating that “the Committee will
continue to monitor the implications of incoming infor- The Committee directs the Desk to continue
mation for the economic outlook.” With the retention rolling over at auction all principal payments
of these references to global developments and muted from the Federal Reserve’s holdings of Treasury
inflation pressures, members agreed that the text on un- securities and to continue reinvesting all princi-
certainties about the outlook could be removed. A few pal payments from the Federal Reserve’s hold-
members suggested that the language stating that mone- ings of agency debt and agency mortgage-
tary policy would support inflation “near” 2 percent backed securities received during each calendar
could be misinterpreted as suggesting that policymakers month. Principal payments from agency debt
were comfortable with inflation running below that and agency mortgage-backed securities up to
level; they preferred language that referred to returning $20 billion per month will continue to be rein-
inflation to the Committee’s symmetric 2 percent objec- vested in Treasury securities to roughly match
tive. Other members thought that the reference to the maturity composition of Treasury securities
“near” 2 percent was intended to encompass modest de- outstanding; principal payments in excess of
viations of inflation above and below 2 percent. $20 billion per month will continue to be rein-
vested in agency mortgage-backed securities.
At the conclusion of the discussion, the Committee
Small deviations from these amounts for oper-
voted to authorize and direct the Federal Reserve Bank
of New York, until instructed otherwise, to execute ational reasons are acceptable.
transactions in the SOMA in accordance with the fol- The Committee also directs the Desk to engage
lowing domestic policy directive, to be released at in dollar roll and coupon swap transactions as
2:00 p.m.: necessary to facilitate settlement of the Federal
_____________________________________________________________________________________________
Reserve’s agency mortgage-backed securities information, including measures of labor mar-

transactions.” ket conditions, indicators of inflation pressures
and inflation expectations, and readings on fi-
The vote also encompassed approval of the statement
nancial and international developments.”
below to be released at 2:00 p.m.:
Voting for this action: Jerome H. Powell, John C.
“Information received since the Federal Open
Williams, Michelle W. Bowman, Lael Brainard, James
Market Committee met in October indicates
Bullard, Richard H. Clarida, Charles L. Evans, Esther L.
that the labor market remains strong and that
George, Randal K. Quarles, and Eric S. Rosengren.
economic activity has been rising at a moderate
rate. Job gains have been solid, on average, in Voting against this action: None.
recent months, and the unemployment rate has
Consistent with the Committee’s decision to leave the
remained low. Although household spending
target range for the federal funds rate unchanged, the
has been rising at a strong pace, business fixed
Board of Governors voted unanimously to leave the in-
investment and exports remain weak. On a
terest rates on required and excess reserve balances un-
12‑month basis, overall inflation and inflation changed at 1.55 percent and voted unanimously to ap-
for items other than food and energy are run- prove establishment of the primary credit rate at the ex-
ning below 2 percent. Market-based measures isting level of 2.25 percent, effective December 12,
of inflation compensation remain low; survey- 2019.
based measures of longer-term inflation expec-
tations are little changed. Organizational Matters
By unanimous vote, Lorie K. Logan was selected to
Consistent with its statutory mandate, the Com- serve at the pleasure of the Committee as manager, Sys-
mittee seeks to foster maximum employment tem Open Market Account, on the understanding that
and price stability. The Committee decided to her selection was subject to being satisfactory to the Fed-
maintain the target range for the federal funds eral Reserve Bank of New York.
rate at 1½ to 1¾ percent. The Committee
judges that the current stance of monetary pol- Secretary’s note: Advice subsequently was re-
icy is appropriate to support sustained expan- ceived that the selection of Ms. Logan as man-
sion of economic activity, strong labor market ager was satisfactory to the Federal Reserve
conditions, and inflation near the Committee’s Bank of New York.
symmetric 2 percent objective. The Committee It was agreed that the next meeting of the Committee
will continue to monitor the implications of in- would be held on Tuesday–Wednesday, January 28–29,
coming information for the economic outlook, 2020. The meeting adjourned at 10:00 a.m. on Decem-
including global developments and muted infla- ber 11, 2019.
tion pressures, as it assesses the appropriate
path of the target range for the federal funds Notation Vote
rate. By notation vote completed on November 19, 2019, the
Committee unanimously approved the minutes of the
In determining the timing and size of future ad- Committee meeting held on October 29–30, 2019.
justments to the target range for the federal
funds rate, the Committee will assess realized
and expected economic conditions relative to its
maximum employment objective and its sym- _______________________
metric 2 percent inflation objective. This as- James A. Clouse
sessment will take into account a wide range of Secretary
Page 1
_____________________________________________________________________________________________
Summary of Economic Projections
In conjunction with the Federal Open Market Commit- during the projection period. The medians of the pro-
tee (FOMC) meeting held on December 10–11, 2019, jections for both total and core inflation were unchanged
meeting participants submitted their projections of the for 2020 through 2022, compared with the September
most likely outcomes for real gross domestic product SEP. Table 1 and figure 1 provide summary statistics
(GDP) growth, the unemployment rate, and inflation for for the projections.
each year from 2019 to 2022 and over the longer run.
As shown in figure 2, a substantial majority of partici-
Each participant’s projections were based on infor-
pants indicated that their expectations regarding the evo-
mation available at the time of the meeting, together with
lution of the economy, relative to the Committee’s ob-
his or her assessment of appropriate monetary policy—
jectives of maximum employment and 2 percent infla-
including a path for the federal funds rate and its longer-
tion, would likely warrant keeping the federal funds at its
run value—and assumptions about other factors likely
current level through the end of 2020. Compared with
to affect economic outcomes. The longer-run projec-
the September SEP submissions, the median projection
tions represent each participant’s assessment of the
for the federal funds rate was 25 basis points lower in
value to which each variable would be expected to con-
each year over the projection period and retained its
verge, over time, under appropriate monetary policy and
modest upward tilt in 2021 and 2022. The median of
in the absence of further shocks to the economy. 1 “Ap-
participants’ assessments of the appropriate level for the
propriate monetary policy” is defined as the future path
federal funds rate in 2022 was slightly below the median
of policy that each participant deems most likely to fos-
of estimates of its longer-run level; the median estimate
ter outcomes for economic activity and inflation that
of the longer-run level was unchanged from its value in
best satisfy his or her individual interpretation of the
the September SEP.
statutory mandate to promote maximum employment
and price stability. Most participants regarded the uncertainties around
their projections as broadly similar to the average over
Almost all participants expected that, under appropriate
the past 20 years. The majority of participants continued
monetary policy, growth of real GDP in 2020 would run
to assess the risks to their outlooks for real GDP growth
at or slightly above 1.9 percent, the median of current
as weighted to the downside and for the unemployment
estimates of its longer-run rate. The median of the pro-
rate as weighted to the upside. However, compared with
jections for the growth rate of real GDP edges down
the September submissions, several participants shifted
each year over the projection horizon and, for 2022, is
their assessments of the balance of risks around these
modestly below the median of the current estimates of
projections to being broadly balanced. Most participants
its longer-run rate. The median of the current projec-
judged the risks to their inflation outlook as broadly bal-
tions for the unemployment rate was lower than that in
anced, though one-third of participants viewed the risks
the September Summary of Economic Projections
to their inflation projections as weighted to the down-
(SEP) for each year of the projection period, and some
side; no participant assessed the risks to his or her infla-
participants reduced their estimates of the longer-run
tion outlook as weighted to the upside. The uncertain-
normal rate of unemployment, resulting in a slight de-
ties and risks around participants’ projections for head-
cline in the median estimate. The medians of the pro-
line and core inflation were little changed from the Sep-
jections for both total and core inflation, as measured by
tember SEP.
the four-quarter percent change in the price index for
personal consumption expenditures (PCE), increase sig- The Outlook for Real GDP Growth and Unemploy-
nificantly from 2019 to 2020 and more modestly in 2021 ment
to reach 2 percent that year. Almost all participants ex- As shown in table 1, the medians of participants’ projec-
pected that inflation would be at or slightly above the tions for real GDP growth in 2019 and 2020, conditional
Committee’s 2 percent objective in 2021 and 2022. A on their individual assessments of appropriate monetary
couple more participants, relative to the September SEP, policy, were 2.2 percent and 2.0 percent, respectively, a
projected inflation to exceed 2 percent at some point touch above the median estimate of the longer-run
1 One participant did not submit longer-run projections for
real GDP growth, the unemployment rate, or the federal funds

rate.
Page 2
Table 1. Economic projections of Federal Reserve Board members and Federal Reserve Bank presidents,
under their individual assumptions of projected appropriate monetary policy, December 2019
Percent
Median1 Central Tendency2 Range3
Variable Longer
2019 2020 2021 2022 Longer 2019 2020 2021 2022 Longer 2019 2020 2021 2022
run
run run
Change in real GDP 2.2 2.0 1.9 1.8 1.9 2.1–2.2 2.0–2.2 1.8–2.0 1.8–2.0 1.8–2.0 2.1–2.3 1.8–2.3 1.7–2.2 1.5–2.2 1.7–2.2
September projection 2.2 2.0 1.9 1.8 1.9 2.1–2.3 1.8–2.1 1.8–2.0 1.7–2.0 1.8–2.0 2.1–2.4 1.7–2.3 1.7–2.1 1.6–2.1 1.7–2.1
Unemployment rate 3.6 3.5 3.6 3.7 4.1 3.5–3.6 3.5–3.7 3.5–3.9 3.5–4.0 3.9–4.3 3.5–3.6 3.3–3.8 3.3–4.0 3.3–4.1 3.5–4.5
PCE inflation 1.5 1.9 2.0 2.0 2.0 1.4–1.5 1.8–1.9 2.0–2.1 2.0–2.2 2.0 1.4–1.7 1.7–2.1 1.8–2.3 1.8–2.2 2.0
September projection 1.5 1.9 2.0 2.0 2.0 1.5–1.6 1.8–2.0 2.0 2.0–2.2 2.0 1.4–1.7 1.7–2.1 1.8–2.3 1.8–2.2 2.0
Core PCE inflation4 1.6 1.9 2.0 2.0 1.6–1.7 1.9–2.0 2.0–2.1 2.0–2.2 1.6–1.8 1.7–2.1 1.8–2.3 1.8–2.2
September projection 1.8 1.9 2.0 2.0 1.7–1.8 1.9–2.0 2.0 2.0–2.2 1.6–1.8 1.7–2.1 1.8–2.3 1.8–2.2
Memo: Projected
appropriate policy path
Federal funds rate 1.6 1.6 1.9 2.1 2.5 1.6 1.6–1.9 1.6–2.1 1.9–2.6 2.4–2.8 1.6 1.6–1.9 1.6–2.4 1.6–2.9 2.0–3.3
Note: Projections of change in real gross domestic product (GDP) and projections for both measures of inflation are percent changes from the fourth
quarter of the previous year to the fourth quarter of the year indicated. PCE inflation and core PCE inflation are the percentage rates of change in, respectively,
Federal Open Market Committee
the price index for personal consumption expenditures (PCE) and the price index for PCE excluding food and energy. Projections for the unemployment rate
are for the average civilian unemployment rate in the fourth quarter of the year indicated. Each participant’s projections are based on his or her assessment of
appropriate monetary policy. Longer-run projections represent each participant’s assessment of the rate to which each variable would be expected to converge
under appropriate monetary policy and in the absence of further shocks to the economy. The projections for the federal funds rate are the value of the midpoint
of the projected appropriate target range for the federal funds rate or the projected appropriate target level for the federal funds rate at the end of the specified
calendar year or over the longer run. The September projections were made in conjunction with the meeting of the Federal Open Market Committee on
September 17-18, 2019. One participant did not submit longer-run projections for the change in real GDP, the unemployment rate, or the federal funds rate in
conjunction with the September 17-18, 2019, meeting, and one participant did not submit such projections in conjunction with the December 10-11, 2019,
meeting.
1. For each period, the median is the middle projection when the projections are arranged from lowest to highest. When the number of projections is even,
the median is the average of the two middle projections.
2. The central tendency excludes the three highest and three lowest projections for each variable in each year.
3. The range for a variable in a given year includes all participants’ projections, from lowest to highest, for that variable in that year.
4. Longer-run projections for core PCE inflation are not collected.
_____________________________________________________________________________________________
Summary of Economic Projections of the Meeting of December 10–11, 2019 Page 3
_____________________________________________________________________________________________
Figure 1. Medians, central tendencies, and ranges of economic projections, 2019-22 and over the longer run
Percent
Change in real GDP
Median of projections
Central tendency of projections
Range of projections
3
Actual
2
2014 2015 2016 2017 2018 2019 2020 2021 2022 Longer
run
Percent
Unemployment rate
7
2014 2015 2016 2017 2018 2019 2020 2021 2022 Longer
run
Percent
PCE inflation
3
2014 2015 2016 2017 2018 2019 2020 2021 2022 Longer
run
Percent
Core PCE inflation
3
2014 2015 2016 2017 2018 2019 2020 2021 2022 Longer
run
Note: Definitions of variables and other explanations are in the notes to table 1. The data for the actual values
of the variables are annual.
_____________________________________________________________________________________________
Figure 2. FOMC participants’ assessments of appropriate monetary policy: Midpoint of target range
or target level for the federal funds rate
Percent
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2019 2020 2021 2022 Longer run
Note: Each shaded circle indicates the value (rounded to the nearest 1/8 percentage point) of an individual
participant’s judgment of the midpoint of the appropriate target range for the federal funds rate or the appropriate
target level for the federal funds rate at the end of the specified calendar year or over the longer run. One participant
did not submit longer-run projections for the federal funds rate.
_____________________________________________________________________________________________
growth rate of 1.9 percent. The median of the projec- each year from 2019 to 2022 and over the longer run. A
tions for the growth rate of real GDP declines slowly substantial majority of participants projected a federal
over the projection horizon and, in 2022, is modestly be- funds rate of 1.63 percent for the end of 2020. Four
low the median of the current estimates of its longer-run participants assessed that the most likely appropriate rate
rate. The medians of the projections for real GDP at year-end for 2020 would be 1.88 percent. For subse-
growth in all four years of the projection period, as well quent years, the medians of the projections were
as in the longer run, were unchanged from the Septem- 1.88 percent at the end of 2021 and 2.13 percent at the
ber SEP. end of 2022. The distribution of participants’ estimates
of the longer-run level of the federal funds rate was little
A majority of participants marked down their projec-
changed, and the median estimate was unchanged from
tions of the unemployment rate in each year of the pro-
September at 2.50 percent.
jection period, and some participants lowered their esti-
mates of the longer-run normal rate of unemployment. Compared with the projections prepared for the Sep-
As a result, the medians of the projections for the unem- tember SEP, a number of participants marked down
ployment rate in the fourth quarter of 2020 through their assessments of the appropriate level of the federal
2022 were 3.5 percent, 3.6 percent, and 3.7 percent, re- funds rate at the end of 2020, reflecting in part the re-
spectively, each 0.2 percentage point lower than in the duction in the target range at the October meeting and
September projections. The median estimate of the causing both the range and central tendency of projec-
longer-run normal rate of unemployment was 4.1 per- tions for 2020 to narrow considerably. Some partici-
cent, 0.1 percentage point lower than in September. pants lowered their projections for the appropriate level
in 2021 and 2022. The median projection for the federal
Figures 3.A and 3.B show the distributions of partici-
funds rate was 25 basis points lower in each year in the
pants’ projections for real GDP growth and the unem-
projection period. Realized inflation running persis-
ployment rate, respectively, from 2019 to 2022 and in
tently below target and risks associated with trade policy
the longer run. The distribution of individual projec-
and foreign economic growth were cited as key factors
tions for real GDP growth for 2020 tilted slightly higher,
informing participants’ judgments about the appropriate
as many participants upgraded their projections a bit rel-
path for the federal funds rate.
ative to those in the September SEP, although the me-
dian projection was unchanged. The distributions of in- Uncertainty and Risks
dividual projections of real GDP growth in 2021 and In assessing the appropriate path of the federal funds
2022 and in the longer run were little changed overall. rate, FOMC participants take account of the range of
The distributions of individual projections for the unem- possible economic outcomes, the likelihood of those
ployment rate from 2020 to 2022 and in the longer run outcomes, and the potential benefits and costs should
shifted lower relative to those in September. they occur. As a reference, table 2 provides measures of
forecast uncertainty—based on the forecast errors of
The Outlook for Inflation
various private and government forecasts over the past
As shown in table 1, the median projection for core PCE
20 years—for real GDP growth, the unemployment
price inflation was 1.6 percent for 2019, a modest de-
rate, and total PCE price inflation. Those measures are
crease from the September projections. The medians of
represented graphically in the “fan charts” shown in the
the projections for both total and core PCE price infla-
top panels of figures 4.A, 4.B, and 4.C. The fan charts
tion were each 1.9 percent in 2020 and 2.0 percent in
display the SEP medians for the three variables sur-
both 2021 and 2022—all unchanged from September.
rounded by symmetric confidence intervals derived
Figures 3.C and 3.D show the distributions of partici-
from the forecast errors reported in table 2. If the de-
pants’ views about their outlooks for inflation. Al-
gree of uncertainty attending these projections is similar
though the medians of the projections for total and core
to the typical magnitude of past forecast errors and the
PCE price inflation from 2020 through 2022 were un-
risks around the projections are broadly balanced, then
changed from the September SEP, a couple more par-
future outcomes of these variables would have about a
ticipants projected inflation to be slightly above the
70 percent probability of being within these confidence
Committee’s 2 percent objective in 2022.
intervals. For all three variables, this measure of uncer-
Appropriate Monetary Policy tainty is substantial and generally increases as the fore-
Figure 3.E shows the distributions of participants’ judg- cast horizon lengthens.
ments regarding the appropriate target—or midpoint of
the target range—for the federal funds rate at the end of
_____________________________________________________________________________________________
Figure 3.A. Distribution of participants’ projections for the change in real GDP, 2019-22 and over the longer run
Number of participants
2019
December projections 18
September projections 16
14
12
10
8
6
4
2
1.4− 1.6− 1.8− 2.0− 2.2− 2.4−

1.5 1.7 1.9 2.1 2.3 2.5
Percent range
2020
18
16
14
12
10
8
6
4
2
1.4− 1.6− 1.8− 2.0− 2.2− 2.4−

1.5 1.7 1.9 2.1 2.3 2.5
Percent range
2021
18
16
14
12
10
8
6
4
2
1.4− 1.6− 1.8− 2.0− 2.2− 2.4−

1.5 1.7 1.9 2.1 2.3 2.5
Percent range
2022
18
16
14
12
10
8
6
4
2
1.4− 1.6− 1.8− 2.0− 2.2− 2.4−

1.5 1.7 1.9 2.1 2.3 2.5
Percent range
Longer run
18
16
14
12
10
8
6
4
2
1.4− 1.6− 1.8− 2.0− 2.2− 2.4−

1.5 1.7 1.9 2.1 2.3 2.5
Percent range
Note: Definitions of variables and other explanations are in the notes to table 1.
_____________________________________________________________________________________________
Figure 3.B. Distribution of participants’ projections for the unemployment rate, 2019-22 and over the longer run
2019
14
12
10
8
6
4
2
3.2− 3.4− 3.6− 3.8− 4.0− 4.2− 4.4− 4.6−

3.3 3.5 3.7 3.9 4.1 4.3 4.5 4.7
Percent range
2020
18
16
14
12
10
8
6
4
2
3.2− 3.4− 3.6− 3.8− 4.0− 4.2− 4.4− 4.6−

3.3 3.5 3.7 3.9 4.1 4.3 4.5 4.7
Percent range
2021
18
16
14
12
10
8
6
4
2
3.2− 3.4− 3.6− 3.8− 4.0− 4.2− 4.4− 4.6−

3.3 3.5 3.7 3.9 4.1 4.3 4.5 4.7
Percent range
2022
18
16
14
12
10
8
6
4
2
3.2− 3.4− 3.6− 3.8− 4.0− 4.2− 4.4− 4.6−

3.3 3.5 3.7 3.9 4.1 4.3 4.5 4.7
Percent range
Longer run
18
16
14
12
10
8
6
4
2
3.2− 3.4− 3.6− 3.8− 4.0− 4.2− 4.4− 4.6−

3.3 3.5 3.7 3.9 4.1 4.3 4.5 4.7
Percent range
_____________________________________________________________________________________________
Figure 3.C. Distribution of participants’ projections for PCE inflation, 2019-22 and over the longer run
2019
14
12
10
8
6
4
2
1.3− 1.5− 1.7− 1.9− 2.1− 2.3−

1.4 1.6 1.8 2.0 2.2 2.4
Percent range
2020
18
16
14
12
10
8
6
4
2
1.3− 1.5− 1.7− 1.9− 2.1− 2.3−

1.4 1.6 1.8 2.0 2.2 2.4
Percent range
2021
18
16
14
12
10
8
6
4
2
1.3− 1.5− 1.7− 1.9− 2.1− 2.3−

1.4 1.6 1.8 2.0 2.2 2.4
Percent range
2022
18
16
14
12
10
8
6
4
2
1.3− 1.5− 1.7− 1.9− 2.1− 2.3−

1.4 1.6 1.8 2.0 2.2 2.4
Percent range
Longer run
18
16
14
12
10
8
6
4
2
1.3− 1.5− 1.7− 1.9− 2.1− 2.3−

1.4 1.6 1.8 2.0 2.2 2.4
Percent range
_____________________________________________________________________________________________
Figure 3.D. Distribution of participants’ projections for core PCE inflation, 2019-22
2019
14
12
10
8
6
4
2
1.5− 1.7− 1.9− 2.1− 2.3−

1.6 1.8 2.0 2.2 2.4
Percent range
2020
18
16
14
12
10
8
6
4
2
1.5− 1.7− 1.9− 2.1− 2.3−

1.6 1.8 2.0 2.2 2.4
Percent range
2021
18
16
14
12
10
8
6
4
2
1.5− 1.7− 1.9− 2.1− 2.3−

1.6 1.8 2.0 2.2 2.4
Percent range
2022
18
16
14
12
10
8
6
4
2
1.5− 1.7− 1.9− 2.1− 2.3−

1.6 1.8 2.0 2.2 2.4
Percent range
_____________________________________________________________________________________________
Figure 3.E. Distribution of participants’ judgments of the midpoint of the appropriate target range for the
federal funds rate or the appropriate target level for the federal funds rate, 2019-22 and over the longer run
2019
14
12
10
8
6
4
2
1.38− 1.63− 1.88− 2.13− 2.38− 2.63− 2.88− 3.13− 3.38−

1.62 1.87 2.12 2.37 2.62 2.87 3.12 3.37 3.62
Percent range
2020
18
16
14
12
10
8
6
4
2
1.38− 1.63− 1.88− 2.13− 2.38− 2.63− 2.88− 3.13− 3.38−

1.62 1.87 2.12 2.37 2.62 2.87 3.12 3.37 3.62
Percent range
2021
18
16
14
12
10
8
6
4
2
1.38− 1.63− 1.88− 2.13− 2.38− 2.63− 2.88− 3.13− 3.38−

1.62 1.87 2.12 2.37 2.62 2.87 3.12 3.37 3.62
Percent range
2022
18
16
14
12
10
8
6
4
2
1.38− 1.63− 1.88− 2.13− 2.38− 2.63− 2.88− 3.13− 3.38−

1.62 1.87 2.12 2.37 2.62 2.87 3.12 3.37 3.62
Percent range
Longer run
18
16
14
12
10
8
6
4
2
1.38− 1.63− 1.88− 2.13− 2.38− 2.63− 2.88− 3.13− 3.38−

1.62 1.87 2.12 2.37 2.62 2.87 3.12 3.37 3.62
Percent range
_____________________________________________________________________________________________
risks to their outlooks for real GDP growth as weighted

Table 2. Average historical projection error ranges
Percentage points to the downside and for the unemployment rate as
Variable 2019 2020 2021 2022 weighted to the upside. Most participants continued to
Change in real GDP1 . . . . . . ±0.8 ±1.6 ±2.0 ±2.0 judge the risks to their inflation outlook as broadly bal-
anced, while some participants viewed the risks to their
Unemployment rate1 ...... ±0.1 ±0.8 ±1.5 ±1.9
inflation outlook as weighted to the downside. No par-
Total consumer prices2 .... ±0.2 ±0.9 ±1.0 ±0.9 ticipant assessed the risks to his or her inflation outlook
Short-term interest rates3 . . . ±0.1 ±1.4 ±2.0 ±2.4 as weighted to the upside.
NOTE: Error ranges shown are measured as plus or minus the
root mean squared error of projections for 1999 through 2018 that
In discussing the uncertainty and risks surrounding their
were released in the winter by various private and government fore- economic projections, some participants mentioned
casters. As described in the box “Forecast Uncertainty,” under certain trade developments and concerns about foreign eco-
assumptions, there is about a 70 percent probability that actual out-
comes for real GDP, unemployment, consumer prices, and the federal nomic growth as sources of uncertainty or downside risk
funds rate will be in ranges implied by the average size of projection to the U.S. economic growth outlook. In contrast, the
errors made in the past. For more information, see David Reifschnei- underlying strength of both consumer spending and the
der and Peter Tulip (2017), “Gauging the Uncertainty of the Economic
Outlook Using Historical Forecasting Errors: The Federal Reserve’s labor market was cited as balancing the risks around the
Approach,” Finance and Economics Discussion Series 2017-020 growth outlook. In addition, most of the participants
(Washington: Board of Governors of the Federal Reserve System,
February), https://dx.doi.org/10.17016/FEDS.2017.020.
who shifted their balance of risks for output growth to
1. Definitions of variables are in the general note to table 1. “broadly balanced” cited more accommodative mone-
2. Measure is the overall consumer price index, the price measure tary policy as a contributing factor. For the inflation out-
that has been most widely used in government and private economic
forecasts. Projections are percent changes on a fourth quarter to look, the possibility that inflation expectations could be
fourth quarter basis. drifting below levels consistent with the FOMC’s 2 per-
3. For Federal Reserve staff forecasts, measure is the federal funds cent inflation objective was viewed as a downside risk.
rate. For other forecasts, measure is the rate on 3-month Treasury
bills. Projection errors are calculated using average levels, in percent, A couple of participants mentioned higher tariffs as a
in the fourth quarter. source of upside risk to their inflation outlook.
Participants’ assessments of the appropriate future path
Participants’ assessments of the level of uncertainty sur- of the federal funds rate are also subject to considerable
rounding their individual economic projections are uncertainty. Because the Committee adjusts the federal
shown in the bottom-left panels of figures 4.A, 4.B, and funds rate in response to actual and prospective devel-
4.C. A substantial majority of participants viewed the opments over time in key economic variables—such as
uncertainty surrounding each of the four economic var- real GDP growth, the unemployment rate, and infla-
iables as being broadly similar to the average over the tion—uncertainty surrounding the projected path for
past 20 years. the federal funds rate importantly reflects the uncertain-
Because the fan charts are constructed to be symmetric ties about the paths for these economic variables, along
around the median projections, they do not reflect any with other factors. Figure 5 provides a graphic represen-
asymmetries in the balance of risks that participants may tation of this uncertainty, plotting the SEP median for
see in their economic projections. Participants’ assess- the federal funds rate surrounded by symmetric confi-
ments of the balance of risks to their current economic dence intervals derived from the results presented in ta-
projections are shown in the bottom-right panels of fig- ble 2. As with the macroeconomic variables, the forecast
ures 4.A, 4.B, and 4.C. Relative to the September SEP, uncertainty surrounding the appropriate path of the fed-
more participants saw the risks to the outlook for real eral funds rate is substantial and increases for longer ho-
GDP growth and the unemployment rate as broadly bal- rizons.
anced, although a small majority continued to view the
_____________________________________________________________________________________________
Figure 4.A. Uncertainty and risks in projections of GDP growth
Median projection and confidence interval based on historical forecast errors
Percent
Change in real GDP
70% confidence interval
4
Actual 2
2014 2015 2016 2017 2018 2019 2020 2021 2022
FOMC participants’ assessments of uncertainty and risks around their economic projections
Number of participants Number of participants
Uncertainty about GDP growth Risks to GDP growth

December projections December projections
September projections September projections
18 18
16 16
14 14
12 12
10 10
8 8
6 6
4 4
2 2
Lower Broadly Higher Weighted to Broadly Weighted to

similar downside balanced upside
Note: The blue and red lines in the top panel show actual values and median projected values, respectively, of the
percent change in real gross domestic product (GDP) from the fourth quarter of the previous year to the fourth
quarter of the year indicated. The confidence interval around the median projected values is assumed to be symmetric
and is based on root mean squared errors of various private and government forecasts made over the previous 20 years;
more information about these data is available in table 2. Because current conditions may differ from those that
prevailed, on average, over the previous 20 years, the width and shape of the confidence interval estimated on the
basis of the historical forecast errors may not reflect FOMC participants’ current assessments of the uncertainty and
risks around their projections; these current assessments are summarized in the lower panels. Generally speaking,
participants who judge the uncertainty about their projections as “broadly similar” to the average levels of the past 20
years would view the width of the confidence interval shown in the historical fan chart as largely consistent with their
assessments of the uncertainty about their projections. Likewise, participants who judge the risks to their projections
as “broadly balanced” would view the confidence interval around their projections as approximately symmetric. For
definitions of uncertainty and risks in economic projections, see the box “Forecast Uncertainty.”
_____________________________________________________________________________________________
Figure 4.B. Uncertainty and risks in projections of the unemployment rate
Percent
Unemployment rate
10
70% confidence interval 9
7
Actual 6
2014 2015 2016 2017 2018 2019 2020 2021 2022
Uncertainty about the unemployment rate Risks to the unemployment rate

18 18
16 16
14 14
12 12
10 10
8 8
6 6
4 4
2 2

Note: The blue and red lines in the top panel show actual values and median projected values, respectively, of the
average civilian unemployment rate in the fourth quarter of the year indicated. The confidence interval around the
median projected values is assumed to be symmetric and is based on root mean squared errors of various private and
government forecasts made over the previous 20 years; more information about these data is available in table 2.
Because current conditions may differ from those that prevailed, on average, over the previous 20 years, the width
and shape of the confidence interval estimated on the basis of the historical forecast errors may not reflect FOMC
participants’ current assessments of the uncertainty and risks around their projections; these current assessments are
summarized in the lower panels. Generally speaking, participants who judge the uncertainty about their projections as
“broadly similar” to the average levels of the past 20 years would view the width of the confidence interval shown in the
historical fan chart as largely consistent with their assessments of the uncertainty about their projections. Likewise,
participants who judge the risks to their projections as “broadly balanced” would view the confidence interval around
their projections as approximately symmetric. For definitions of uncertainty and risks in economic projections, see the
box “Forecast Uncertainty.”
_____________________________________________________________________________________________
Figure 4.C. Uncertainty and risks in projections of PCE inflation
Percent
PCE inflation
Median of projections 3
70% confidence interval
Actual
2014 2015 2016 2017 2018 2019 2020 2021 2022
Uncertainty about PCE inflation Risks to PCE inflation

18 18
16 16
14 14
12 12
10 10
8 8
6 6
4 4
2 2

Uncertainty about core PCE inflation Risks to core PCE inflation

18 18
16 16
14 14
12 12
10 10
8 8
6 6
4 4
2 2

Note: The blue and red lines in the top panel show actual values and median projected values, respectively,
of the percent change in the price index for personal consumption expenditures (PCE) from the fourth quarter of
the previous year to the fourth quarter of the year indicated. The confidence interval around the median projected
values is assumed to be symmetric and is based on root mean squared errors of various private and government
forecasts made over the previous 20 years; more information about these data is available in table 2. Because current
conditions may differ from those that prevailed, on average, over the previous 20 years, the width and shape of the
confidence interval estimated on the basis of the historical forecast errors may not reflect FOMC participants’ current
assessments of the uncertainty and risks around their projections; these current assessments are summarized in the
lower panels. Generally speaking, participants who judge the uncertainty about their projections as “broadly similar”
to the average levels of the past 20 years would view the width of the confidence interval shown in the historical fan
chart as largely consistent with their assessments of the uncertainty about their projections. Likewise, participants
who judge the risks to their projections as “broadly balanced” would view the confidence interval around their
projections as approximately symmetric. For definitions of uncertainty and risks in economic projections, see the box
“Forecast Uncertainty.”
_____________________________________________________________________________________________
Figure 5. Uncertainty and risks in projections of the federal funds rate
Percent
Federal funds rate
Midpoint of target range 6

70% confidence interval*
5
1
Actual
2014 2015 2016 2017 2018 2019 2020 2021 2022
Note: The blue and red lines are based on actual values and median projected values, respectively, of the
Committee’s target for the federal funds rate at the end of the year indicated. The actual values are the midpoint of
the target range; the median projected values are based on either the midpoint of the target range or the target level.
The confidence interval around the median projected values is based on root mean squared errors of various private
and government forecasts made over the previous 20 years. The confidence interval is not strictly consistent with the
projections for the federal funds rate, primarily because these projections are not forecasts of the likeliest outcomes for
the federal funds rate, but rather projections of participants’ individual assessments of appropriate monetary policy.
Still, historical forecast errors provide a broad sense of the uncertainty around the future path of the federal funds rate
generated by the uncertainty about the macroeconomic variables as well as additional adjustments to monetary policy
that may be appropriate to onset the effects of shocks to the economy.
The confidence interval is assumed to be symmetric except when it is truncated at zero - the bottom of the lowest
target range for the federal funds rate that has been adopted in the past by the Committee. This truncation would
not be intended to indicate the likelihood of the use of negative interest rates to provide additional monetary policy
accommodation if doing so was judged appropriate. In such situations, the Committee could also employ other tools,
including forward guidance and large-scale asset purchases, to provide additional accommodation. Because current
conditions may differ from those that prevailed, on average, over the previous 20 years, the width and shape of the
confidence interval estimated on the basis of the historical forecast errors may not reflect FOMC participants’ current
assessments of the uncertainty and risks around their projections.
* The confidence interval is derived from forecasts of the average level of short-term interest rates in the fourth
quarter of the year indicated; more information about these data is available in table 2. The shaded area encompasses
less than a 70 percent confidence interval if the confidence interval has been truncated at zero.
_____________________________________________________________________________________________
Forecast Uncertainty
The economic projections provided by the members of tions are summarized in the bottom-left panels of those fig-
the Board of Governors and the presidents of the Federal ures. Participants also provide judgments as to whether the
Reserve Banks inform discussions of monetary policy among risks to their projections are weighted to the upside, are
policymakers and can aid public understanding of the basis weighted to the downside, or are broadly balanced. That is,
for policy actions. Considerable uncertainty attends these while the symmetric historical fan charts shown in the top
projections, however. The economic and statistical models panels of figures 4.A through 4.C imply that the risks to par-
and relationships used to help produce economic forecasts ticipants’ projections are balanced, participants may judge that
are necessarily imperfect descriptions of the real world, and there is a greater risk that a given variable will be above rather
the future path of the economy can be affected by myriad than below their projections. These judgments are summa-
unforeseen developments and events. Thus, in setting the rized in the lower-right panels of figures 4.A through 4.C.
stance of monetary policy, participants consider not only As with real activity and inflation, the outlook for the
what appears to be the most likely economic outcome as em- future path of the federal funds rate is subject to considerable
bodied in their projections, but also the range of alternative uncertainty. This uncertainty arises primarily because each
possibilities, the likelihood of their occurring, and the poten- participant’s assessment of the appropriate stance of mone-
tial costs to the economy should they occur. tary policy depends importantly on the evolution of real ac-
Table 2 summarizes the average historical accuracy of a tivity and inflation over time. If economic conditions evolve
range of forecasts, including those reported in past Monetary in an unexpected manner, then assessments of the appropri-
Policy Reports and those prepared by the Federal Reserve ate setting of the federal funds rate would change from that
Board’s staff in advance of meetings of the Federal Open point forward. The final line in table 2 shows the error ranges
Market Committee (FOMC). The projection error ranges for forecasts of short-term interest rates. They suggest that
shown in the table illustrate the considerable uncertainty as- the historical confidence intervals associated with projections
sociated with economic forecasts. For example, suppose a of the federal funds rate are quite wide. It should be noted,
participant projects that real gross domestic product (GDP) however, that these confidence intervals are not strictly con-
and total consumer prices will rise steadily at annual rates of, sistent with the projections for the federal funds rate, as these
respectively, 3 percent and 2 percent. If the uncertainty at- projections are not forecasts of the most likely quarterly out-
tending those projections is similar to that experienced in the comes but rather are projections of participants’ individual as-
past and the risks around the projections are broadly bal- sessments of appropriate monetary policy and are on an end-
anced, the numbers reported in table 2 would imply a prob- of-year basis. However, the forecast errors should provide a
ability of about 70 percent that actual GDP would expand sense of the uncertainty around the future path of the federal
within a range of 2.2 to 3.8 percent in the current year, 1.4 to funds rate generated by the uncertainty about the macroeco-
4.6 percent in the second year, and 1.0 to 5.0 percent in the nomic variables as well as additional adjustments to monetary
third and fourth years. The corresponding 70 percent con- policy that would be appropriate to offset the effects of
fidence intervals for overall inflation would be 1.8 to 2.2 per- shocks to the economy.
cent in the current year, 1.1 to 2.9 percent in the second year, If at some point in the future the confidence interval
1.0 to 3.0 percent in the third year, and 1.1 to 2.9 percent in around the federal funds rate were to extend below zero, it
the fourth year. Figures 4.A through 4.C illustrate these con- would be truncated at zero for purposes of the fan chart
fidence bounds in “fan charts” that are symmetric and cen- shown in figure 5; zero is the bottom of the lowest target
tered on the medians of FOMC participants’ projections for range for the federal funds rate that has been adopted by the
GDP growth, the unemployment rate, and inflation. How- Committee in the past. This approach to the construction of
ever, in some instances, the risks around the projections may the federal funds rate fan chart would be merely a convention;
not be symmetric. In particular, the unemployment rate can- it would not have any implications for possible future policy
not be negative; furthermore, the risks around a particular decisions regarding the use of negative interest rates to pro-
projection might be tilted to either the upside or the down- vide additional monetary policy accommodation if doing so
side, in which case the corresponding fan chart would be were appropriate. In such situations, the Committee could
asymmetrically positioned around the median projection. also employ other tools, including forward guidance and asset
Because current conditions may differ from those that purchases, to provide additional accommodation.
prevailed, on average, over history, participants provide While figures 4.A through 4.C provide information on
judgments as to whether the uncertainty attached to their the uncertainty around the economic projections, figure 1
projections of each economic variable is greater than, smaller provides information on the range of views across FOMC
than, or broadly similar to typical levels of forecast uncer- participants. A comparison of figure 1 with figures 4.A
tainty seen in the past 20 years, as presented in table 2 and through 4.C shows that the dispersion of the projections
reflected in the widths of the confidence intervals shown in across participants is much smaller than the average forecast
the top panels of figures 4.A through 4.C. Participants’ cur- errors over the past 20 years.
rent assessments of the uncertainty surrounding their projec-

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Page 1

Minutes of the Federal Open Market Committee

Reserve’s agency mortgage-backed securities information, including measures of labor mar-

Summary of Economic Projections

1 One participant did not submit longer-run projections for

real GDP growth, the unemployment rate, or the federal funds

2019 2020 2021 2022 Longer run

1.4− 1.6− 1.8− 2.0− 2.2− 2.4−

1.4− 1.6− 1.8− 2.0− 2.2− 2.4−

1.4− 1.6− 1.8− 2.0− 2.2− 2.4−

1.4− 1.6− 1.8− 2.0− 2.2− 2.4−

1.4− 1.6− 1.8− 2.0− 2.2− 2.4−

3.2− 3.4− 3.6− 3.8− 4.0− 4.2− 4.4− 4.6−

3.2− 3.4− 3.6− 3.8− 4.0− 4.2− 4.4− 4.6−

3.2− 3.4− 3.6− 3.8− 4.0− 4.2− 4.4− 4.6−

3.2− 3.4− 3.6− 3.8− 4.0− 4.2− 4.4− 4.6−

3.2− 3.4− 3.6− 3.8− 4.0− 4.2− 4.4− 4.6−

1.3− 1.5− 1.7− 1.9− 2.1− 2.3−

1.3− 1.5− 1.7− 1.9− 2.1− 2.3−

1.3− 1.5− 1.7− 1.9− 2.1− 2.3−

1.3− 1.5− 1.7− 1.9− 2.1− 2.3−

1.3− 1.5− 1.7− 1.9− 2.1− 2.3−

1.5− 1.7− 1.9− 2.1− 2.3−

1.5− 1.7− 1.9− 2.1− 2.3−

1.5− 1.7− 1.9− 2.1− 2.3−

1.5− 1.7− 1.9− 2.1− 2.3−

1.38− 1.63− 1.88− 2.13− 2.38− 2.63− 2.88− 3.13− 3.38−

1.38− 1.63− 1.88− 2.13− 2.38− 2.63− 2.88− 3.13− 3.38−

1.38− 1.63− 1.88− 2.13− 2.38− 2.63− 2.88− 3.13− 3.38−

1.38− 1.63− 1.88− 2.13− 2.38− 2.63− 2.88− 3.13− 3.38−

1.38− 1.63− 1.88− 2.13− 2.38− 2.63− 2.88− 3.13− 3.38−

risks to their outlooks for real GDP growth as weighted

Figure 4.A. Uncertainty and risks in projections of GDP growth

Median projection and confidence interval based on historical forecast errors

2014 2015 2016 2017 2018 2019 2020 2021 2022

Number of participants Number of participants

Uncertainty about GDP growth Risks to GDP growth

Lower Broadly Higher Weighted to Broadly Weighted to

Figure 4.B. Uncertainty and risks in projections of the unemployment rate

Median projection and confidence interval based on historical forecast errors

2014 2015 2016 2017 2018 2019 2020 2021 2022

Number of participants Number of participants

Uncertainty about the unemployment rate Risks to the unemployment rate

Lower Broadly Higher Weighted to Broadly Weighted to

Figure 4.C. Uncertainty and risks in projections of PCE inflation

Median projection and confidence interval based on historical forecast errors

2014 2015 2016 2017 2018 2019 2020 2021 2022

Number of participants Number of participants

Uncertainty about PCE inflation Risks to PCE inflation

Lower Broadly Higher Weighted to Broadly Weighted to

Number of participants Number of participants

Uncertainty about core PCE inflation Risks to core PCE inflation

Lower Broadly Higher Weighted to Broadly Weighted to

Figure 5. Uncertainty and risks in projections of the federal funds rate

Midpoint of target range 6

2014 2015 2016 2017 2018 2019 2020 2021 2022

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