FOMC Meeting Transcript Notes

Welcome and Agenda

• Kira Koehler welcomes FOMC members.
• Agenda includes:
  • Reviewing the dual mandate and macroeconomic conditions.
  • Evaluating the effectiveness of policies in response to COVID-19.
  • Providing policy recommendations.

Employment and Unemployment

• Employment Mandate:

  • Aim to maximize employment using a range of indicators.
  • September's headline unemployment rate: 7.9%.
  • U-6 rate (broader measure of unemployment): 12.8%.
  • Underemployment has increased.
  • Weekly unemployment claims rose to nearly 900,000.
  • Labor Force Participation Rate (LFPR) has fallen, with sustained decline among prime-age females.

• Demographic Disparities:

  • Higher unemployment rates for Black and Hispanic communities.
  • Fiscal support needed to address disparities.

Price Stability

• Inflation Rates:
  • Core-CPI: 1.7%, Core-PCEPI: 1.6% (below 2% target).
  • Engaging in flexible average inflation targeting to allow inflation above 2% temporarily.

Economic Conditions

• Real GDP:

  • Fell by 5% in Q1 2020, second quarter annualized rate declined by nearly a third.
  • Nationwide stay-at-home orders impacted business health and consumer demand.

• Consumption:

  • Consumer sentiment fell by over 20% since September 2019.
  • Decreased spending in retail and dining, increase in online retail.
  • Rebound in durable goods orders.

• Investment:

  • Significant drop in residential and non-residential fixed investments.
  • Manufacturing recovery strong (seen in PMI data).
  • Real estate market strength due to low interest rates and QE program.

• Trade Balance:

  • Affected by pandemic, cross-border movement stifled.
  • Exports unpredictable due to trade tensions and slow global recovery.

Risks and Recovery

• Fiscal and Monetary Stimulus:
  • Supported recovery, but reversing historic collapse will take time.
  • Discussion on tools: effective lower bound, forward guidance, quantitative easing, yield curve control, liquidity programs.

Policy Discussions

• Fed Funds Rate:

  • Lowered target to zero.
  • Forward guidance to keep rates at effective lower bound (ELB).

• Forward Guidance Debate:

  • President Kashkari advocates for clear guidance until core inflation reaches 2%.
  • President Kaplan prefers conservative guidance to maintain policy flexibility.

• Unprecedented Measures:

  • Ensuring access to credit and financial stability through established facilities.
  • QE increased balance sheet by $3 trillion.

• Quantitative Easing Debate:

  • Some argue QE hasn't significantly stimulated recovery compared to Canada.
  • Others see QE as effective when coupled with forward guidance.

Alternative Tools and Strategies

• Negative Interest Rates:

  • Pros and cons discussed; potential benefits include encouraging lending and weaker currency.
  • Risks include currency hoarding and financial fragility.

• Yield Curve Control (YCC):

  • Target longer-term rates through caps on maturities.
  • Success in Japan and Australia noted, but historical failures in the US highlighted.
  • Potential for YCC to lower and flatten yield curve if combined with other policies.

Main Street Lending Program (MSLP)

• Challenges and Proposals:
  • Significant underutilization due to onerous terms.
  • Suggestions to accommodate borrowers better and incentivize banks.
  • Acknowledgement of monetary policy limitations and need for fiscal support.

Conclusion and Recommendations

• Policy Trajectory:
  • Maintain target federal funds rate at zero to a quarter percent.
  • Continue current pace of Treasury securities and agency MBS holdings.
  • Consider YCC if economic data softens by December.
  • Share MSLP modifications with Board of Governors.
• Meeting concludes with unanimous agreement on policy trajectory.