Professional Documents
Culture Documents
Fomc Minutes 20231213
Fomc Minutes 20231213
_____________________________________________________________________________________________
A joint meeting of the Federal Open Market Committee Julie Ann Remache, Deputy Manager, System Open
and the Board of Governors of the Federal Reserve Sys- Market Account
tem was held in the offices of the Board of Governors
Jose Acosta, Senior System Administrator II, Division
on Tuesday, December 12, 2023, at 10:30 a.m. and con-
of Information Technology, Board
tinued on Wednesday, December 13, 2023, at 9:00 a.m. 1
David Altig, Executive Vice President, Federal Reserve
Attendance
Bank of Atlanta
Jerome H. Powell, Chair
John C. Williams, Vice Chair Alyssa Arute, 2 Manager, Division of Reserve Bank
Michael S. Barr Operations and Payment Systems, Board
Michelle W. Bowman
Kimberly N. Bayard, Section Chief, Division of
Lisa D. Cook
Research and Statistics, Board
Austan D. Goolsbee
Patrick Harker Penelope A. Beattie, 3 Section Chief, Office of the
Philip N. Jefferson Secretary, Board
Neel Kashkari Paola Boel, Vice President, Federal Reserve Bank of
Adriana D. Kugler Cleveland
Lorie K. Logan
Christopher J. Waller David Bowman, Senior Associate Director, Division of
Monetary Affairs, Board
Thomas I. Barkin, Raphael W. Bostic, Mary C. Daly,
and Loretta J. Mester, Alternate Members of the Celso Brunetti, Assistant Director, Division of
Committee Research and Statistics, Board
Susan M. Collins and Jeffrey R. Schmid, Presidents of Jennifer J. Burns, Deputy Director, Division of
the Federal Reserve Banks of Boston and Kansas Supervision and Regulation, Board
City, respectively Juan C. Climent, Special Adviser to the Board, Division
Kathleen O’Neill Paese, Interim President of the of Board Members, Board
Federal Reserve Bank of St. Louis Edmund S. Crawley, Senior Economist, Division of
Joshua Gallin, Secretary Monetary Affairs, Board
Matthew M. Luecke, Deputy Secretary Stephanie E. Curcuru, Deputy Director, Division of
Brian J. Bonis, Assistant Secretary International Finance, Board
Michelle A. Smith, Assistant Secretary
Mark E. Van Der Weide, General Counsel Ryan Decker, Special Adviser to the Board, Division of
Richard Ostrander, Deputy General Counsel Board Members, Board
Trevor A. Reeve, Economist Riccardo DiCecio, Economic Policy Advisor, Federal
Stacey Tevlin, Economist Reserve Bank of St. Louis
Beth Anne Wilson, Economist
Cynthia L. Doniger, Principal Economist, Division of
Shaghil Ahmed, Roc Armenter, James A. Clouse, Eric Monetary Affairs, Board
M. Engen, Anna Paulson, Andrea Raffo, Chiara
Scotti, and William Wascher, Associate Economists Rochelle M. Edge, Deputy Director, Division of
Monetary Affairs, Board
Roberto Perli, Manager, System Open Market Account
1 The Federal Open Market Committee is referenced as the 2 Attended through the discussion of developments in finan-
“FOMC” and the “Committee” in these minutes; the Board cial markets and open market operations.
of Governors of the Federal Reserve System is referenced as 3 Attended through the discussion of the economic and finan-
Jon Faust, Senior Special Adviser to the Chair, Division Achilles Sangster II, Senior Information Manager,
of Board Members, Board Division of Monetary Affairs, Board
Glenn Follette, Associate Director, Division of Adam H. Shapiro, Vice President, Federal Reserve
Research and Statistics, Board Bank of San Francisco
Joseph W. Gruber, Executive Vice President, Federal Shane M. Sherlund, Associate Director, Division of
Reserve Bank of Kansas City Research and Statistics, Board
Valerie S. Hinojosa, Section Chief, Division of Nitish Ranjan Sinha, Special Adviser to the Board,
Monetary Affairs, Board Division of Board Members, Board
Jasper J. Hoek, Deputy Associate Director, Division of Balint Szoke, Senior Economist, Division of Monetary
International Finance, Board Affairs, Board
Jane E. Ihrig, Special Adviser to the Board, Division of Giorgio Topa, Economic Research Advisor, Federal
Board Members, Board Reserve Bank of New York
Elizabeth Klee, Senior Associate Director, Division of Clara Vega, Special Adviser to the Board, Division of
Financial Stability, Board Board Members, Board
David E. Lebow, Senior Associate Director, Division Annette Vissing-Jørgensen, Senior Adviser, Division of
of Research and Statistics, Board Monetary Affairs, Board
Andreas Lehnert, Director, Division of Financial Jeffrey D. Walker,2 Associate Director, Division of
Stability, Board Reserve Bank Operations and Payment Systems,
Board
Eric LeSueur,2 Policy and Market Analysis Advisor,
Federal Reserve Bank of New York Paul R. Wood, Special Adviser to the Board, Division
of Board Members, Board
Kurt F. Lewis, Special Adviser to the Chair, Division of
Board Members, Board Egon Zakrajsek, Executive Vice President, Federal
Reserve Bank of Boston
Laura Lipscomb, Special Adviser to the Board,
Division of Board Members, Board Rebecca Zarutskie, Special Adviser to the Board,
Division of Board Members, Board
David López-Salido, Senior Associate Director,
Division of Monetary Affairs, Board Developments in Financial Markets and Open
Market Operations
Thomas Lubik, Senior Advisor, Federal Reserve Bank
The manager turned first to a review of developments in
of Richmond
financial markets over the intermeeting period. Finan-
Byron Lutz, Deputy Associate Director, Division of cial conditions eased, driven by a decline in interest rates,
Research and Statistics, Board an increase in equity prices, and a depreciation in the dol-
lar. The rise in equity prices was supported by the de-
Mark Meder, First Vice President, Federal Reserve
cline in Treasury yields and by earnings growth that ex-
Bank of Cleveland
ceeded consensus expectations. Implied volatility for
Ann E. Misback, Secretary, Office of the Secretary, equities diminished notably. The easing in financial con-
Board ditions reversed some of the tightening that occurred
Michelle M. Neal, Head of Markets, Federal Reserve over the summer and much of the fall.
Bank of New York Yields on nominal Treasury securities declined sharply
Edward Nelson, Senior Adviser, Division of Monetary over the intermeeting period—more so at longer matur-
Affairs, Board ities—after having increased notably during the previous
intermeeting period, as investors appeared to interpret
Lubomir Petrasek, 4 Section Chief, Division of incoming data as reducing risks of prolonged inflation
Monetary Affairs, Board pressures. In addition, market participants interpreted
communications from FOMC participants as solidifying
the view that the Committee’s policy rate may be at its part of their ongoing market surveillance, the staff will
peak. Early in the period, the market also reacted to continue to monitor a wide range of indicators of money
communications from the Treasury Department indicat- market conditions, including the composition of bor-
ing that issuance of Treasury securities was likely to be rowers in money markets, borrowing demand for vari-
more skewed toward shorter-dated maturities than pre- ous sources of liquidity, the distribution of reserve bal-
viously expected. Models, on average, suggested that ances across the financial system, the pricing of money
about two-thirds of the decline in longer-term yields on market investments relative to the Federal Reserve’s ad-
Treasury securities over the period was attributable to a ministered rates, and the sensitivity of money market
reduction in term premiums and about one-third to a rates to changes in aggregate reserves.
decline in expectations for the policy rate. Pricing of in-
By unanimous vote, the Committee ratified the Desk’s
flation derivatives over the intermeeting period sug-
domestic transactions over the intermeeting period.
gested that investors had become more optimistic about
There were no intervention operations in foreign curren-
the near-term outlook for inflation.
cies for the System’s account during the intermeeting pe-
The manager turned next to expectations for monetary riod.
policy. Respondents to the Open Market Desk’s Survey
Staff Review of the Economic Situation
of Primary Dealers and Survey of Market Participants
The data available at the time of the December 12–13
largely converged around the view that the peak level of
meeting suggested that growth in U.S. real gross domes-
the federal funds rate for this tightening cycle had been
tic product (GDP) was slowing from its strong third-
reached. The modal path from the Desk surveys sug-
quarter pace. Labor market conditions continued to be
gested that the first reduction in the policy rate would
tight, with moderating but still-strong job gains and a
occur in June, unchanged from the October surveys.
low unemployment rate. Consumer price inflation had
The average path for the policy rate implied by market
eased over the past year but remained elevated.
pricing shifted down considerably over the period.
Labor demand and supply continued to move gradually
Regarding developments in money markets and Desk
into better alignment. Total nonfarm payroll employ-
operations, usage of the overnight reverse repurchase
ment expanded at a slower pace, on balance, over Octo-
agreement (ON RRP) facility continued to fall over the
ber and November than its average monthly rate in the
period; take-up at the facility had dropped about
third quarter. The unemployment rate was little
$1.3 trillion since early June. The decline was again
changed, on net, and stood at 3.7 percent in November,
driven primarily by lower participation by money market
the same as its third-quarter average. The labor force
mutual funds, as such funds found it more attractive to
participation rate was essentially flat over the past two
invest in Treasury bills and, increasingly, the private mar-
months, remaining above its level early in the year, while
ket for repurchase agreement (repo) transactions.
the employment-to-population ratio rose slightly on bal-
Overnight repo rates continued to experience some ance. The unemployment rates for African Americans
modest upward pressure over the period. As reflected and for Hispanics were little changed, and both rates
by a rise in the Secured Overnight Financing Rate, there were higher than those for Asians and for Whites. The
was some tightening of conditions in repo markets in job openings rate continued to trend down, and the quits
late November and early December in response to typi- rate was flat; both rates were below their levels earlier
cal lending dynamics around month-end, the settlement this year. The lessening of labor market imbalances was
of a large amount of Treasury issuance, and increased apparent in recent wage data, as the 12-month change in
demand for Treasury financing. The market absorbed average hourly earnings for all employees was well below
this episode well. its year-earlier level and the Wage Growth Tracker con-
structed by the Federal Reserve Bank of Atlanta was
The manager expected that private-market repo rates
trending down and lower than a year ago.
would likely remain above the rate offered at the
ON RRP facility, which should continue to induce a re- Consumer price inflation remained elevated but contin-
duction in usage of the facility. Respondents to the Desk ued to show notable signs of easing. The price index for
surveys again reduced their expectations for the trajec- total personal consumption expenditures (PCE) in-
tory for ON RRP balances and correspondingly raised creased 3.0 percent over the 12 months ending in Octo-
their expectations for the trajectory of reserve balances. ber, while core PCE inflation—which excludes changes
Aggregate reserves across the banking system remained in energy prices and many consumer food prices—was
abundant, and no signs of pressures were evident. As 3.5 percent over the same period; both total and core
Page 4 Federal Open Market Committee
_____________________________________________________________________________________________
PCE inflation were well below their year-earlier levels. intermeeting period and emphasized the need to main-
The six-month change measures of total and core PCE tain a sufficiently restrictive stance of policy to ensure
inflation in October were each 2.5 percent, down from that inflation fell back to their targets.
their levels six months earlier. The trimmed mean meas-
Staff Review of the Financial Situation
ure of 12-month PCE inflation constructed by the Fed-
Over the intermeeting period, some softer-than-ex-
eral Reserve Bank of Dallas was 3.6 percent in October,
pected data releases appeared to lessen the perception
also down from its level a year ago. In November, the
among investors that policy may need to tighten further
12-month change in the consumer price index (CPI) was
in order to bring inflation down to 2 percent over time.
3.1 percent, core CPI rose 4.0 percent over the same pe-
Market participants also viewed monetary policy com-
riod, and both measures were well below their year-ear-
munications, on balance, as pointing to somewhat less
lier levels. Recent survey measures of medium- to
restrictive policy than expected. As a result, nominal
longer-term inflation expectations were in the range seen
Treasury yields declined significantly and the expected
in the decade before the pandemic. In contrast, survey
market-implied path for the federal funds rate beyond
measures of consumers’ short-run inflation expectations
the next few months shifted downward. Meanwhile,
remained above their pre-pandemic levels.
broad equity price indexes were boosted by many of the
Available indicators suggested that real GDP growth same factors that lowered Treasury yields, and spreads
was slowing from its strong third-quarter pace, which on investment- and speculative-grade corporate bonds
had been led by a sizable increase in consumer spending. narrowed. Financing conditions remained moderately
In October, PCE growth slowed from its average restrictive, as borrowing costs remained elevated despite
monthly rate in the third quarter. As for business invest- declining over the intermeeting period.
ment, nominal shipments of nondefense capital goods
The market-implied path for the federal funds rate be-
excluding aircraft were essentially flat in October, al-
yond the next few months moved down notably over the
though nonresidential construction spending by busi-
intermeeting period. A straight read of federal funds fu-
nesses edged up. Residential housing starts moved
tures rates suggested that market participants expected
mostly sideways, and home sales continued to fall. Man-
the federal funds rate to be 25 basis points below its cur-
ufacturing production declined in October, and factory
rent level by the May 2024 FOMC meeting, two meet-
output was weak, even after excluding the decrease in
ings earlier than at the time of the October–November
motor vehicle assemblies caused by the autoworkers’
FOMC meeting. The policy rate path implied by over-
strike. The nominal trade deficit widened in October, as
night index swap quotes moved down 45 basis points to
exports declined and imports rose slightly.
4.2 percent by the end of 2024. Similarly, nominal Treas-
Foreign economic growth slowed in the third quarter, ury yields declined significantly. The decline in nominal
and available indicators pointed to subdued growth in yields mostly reflected a decrease in real yields, while
the fourth quarter. The significant tightening of mone- measures of inflation compensation were moderately
tary policy by foreign central banks over the past two lower, on net, amid softer-than-expected data releases.
years and the repercussions of last year’s energy shock in Measures of uncertainty about the path of interest rates
Europe continued to weigh on foreign economic activ- decreased notably, consistent with the tempering of con-
ity. Chinese economic indicators, such as retail sales and cerns about inflation, but remained elevated by historical
industrial production, pointed to economic growth re- standards.
maining modest. By contrast, economic activity in Asia
Broad stock price indexes increased markedly over the
excluding China stepped up, supported in part by a re-
intermeeting period, and spreads on investment-grade
covery in industrial production, especially in the high-
bonds narrowed moderately, while those on speculative-
tech sector.
grade corporate bonds declined more notably. The one-
While inflation was still elevated in most major econo- month option-implied volatility on the S&P 500 de-
mies, incoming data indicated that it had moved down creased moderately and reached its lowest level since
markedly. These decreases reflected notable step-downs January 2020.
in both energy and core inflation amid slowing aggregate
Spillovers from falling U.S. yields, below-expectations
demand and declines in oil prices. Most major foreign
readings on global inflation, and oil price drops led to
central banks kept their policy rates unchanged over the
large declines in foreign yields. These declines were ac-
companied by an improvement in market sentiment,
with foreign equity prices increasing, foreign credit
Minutes of the Meeting of December 12–13, 2023 Page 5
_____________________________________________________________________________________________
spreads narrowing, and outflows from funds investing in many markets, including those for corporate bonds, lev-
emerging market economies slowing notably. The im- eraged loans, and agency and non-agency commercial
provement in sentiment and declines in U.S. yields con- mortgage-based securities (CMBS).
tributed to a broad depreciation of the foreign exchange
Credit quality remained broadly solid but deteriorated
value of the dollar.
further for some sectors in recent months. Delinquency
Conditions in U.S. short-term funding markets remained rates on nonfarm nonresidential CRE bank loans rose
largely stable over the intermeeting period. Usage of the further in the third quarter, and delinquency rates for
ON RRP facility continued to decline over the period. construction and land development as well as multifam-
The decline in usage primarily reflected money market ily loans ticked up. After increases over the first three
mutual funds reallocating their assets to Treasury bills quarters of the year, delinquency rates for loans in CMBS
and private-market repo, which offered slightly more at- pools edged lower in October, but the large volume of
tractive market rates relative to the ON RRP rate amid loans scheduled to mature over the next few quarters
continued increases in net Treasury bill issuance and suggested that delinquencies would likely surge again.
Federal Reserve balance sheet reduction. Banks’ total The delinquency rate for small business loans continued
deposit levels were roughly unchanged over the inter- to tick up in September and was above levels observed
meeting period, as outflows of core deposits were about just before the pandemic. Credit card delinquency rates
offset by inflows of large time deposits. also increased further, while delinquency rates on auto
loans were little changed in the third quarter. The trail-
In domestic credit markets, borrowing costs for most
ing default rates for investment- and speculative-grade
businesses, households, and municipalities declined over
corporate bonds were little changed on net, and the trail-
the intermeeting period, reflecting both lower longer-
ing default rate for leveraged loans increased a bit.
maturity Treasury yields and narrower credit spreads, al-
though borrowing costs remained significantly elevated. Staff Economic Outlook
Rates on loans to households, including those for The economic forecast prepared by the staff for the De-
30-year conforming residential mortgages and new auto cember meeting was broadly similar to the projection for
loans, declined over the intermeeting period, while inter- the previous meeting. The staff continued to expect that
est rates on commercial and industrial (C&I) loans and GDP growth would slow markedly in the fourth quarter
small business loans were little changed. Yields on cor- from its outsized third-quarter rate but that economic
porate bonds fell more than Treasury yields, particularly growth for 2023 as a whole would still be solid. The
for speculative-grade bonds. lagged effects of earlier monetary policy actions, through
their contributions to continued tight financial and credit
Bank credit conditions appeared to tighten somewhat
conditions, were expected to show through more fully in
over the intermeeting period, but credit to businesses
restraining economic activity in the coming years. Real
and households generally remained accessible. C&I loan
GDP was projected to increase more slowly than the
balances contracted through November, on balance,
staff’s estimate of potential over the next two years be-
while expansion of commercial real estate (CRE) loans
fore rising in line with potential in 2026. The unemploy-
stepped down appreciably across most categories from
ment rate was expected to be roughly flat through 2026
an already moderating pace in the third quarter.
as the effects of below-potential output growth were off-
Credit remained available for most consumers, although set by the effects of further improvements in labor mar-
consumer credit flows softened in recent months. ket functioning.
Growth of credit card balances moderated significantly
The staff revised down their inflation forecast, reflecting
through November from the brisk pace seen in the sum-
lower-than-expected incoming data—including the No-
mer. For residential real estate borrowers, credit availa-
vember CPI and producer price index—and their judg-
bility was little changed. Credit conditions for small
ment that inflation would be less persistent than in the
businesses appeared to have tightened further in recent
previous projection. Measured on a four-quarter change
months. Data from the Federal Reserve’s Small Busi-
basis, total PCE price inflation was expected to be some-
ness Lending Survey showed that originations had been
what below 3 percent this year, with core PCE price in-
roughly flat since mid-2022 before ticking down in the
flation somewhat above 3 percent. Inflation was pro-
third quarter. Credit continued to be generally accessible
jected to move lower in coming years as demand and
through capital markets, although issuance was slow in
supply in product and labor markets moved into better
Page 6 Federal Open Market Committee
_____________________________________________________________________________________________
alignment; by 2026, total and core PCE price inflation monetary policy was restrictive and appeared to be re-
were expected to be close to 2 percent. straining economic activity and inflation. In light of the
policy restraint in place, along with more favorable data
The staff continued to view uncertainty around the base-
on inflation, participants generally viewed risks to infla-
line projection as elevated, although they observed that
tion and employment as moving toward greater balance.
the volatility of incoming data and staff forecast errors
However, participants remained highly attentive to infla-
generally had become less pronounced over the past
tion risks.
year. Risks around the inflation forecast were seen as
skewed to the upside, given that inflation was still ele- In their discussion of inflation, all participants observed
vated and the possibility that inflation might prove to be that clear progress had been made in 2023 toward the
more persistent than expected or that adverse shocks to Committee’s 2 percent inflation objective. They re-
supply conditions might occur. The risks around the mained concerned that elevated inflation continued to
forecast for economic activity were viewed to be tilted harm households, especially those with limited means to
to the downside. In particular, the additional monetary absorb higher prices. Participants observed that infla-
policy tightening that could be put in place if upside in- tion remained above the Committee’s objective and that
flation risks were to materialize, with the potential for a they would need to see more evidence that inflation
greater tightening of financial conditions, represented a pressures were abating to become confident in a sus-
downside risk to the projection for economic activity. tained return of inflation to 2 percent.
Participants’ Views on Current Conditions and the In reviewing progress to date in reducing inflation, par-
Economic Outlook ticipants noted the improvement in both headline and
In conjunction with this FOMC meeting, participants core inflation and discussed the developments in com-
submitted their projections of the most likely outcomes ponents of these aggregate measures. They observed
for real GDP growth, the unemployment rate, and infla- that progress had been uneven across components, with
tion for each year from 2023 through 2026 and over the energy and core goods prices falling or changing little
longer run. The projections were based on their individ- recently, but core services prices still increasing at an el-
ual assessments of appropriate monetary policy, includ- evated pace. Several participants observed that the on-
ing the path of the federal funds rate. The longer-run going rebalancing of labor supply and demand would
projections represented each participant’s assessment of help reduce core services inflation. Several participants
the rate to which each variable would be expected to assessed that housing services inflation would fall fur-
converge, over time, under appropriate monetary policy ther over time as the earlier deceleration in rents on new
and in the absence of further shocks to the economy. A leases continued to pass through to broader rent
Summary of Economic Projections (SEP) was released measures. Participants also discussed the role played by
to the public following the conclusion of the meeting. various supply and demand factors in the progress on
reducing inflation thus far. They assessed that the con-
In their discussion of current economic conditions, par-
tribution of improved supply had come from supply
ticipants observed that after stronger than expected
chain normalization, boosts to labor supply due to a
growth of real GDP in the third quarter, recent indica-
higher labor force participation rate and immigration,
tors suggested that growth in economic activity had
better productivity growth, or increased domestic oil
slowed. While still strong, job gains had moderated since
production. They also noted that restrictive monetary
earlier this year, and the unemployment rate had re-
policy had helped restrain growth of demand, particu-
mained low. Participants observed that inflation had
larly in interest-sensitive sectors such as business fixed
eased over the past year but remained elevated and
investment, housing, and autos and other durable goods.
above the Committee’s longer-run goal of 2 percent.
Several participants assessed that healing in supply
Regarding the economic outlook, participants generally chains and labor supply was largely complete, and there-
judged that, in 2024, real GDP growth would cool and fore that continued progress in reducing inflation may
that rebalancing of the labor market would continue, need to come mainly from further softening in product
with the unemployment rate rising somewhat from its and labor demand, with restrictive monetary policy con-
current level. Based on better-than-expected data on in- tinuing to play a central role. A few others saw potential
flation, participants revised down their inflation projec- for further improvements in supply. Several participants
tions for 2023 and, to a lesser extent, in subsequent noted that longer-term inflation expectations remained
years. Participants judged that the current stance of well anchored and that near-term inflation expectations
of households had declined recently.
Minutes of the Meeting of December 12–13, 2023 Page 7
_____________________________________________________________________________________________
In their comments about the household sector, partici- the economy. As evidence for the softening of the
pants observed that consumer spending had been growth of labor demand during 2023, many participants
strong, supported by the healthy balance sheets of many noted the decline in job openings, and a few remarked
households, a strong labor market, and robust income on the lower quits rate. Several participants noted the
growth. Retail sales growth had stepped down noticea- risk that, if labor demand were to weaken substantially
bly in October, though a few participants remarked that further, the labor market could transition quickly from a
contacts reported strong sales in November, notably re- gradual easing to a more abrupt downshift in conditions.
lated to holiday spending. Participants mentioned sev-
Participants generally perceived a high degree of uncer-
eral factors that may contribute to softer consumer
tainty surrounding the economic outlook. As an upside
spending, including slower growth of labor income and
risk to both inflation and economic activity, participants
diminishing pandemic-related excess savings. Relatedly,
noted that the momentum of economic activity may be
many participants noted increased usage of credit by
stronger than currently assessed, possibly on account of
households, including from credit cards, buy-now-pay-
the continued balance sheet strength of many house-
later borrowing, and payday loans, as well as increased
holds. Furthermore, participants observed that, after a
delinquency rates for many types of consumer loans.
sharp tightening since the summer, financial conditions
Reports from participants’ business-sector contacts were had eased over the intermeeting period. Many partici-
mixed, with some contacts remaining relatively optimis- pants remarked that an easing in financial conditions be-
tic and others expecting slower growth for 2024. Several yond what is appropriate could make it more difficult for
participants observed that higher interest rates were the Committee to reach its inflation goal. Participants
leading firms to reassess future projects and were con- also noted other sources of upside risks to inflation, in-
tributing to softer business investment and hiring. A cluding possible effects on global energy and food prices
couple of participants commented on small businesses, of geopolitical developments, a potential rebound in
noting that such businesses were experiencing tighter core goods prices following the period of supply chain
credit conditions and increasing delinquencies. A few improvements, or the effects of nearshoring and on-
participants noted that contacts in manufacturing re- shoring activities on labor demand and inflation. Down-
ported slowing growth, while a couple of participants ex- side risks to economic activity noted by participants in-
pected that low prices for some commodities and cluded the possibility that effects of past policy tighten-
drought conditions would reduce agricultural incomes ing may be larger than expected, the risk of a marked
this year. Regarding concerns about CRE, several par- weakening of household balance sheets, possible nega-
ticipants noted that a significant share of properties tive spillovers from lower growth in some foreign econ-
would need to be refinanced in 2024 against a backdrop omies, geopolitical risks, and lingering risks of further
of higher interest rates, continued weakness in the office tightening in bank credit. Relatedly, several participants
sector, and balance sheet pressures faced by some lend- noted that the weakness in gross domestic income
ers. growth relative to GDP growth over the past few quar-
ters may suggest that economic momentum during that
Participants assessed that while the labor market re-
period was not as strong as indicated by the GDP read-
mained tight, it continued to come into better balance.
ings.
Many noted that nominal wage growth had continued to
slow broadly and that business contacts expected a fur- In their consideration of appropriate monetary policy ac-
ther reduction in wage growth. A few participants ob- tions at this meeting, participants noted that recent indi-
served that payroll growth had slowed substantially since cators suggested that growth of economic activity had
the beginning of the year. Some participants remarked slowed from its strong pace in the third quarter. Job
that their contacts reported larger applicant pools for va- gains had moderated since earlier in the year but re-
cancies, and some participants highlighted that the ratio mained strong, the unemployment rate had remained
of vacancies to unemployed workers had declined to a low, and there were continuing signs that supply and de-
value only modestly above its level just before the pan- mand in the labor market were coming into better bal-
demic. Participants viewed improvements in labor sup- ance. Inflation had eased over the past year but re-
ply and the easing of labor demand as both having con- mained elevated. Participants also noted that tighter fi-
tributed to the labor market coming into better balance. nancial and credit conditions facing households and
Supply had improved because of higher labor force par- businesses would likely weigh on economic activity, hir-
ticipation and immigration, with continued solid produc- ing, and inflation, although the extent of these effects
tivity growth also supporting the productive capacity of
Page 8 Federal Open Market Committee
_____________________________________________________________________________________________
remained uncertain. Participants continued to be reso- possible that the economy could evolve in a manner that
lute in their commitment to bring inflation down to the would make further increases in the target range appro-
Committee’s 2 percent objective. priate. Several also observed that circumstances might
warrant keeping the target range at its current value for
In light of current economic conditions and their impli-
longer than they currently anticipated. Participants gen-
cations for the outlook for economic activity and infla-
erally stressed the importance of maintaining a careful
tion, as well as the balance of risks, all participants judged
and data-dependent approach to making monetary pol-
it appropriate to maintain the target range for the federal
icy decisions and reaffirmed that it would be appropriate
funds rate at 5¼ to 5½ percent at this meeting. All par-
for policy to remain at a restrictive stance for some time
ticipants also agreed that it was appropriate to continue
until inflation was clearly moving down sustainably to-
the process of reducing the Federal Reserve’s securities
ward the Committee’s objective.
holdings, as described in the previously announced Plans
for Reducing the Size of the Federal Reserve’s Balance Participants discussed several risk-management consid-
Sheet. erations that could bear on future policy decisions. Par-
ticipants saw upside risks to inflation as having dimin-
Participants assessed that maintaining the current policy
ished but noted that inflation was still well above the
stance was supported by intermeeting data indicating
Committee’s longer-run goal and that a risk remained
that inflation had continued to move toward the Com-
that progress toward price stability would stall. A num-
mittee’s 2 percent objective and that the labor market
ber of participants highlighted the uncertainty associated
had continued to move into better balance. They judged
with how long a restrictive monetary policy stance would
that maintaining the target range for the federal funds
need to be maintained, and pointed to the downside
rate at this meeting would promote further progress to-
risks to the economy that would be associated with an
ward the Committee’s goals and allow participants more
overly restrictive stance. A few suggested that the Com-
time to gather additional information to evaluate this
mittee potentially could face a tradeoff between its dual-
progress.
mandate goals in the period ahead.
In discussing the policy outlook, participants viewed the
Participants observed that the continuing process of re-
policy rate as likely at or near its peak for this tightening
ducing the size of the Federal Reserve’s balance sheet
cycle, though they noted that the actual policy path will
was an important part of the Committee’s overall ap-
depend on how the economy evolves. Participants
proach to achieving its macroeconomic objectives and
pointed to the decline in inflation seen during 2023, not-
that balance sheet runoff had so far proceeded smoothly.
ing the recent shift down in six-month inflation readings
Several participants noted that, amid the ongoing bal-
in particular, and to growing signs of demand and supply
ance sheet normalization, there had been a further de-
coming into better balance in product and labor markets
cline over the intermeeting period in use of the ON RRP
as informing that view. Several participants remarked
facility and that this reduced usage largely reflected port-
that the Committee’s past policy actions were having
folio shifts by money market mutual funds toward
their intended effect of helping to slow the growth of
higher-yielding investments, including Treasury bills and
aggregate demand and cool labor market conditions.
private-market repo. Several participants remarked that
They judged that, in combination with improvements in
the Committee’s balance sheet plans indicated that it
the supply situation, these developments were helping to
would slow and then stop the decline in the size of the
bring inflation back to 2 percent over time. Most partic-
balance sheet when reserve balances are somewhat
ipants noted that, as indicated in their submissions to the
above the level judged consistent with ample reserves.
SEP, they expected the Committee’s restrictive policy
These participants suggested that it would be appropri-
stance to continue to soften household and business
ate for the Committee to begin to discuss the technical
spending, helping to promote further reductions in in-
factors that would guide a decision to slow the pace of
flation over the next few years.
runoff well before such a decision was reached in order
In their submitted projections, almost all participants in- to provide appropriate advance notice to the public.
dicated that, reflecting the improvements in their infla-
Committee Policy Actions
tion outlooks, their baseline projections implied that a
In their discussions of monetary policy for this meeting,
lower target range for the federal funds rate would be
members agreed that recent indicators suggested that
appropriate by the end of 2024. Participants also noted,
growth of economic activity had slowed from its strong
however, that their outlooks were associated with an un-
pace in the third quarter. Job gains had moderated since
usually elevated degree of uncertainty and that it was
Minutes of the Meeting of December 12–13, 2023 Page 9
_____________________________________________________________________________________________
earlier in the year but remained strong, and the unem- erally viewed the addition of the word “any” to this sen-
ployment rate had remained low. Inflation had eased tence as appropriately relaying their judgment that the
over the past year but remained elevated. target range for the federal funds rate was likely now at
or near its peak for this policy tightening cycle while
Members concurred that the U.S. banking system was
leaving open the possibility of further increases in the
sound and resilient. They also agreed that tighter finan-
target range if these were warranted by the totality of the
cial and credit conditions for households and businesses
incoming data, the evolving outlook, and the balance of
were likely to weigh on economic activity, hiring, and in-
risks.
flation but that the extent of these effects was uncertain.
Members agreed that they remained highly attentive to At the conclusion of the discussion, the Committee
inflation risks. voted to direct the Federal Reserve Bank of New York,
until instructed otherwise, to execute transactions in the
In support of the Committee’s objective to achieve max-
System Open Market Account in accordance with the
imum employment and inflation at the rate of 2 percent
following domestic policy directive, for release at
over the longer run, members agreed to maintain the tar-
2:00 p.m.:
get range for the federal funds rate at 5¼ to 5½ percent.
They also agreed that they would continue to assess ad- “Effective December 14, 2023, the Federal
ditional information and its implications for monetary Open Market Committee directs the Desk to:
policy. In determining the extent of any additional pol-
• Undertake open market operations as nec-
icy firming that may be appropriate to return inflation to
essary to maintain the federal funds rate in
2 percent over time, members concurred that they would
a target range of 5¼ to 5½ percent.
take into account the cumulative tightening of monetary
policy, the lags with which monetary policy affects eco- • Conduct standing overnight repurchase
nomic activity and inflation, and economic and financial agreement operations with a minimum bid
developments. In addition, members agreed to continue rate of 5.5 percent and with an aggregate
to reduce the Federal Reserve’s holdings of Treasury se- operation limit of $500 billion.
curities and agency debt and agency mortgage-backed
securities, as described in its previously announced • Conduct standing overnight reverse repur-
plans. All members affirmed their strong commitment chase agreement operations at an offering
to returning inflation to their 2 percent objective. rate of 5.3 percent and with a per-counter-
party limit of $160 billion per day.
Members agreed that, in assessing the appropriate stance
of monetary policy, they would continue to monitor the • Roll over at auction the amount of principal
implications of incoming information for the economic payments from the Federal Reserve’s hold-
outlook. They would be prepared to adjust the stance of ings of Treasury securities maturing in each
monetary policy as appropriate if risks emerge that could calendar month that exceeds a cap of
impede the attainment of the Committee’s goals. Mem- $60 billion per month. Redeem Treasury
bers also agreed that their assessments would take into coupon securities up to this monthly cap
account a wide range of information, including readings and Treasury bills to the extent that coupon
on labor market conditions, inflation pressures and in- principal payments are less than the
flation expectations, and financial and international de- monthly cap.
velopments. • Reinvest into agency mortgage-backed se-
Members agreed that their postmeeting statement curities (MBS) the amount of principal pay-
should acknowledge the slowing of economic activity ments from the Federal Reserve’s holdings
from its strong pace in the third quarter as well as the of agency debt and agency MBS received in
fact that inflation had eased over the past year but re- each calendar month that exceeds a cap of
mained elevated. Members also agreed to modify the $35 billion per month.
sentence in their postmeeting statement discussing the • Allow modest deviations from stated
considerations relevant for future policy actions to indi- amounts for reinvestments, if needed for
cate that the Committee would determine “the extent of operational reasons.
any additional policy firming that may be appropriate to
return inflation to 2 percent over time.” Members gen-
Page 10 Federal Open Market Committee
_____________________________________________________________________________________________
• Engage in dollar roll and coupon swap In assessing the appropriate stance of monetary
transactions as necessary to facilitate settle- policy, the Committee will continue to monitor
ment of the Federal Reserve’s agency MBS the implications of incoming information for
transactions.” the economic outlook. The Committee would
be prepared to adjust the stance of monetary
The vote also encompassed approval of the statement
policy as appropriate if risks emerge that could
below for release at 2:00 p.m.:
impede the attainment of the Committee’s
“Recent indicators suggest that growth of eco- goals. The Committee’s assessments will take
nomic activity has slowed from its strong pace into account a wide range of information, in-
in the third quarter. Job gains have moderated cluding readings on labor market conditions, in-
since earlier in the year but remain strong, and flation pressures and inflation expectations, and
the unemployment rate has remained low. In- financial and international developments.”
flation has eased over the past year but remains
Voting for this action: Jerome H. Powell, John C.
elevated.
Williams, Michael S. Barr, Michelle W. Bowman, Lisa D.
The U.S. banking system is sound and resilient. Cook, Austan D. Goolsbee, Patrick Harker, Philip N.
Tighter financial and credit conditions for Jefferson, Neel Kashkari, Adriana D. Kugler, Lorie K.
households and businesses are likely to weigh Logan, and Christopher J. Waller.
on economic activity, hiring, and inflation. The
Voting against this action: None.
extent of these effects remains uncertain. The
Committee remains highly attentive to inflation Consistent with the Committee’s decision to leave the
risks. target range for the federal funds rate unchanged, the
Board of Governors of the Federal Reserve System
The Committee seeks to achieve maximum em-
voted unanimously to maintain the interest rate paid on
ployment and inflation at the rate of 2 percent
reserve balances at 5.4 percent, effective December 14,
over the longer run. In support of these goals,
2023. The Board of Governors of the Federal Reserve
the Committee decided to maintain the target
System voted unanimously to approve the establishment
range for the federal funds rate at 5¼ to
of the primary credit rate at the existing level of 5.5 per-
5½ percent. The Committee will continue to
cent, effective December 14, 2023.
assess additional information and its implica-
tions for monetary policy. In determining the It was agreed that the next meeting of the Committee
extent of any additional policy firming that may would be held on Tuesday–Wednesday, January 30–31,
be appropriate to return inflation to 2 percent 2024. The meeting adjourned at 10:15 a.m. on Decem-
over time, the Committee will take into account ber 13, 2023.
the cumulative tightening of monetary policy,
Notation Vote
the lags with which monetary policy affects eco- By notation vote completed on November 20, 2023, the
nomic activity and inflation, and economic and Committee unanimously approved the minutes of the
financial developments. In addition, the Com-
Committee meeting held on October 31–November 1,
mittee will continue reducing its holdings of
2023.
Treasury securities and agency debt and agency
mortgage-backed securities, as described in its
previously announced plans. The Committee is
strongly committed to returning inflation to its
_______________________
2 percent objective. Joshua Gallin
Secretary