Fed Minutes

Find below the full Fed Minutes released last night.

Staff Review of the Economic Situation
The information reviewed at the January 24-25 meeting indicated that U.S. economic activity continued to expand moderately, while global growth appeared to be slowing. Overall conditions in the labor market improved further, although the unemployment rate remained elevated. Consumer price inflation was subdued, and measures of long-run inflation expectations remained stable.

The unemployment rate declined to 8.5 percent in December; however, both long-duration unemployment and the share of workers employed part time for economic reasons were still quite high. Private nonfarm employment continued to expand moderately, while state and local government employment decreased at a slower pace than earlier in 2011. Some indicators of firms’ hiring plans improved. Initial claims for unemployment insurance edged lower, on balance, since the middle of December but remained at a level consistent with only modest employment growth.

Industrial production expanded in November and December, on net, and the rate of manufacturing capacity utilization moved up. Motor vehicle assemblies were scheduled to increase, on balance, in the first quarter of 2012, and broader indicators of manufacturing activity, such as the diffusion indexes of new orders from the national and regional manufacturing surveys, were at levels that suggested moderate growth in production in the near term.

Real personal consumption expenditures continued to rise moderately in November, boosted by spending for motor vehicles and other durables, although households’ real disposable income edged down. In December, however, nominal retail sales excluding purchases at motor vehicle and parts outlets declined, and sales of motor vehicles also dropped slightly. Consumer sentiment improved further in early January but was still at a low level.

Activity in the housing market improved a bit in recent months but continued to be held down by the large overhang of foreclosed and distressed properties, uncertainty about future home prices, and tight underwriting standards for mortgage loans. Starts and permits for new single-family homes rose in November and December but remained only a little above the depressed levels seen earlier in 2011. Sales of new and existing homes also firmed somewhat in recent months, but home prices continued to trend lower.

Real business expenditures on equipment and software appeared to have decelerated in the fourth quarter. Nominal orders and shipments of nondefense capital goods excluding aircraft declined in November for a second month. Forward-looking indicators of firms’ equipment spending were mixed: Some survey measures of business conditions and capital spending plans improved, but corporate bond spreads continued to be elevated and analysts’ earnings expectations for producers of capital goods remained muted. Nominal business spending for nonresidential construction was unchanged in November and continued to be held back by high vacancy rates and tight credit conditions for construction loans. Inventories in most industries looked to be well aligned with sales, though motor vehicle stocks remained lean.

Monthly data for federal government spending pointed to a significant decline in real defense purchases in the fourth quarter. Real state and local government purchases seemed to be decreasing at a slower rate than during earlier quarters, as the pace of reductions in payrolls eased and construction spending leveled off in recent months.

The U.S. international trade deficit widened in November as exports fell and imports rose. Exports declined in most major categories, with the exception of consumer goods. Exports of industrial supplies and materials were especially weak, though the weakness was concentrated in a few particularly volatile categories and reflected, in part, declines in prices. The rise in imports largely reflected higher imports of petroleum products and automotive products, which more than offset decreases in most other broad categories of imports.

Overall U.S. consumer prices as measured by the price index for personal consumption expenditures were unchanged in November; as measured by the consumer price index, they were flat in December as well. Consumer energy prices decreased in recent months, while increases in consumer food prices slowed. Consumer prices excluding food and energy rose modestly in the past two months. Near-term inflation expectations from the Thomson Reuters/University of Michigan Surveys of Consumers were essentially unchanged in early January, and longer-term inflation expectations remained stable.

Available measures of labor compensation indicated that wage gains continued to be modest. Average hourly earnings for all employees posted a moderate gain in December, and their rate of increase from 12 months earlier remained slow.

Recent indicators of foreign economic activity pointed to a substantial deceleration in the fourth quarter of 2011. In the euro area, retail sales and industrial production were below their third-quarter averages in both October and November. Economic activity in much of Asia was disrupted by the effects of severe flooding in Thailand, which affected supply chains in the region. Twelve-month inflation rates receded in several advanced and emerging market economies, and most central banks maintained policy rates or eased further while continuing to provide significant liquidity support.

Staff Review of the Financial Situation
Developments in Europe continued to be a central focus for investors over the intermeeting period as concerns persisted about the prospects for a durable solution to the European fiscal and financial difficulties. Nevertheless, market sentiment toward Europe appeared to brighten a bit, and U.S. economic data releases were somewhat better than investors expected, leading to some improvement in conditions in financial markets.

On balance over the period, the expected path for the federal funds rate implied by money market futures quotes was essentially unchanged. Yields on nominal Treasury securities rose slightly at intermediate and longer maturities. Indicators of inflation compensation derived from nominal and inflation-protected Treasury securities edged up.

U.S. financial institutions reportedly retained ready access to short-term funding markets; there were no significant dislocations in those markets over year-end. Dollar funding pressures for European banks eased slightly. While spreads of the London interbank offered rate (Libor) over overnight index swap (OIS) rates of the same maturity remained elevated, rates for unsecured overnight commercial paper (CP) issued by some entities with European parents declined substantially following the lowering of charges on the central bank liquidity swap lines with the Federal Reserve, the implementation by the European Central Bank (ECB) of its first three-year longer-term refinancing operation (LTRO), and the passage of year-end. In secured funding markets, spreads of overnight asset-backed CP rates over overnight unsecured CP rates also declined, and the general collateral repurchase agreement, or repo, market continued to function normally.

Indicators of financial stress eased somewhat over the intermeeting period, although they generally continued to be elevated. Market-based measures of possible spillovers from troubles at particular financial firms to the broader financial system were below their levels in the fall but remained above their levels prior to the financial crisis. Initial fourth-quarter earnings reports for large bank holding companies were mixed relative to market expectations, with poor capital market revenues weighing on the profits of institutions with significant trading operations. Although credit default swap (CDS) spreads of most large domestic bank holding companies remained elevated, they moved lower over the intermeeting period, and some institutions took advantage of easing credit conditions by issuing significant quantities of new long-term debt. Equity prices of most large domestic financial institutions outperformed the broader market, on net, over the intermeeting period. Nonetheless, the ratio of the market value of bank equity to its book value remained low for some large financial firms. Responses to the December Senior Credit Officer Opinion Survey on Dealer Financing Terms indicate that, since August, securities dealers have devoted increased time and attention to the management of concentrated credit exposures to other financial intermediaries, pointing to increased concern over counterparty risk.

Broad equity price indexes increased more than 6 percent, on net, over the intermeeting period, and option-implied equity volatility declined notably. Yields on investment-grade corporate bonds declined a bit relative to those on comparable-maturity Treasury securities, while spreads of speculative-grade corporate bond yields over yields on Treasury securities decreased noticeably. Indicators of the credit quality of nonfinancial corporations continued to be solid. Conditions in the secondary market for leveraged loans were stable, with median bid prices about unchanged. Financing conditions for large nonfinancial businesses generally remained favorable. Bond issuance by investment-grade nonfinancial corporations was robust, though below its elevated November pace, while issuance by lower-rated firms slowed, likely owing in part to seasonal factors. Issuance of leveraged loans was relatively modest in the fourth quarter compared with its rapid pace earlier in the year. Share repurchases and cash-financed mergers by nonfinancial firms maintained their recent strength in the third quarter, leaving net equity issuance deeply negative.

Financing conditions for commercial real estate (CRE) remained strained, and issuance of commercial mortgage-backed securities was very light in the fourth quarter. Responses to the January Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) indicated that bank CRE lending standards continued to be extraordinarily tight, but some banks reported having reduced the spreads of loan rates over their cost of funds (compared with a year ago) for the first time since 2007. Delinquency rates on commercial mortgages remained elevated, and CRE price indexes continued to fluctuate around levels substantially lower than their 2007 peaks.

Conditions in residential mortgage markets remained extremely tight. Although mortgage interest rates and yields on current-coupon agency MBS edged down to near their historical lows, mortgage refinancing activity continued to be subdued amid tight underwriting standards and low levels of home equity. Mortgage delinquency rates, while improving gradually, remained elevated relative to pre-crisis norms, and house prices continued to move lower. The price of subprime residential mortgage-backed securities (RMBS), as measured by the ABX index, rose over the intermeeting period, consistent with similar changes for other higher-risk fixed-income securities. RMBS prices were supported by reports of the sale of a significant portion of the RMBS held in the Maiden Lane II portfolio.

On the whole, conditions in consumer credit markets showed signs of improvement. Consumer credit increased in November, while delinquency rates on credit card loans in securitized pools held steady in November at historically low levels. Data on credit card solicitations and from responses to the January SLOOS suggested that lending standards on consumer loans continued to ease modestly.

Financing conditions for state and local governments were mixed. Gross long-term issuance of municipal bonds remained robust in December, with continued strength in new issuance for capital projects. CDS spreads for states inched down further over the intermeeting period, and yields on long-term general obligation municipal bonds fell notably. However, downgrades of municipal bonds continued to substantially outpace upgrades in the third quarter.

In the fourth quarter, bank credit continued to increase as banks accumulated agency MBS and growth of total loans picked up. Core loans–the sum of commercial and industrial (C&I) loans, real estate loans, and consumer loans–expanded modestly. Growth of C&I loans at domestic banks was robust but was partly offset by weakness at U.S. branches and agencies of European banks. Noncore loans rose sharply, on net, reflecting in part a surge in such loans at the U.S. branches and agencies of European institutions. Responses to the January SLOOS indicated that, in the aggregate, loan demand strengthened slightly and lending standards eased a bit further in the fourth quarter.

M2 increased at an annual rate of 5 1/4 percent in December, likely reflecting continued demand for safe and liquid assets given investor concerns over developments in Europe. In addition, demand deposits rose rapidly around year-end, reportedly because lenders in short-term funding markets chose to leave substantial balances with banks over the turn of the year. The monetary base increased in December, largely reflecting growth in currency. Reserve balances were roughly unchanged over the intermeeting period.

International financial markets seemed somewhat calmer over the intermeeting period than they had been in previous months, and the funding conditions faced by most European financial institutions and sovereigns eased somewhat in the wake of the ECB’s first three-year LTRO. Short-term euro interest rates moved lower as euro-area institutions drew a substantial amount of three-year funds from the ECB, and dollar funding costs for European banks also appeared to decline. Spreads of yields on Italian and Spanish government debt over those on German bunds narrowed over the intermeeting period, with spreads on shorter-term debt falling particularly noticeably. The apparent improvement in market sentiment was not diminished by news late in the period that Standard & Poor’s lowered its long-term sovereign bond ratings of nine euro-area countries and the European Financial Stability Facility or by news that negotiations over the terms of a voluntary private-sector debt exchange for Greece had not yet reached a conclusion.

The staff’s broad index of the foreign exchange value of the dollar declined slightly over the intermeeting period. While the dollar fell against most other currencies, it appreciated against the euro. Foreign stock markets generally ended the period higher, with headline equity indexes in Europe and the emerging market economies up substantially, although emerging market equity and bond funds continued to experience outflows on net during the period.

Staff Economic Outlook
In the economic forecast prepared for the January FOMC meeting, the staff’s projection for the growth in real gross domestic product (GDP) in the near term was revised down a bit. The revision reflected the apparent decline in federal defense purchases and the somewhat shallower trajectory for consumer spending in recent months; the recent data on the labor market, production, and other spending categories were, on balance, roughly in line with the staff’s expectations at the time of the previous forecast. The medium-term projection for real GDP growth in the January forecast was little changed from the one presented in December. Although the developments in Europe were expected to continue to weigh on the U.S. economy during the first half of this year, the staff still projected that real GDP growth would accelerate gradually in 2012 and 2013, supported by accommodative monetary policy, further improvements in credit availability, and rising consumer and business sentiment. The increase in real GDP was expected to be sufficient to reduce the slack in product and labor markets only slowly over the projection period, and the unemployment rate was anticipated to still be high at the end of 2013.

The staff’s forecast for inflation was essentially unchanged from the projection prepared for the December FOMC meeting. With stable long-run inflation expectations and substantial slack in labor and product markets anticipated to persist over the forecast period, the staff continued to project that inflation would remain subdued in 2012 and 2013.

Participants’ Views on Current Conditions and the Economic Outlook
In conjunction with this FOMC meeting, all participants–the five members of the Board of Governors and the presidents of the 12 Federal Reserve Banks–provided projections of output growth, the unemployment rate, and inflation for each year from 2011 through 2014 and over the longer run. Longer-run projections represent each participant’s assessment of the rate to which each variable would be expected to converge, over time, under appropriate monetary policy and in the absence of further shocks to the economy. Starting with this meeting, participants also provided assessments of the path for the target federal funds rate that they view as appropriate and compatible with their individual economic projections. Participants’ economic projections and policy assessments are described in more detail in the Summary of Economic Projections, which is attached as an addendum to these minutes.

In their discussion of the economic situation and outlook, meeting participants agreed that the information received since the Committee met in December suggested that the economy had been expanding moderately, notwithstanding some slowing in growth abroad. In general, labor market indicators pointed to some further improvement in labor market conditions, but progress was gradual and the unemployment rate remained elevated. Household spending had continued to advance at a moderate pace despite still-sluggish growth in real disposable income, but growth in business fixed investment had slowed. The housing sector remained depressed, with very low levels of activity; there were, however, signs of improvement in some local housing markets. Many participants observed that some indicators bearing on the economy’s recent performance had shown greater-than-expected improvement, but a number also noted less favorable data; one noted that growth in final sales appeared to have slowed in the fourth quarter of last year even as output growth picked up. Inflation had been subdued in recent months, there was little evidence of wage or cost pressures, and longer-term inflation expectations had remained stable.

With respect to the economic outlook, participants generally anticipated that economic growth over coming quarters would be modest and, consequently, expected that the unemployment rate would decline only gradually. A number of factors were seen as likely to restrain the pace of economic expansion, including the slowdown in economic activity abroad, fiscal tightening in the United States, the weak housing market, further household deleveraging, high levels of uncertainty among households and businesses, and the possibility of increased volatility in financial markets until the fiscal and banking issues in the euro area are more fully addressed. Participants continued to expect these headwinds to ease over time and so anticipated that the recovery would gradually gain strength. However, participants agreed that strains in global financial markets continued to pose significant downside risks to the economic outlook. With unemployment expected to remain elevated, and with longer-term inflation expectations stable, almost all participants expected inflation to remain subdued in coming quarters–that is, to run at or below the 2 percent level that the Committee judges most consistent with its statutory mandate over the longer run.

In discussing the household sector, meeting participants noted that consumer spending had grown moderately in recent months. Consumer sentiment had improved since last summer, though its level was still quite low. Business contacts in the retail sector reported generally satisfactory holiday sales, but high-end retailers saw strong gains while lower-end retailers saw mixed results. Contacts also reported widespread discounting. Major express delivery companies indicated very high volumes at year-end and into January. Several participants observed that consumer spending had outpaced growth in personal disposable income last year, and a few noted that households remained pessimistic about their income prospects and uncertain about the economic outlook. These observations suggested that growth of consumer spending might slow. However, a few other participants pointed to increasing job gains in recent months as contributing to an improving trend in real incomes and thus supporting continued moderate growth in consumer spending.

Reports from business contacts indicated that activity in the manufacturing, energy, and agricultural sectors continued to advance in recent months. Businesses generally reported that they remained cautious regarding capital spending and hiring; some contacts cited uncertainty about the economic outlook and about fiscal and regulatory policy. Nonetheless, business contacts had become somewhat more optimistic, with more contacts reporting plans to expand capacity and payrolls. Some companies indicated that they planned to relocate some production from abroad to the United States. A few participants noted that national and District surveys of firms’ capital spending plans suggested that the recent slowing in business fixed investment was partly temporary. The combination of high energy prices and availability of new drilling technologies was promoting strong growth in investment outlays in the energy sector.

Participants generally saw the housing sector as still depressed. The level of activity remained quite weak, house prices were continuing to decline in most areas, and the overhang of foreclosed and distressed properties was still substantial. Nonetheless, there were some small signs of improvement. The inventory of unsold homes had declined, though in part because the foreclosure process had slowed, and issuance of permits for new single-family homes had risen from its lows. One participant again noted reports from some homebuilders suggesting that land prices were edging up and that financing was available from nonbank sources. Another participant cited reports from business contacts indicating that credit standards in mortgage lending were becoming somewhat less stringent. Yet another noted that recent changes to the Home Affordable Refinance Program, which were intended to streamline the refinancing of performing high-loan-to-value mortgages, were showing some success.

Participants generally expected that growth of U.S. exports was likely to be held back in the coming year by slower global economic growth. In particular, fiscal austerity programs in Europe and stresses in the European banking system seemed likely to restrain economic growth there, perhaps with some spillover to growth in Asia. One participant noted that shipping rates had declined of late, suggesting that a slowdown in international trade might be under way.

Participants agreed that recent indicators showed some further gradual improvement in overall labor market conditions: Payroll employment had increased somewhat more rapidly in recent months, new claims for unemployment insurance had trended lower, and the unemployment rate had declined. Some business contacts indicated that they planned to do more hiring this year than last. However, unemployment–including longer-term unemployment–remained elevated, and the numbers of discouraged workers and people working part time because they could not find full-time work were also still quite high. Participants expressed a range of views on the current extent of slack in the labor market. Very high long-duration unemployment might indicate a mismatch between unemployed workers’ skills and employers’ needs, suggesting that a substantial part of the increase in unemployment since the beginning of the recession reflected factors other than a shortfall in aggregate demand. In contrast, the quite modest increases in labor compensation of late, and the large number of workers reporting that they are working part time because their employers have cut their hours, suggested that underutilization of labor was still substantial. A few participants noted that the recent decline in the unemployment rate reflected declining labor force participation in large part, and judged that the decline in the participation rate was likely to be reversed, at least to some extent, as the recovery continues and labor demand picks up.

Meeting participants observed that financial conditions improved and financial market stresses eased somewhat during the intermeeting period: Equity prices rose, volatility declined, and bank lending conditions appeared to improve. Participants noted that the ECB’s three-year refinancing operation had apparently contributed to improved conditions in European sovereign debt markets. Nonetheless, participants expected that global financial markets would remain focused on the evolving situation in Europe and anticipated that continued policy efforts would be necessary in Europe to fully address the area’s fiscal and financial problems. U.S. banks reported increases in commercial lending as some European lenders pulled back, and some banking contacts indicated that creditworthy companies’ demand for credit had increased. A number of participants noted further improvement in the availability of loans to businesses, with a couple of them indicating that small business contacts had reported increased availability of bank credit. However, a few other participants commented that small businesses in their Districts continued to face difficulty in obtaining bank loans.

Participants observed that longer-run inflation expectations were still well anchored and also noted that inflation had been subdued in recent months, partly reflecting a decline in commodity prices and an easing of supply chain disruptions since mid-2011. In addition, labor compensation had risen only slowly and productivity continued to increase. One participant reported that a survey of business inflation expectations indicated firms were anticipating increases in unit costs on the order of 1 3/4 percent this year, just a bit higher than last year. Looking farther ahead, participants generally judged that the modest expansion in economic activity that they were projecting would be consistent with a gradual reduction in the current wide margins of slack in labor and product markets and with subdued inflation going forward. Some remained concerned that, with the persistence of considerable resource slack, inflation might continue to drift down and run below mandate-consistent levels for some time. However, a couple of participants were concerned that inflation could rise as the recovery continued and argued that providing additional monetary accommodation, or even maintaining the current highly accommodative stance of monetary policy over the medium run, would erode the stability of inflation expectations and risk higher inflation.

Committee participants discussed possible changes to the forward guidance that has been included in the Committee’s recent post-meeting statements. Many participants thought it important to explore means for better communicating policymakers’ thinking about future monetary policy and its relationship to evolving economic conditions. A couple of participants expressed concern that some press reports had misinterpreted the Committee’s use of a date in its forward guidance as a commitment about its future policy decisions. Several participants thought it would be helpful to provide more information about the economic conditions that would be likely to warrant maintaining the current target range for the federal funds rate, perhaps by providing numerical thresholds for the unemployment and inflation rates. Different opinions were expressed regarding the appropriate values of such thresholds, reflecting different assessments of the path for the federal funds rate that would likely be appropriate to foster the Committee’s longer-run goals. However, some participants worried that such thresholds would not accurately or effectively convey the Committee’s forward-looking approach to monetary policy and thus would pose difficult communications issues, or that movements in the unemployment rate, by themselves, would be an unreliable measure of progress toward maximum employment. Several participants proposed either dropping or greatly simplifying the forward guidance in the Committee’s statement, arguing that information about participants’ assessments of the appropriate future level of the federal funds rate, which would henceforth be contained in the Summary of Economic Projections (SEP), made it unnecessary to include forward guidance in the post-meeting statement. However, several other participants emphasized that the information regarding the federal funds rate in the SEP could not substitute for a formal decision of the members of the FOMC. Participants agreed to continue exploring approaches for providing the public with greater clarity about the linkages between the economic outlook and the Committee’s monetary policy decisions.

Committee Policy Action
Members viewed the information on U.S. economic activity received over the intermeeting period as suggesting that the economy had been expanding moderately and generally agreed that the economic outlook had not changed greatly since they met in December. While overall labor market conditions had improved somewhat further and unemployment had declined in recent months, almost all members viewed the unemployment rate as still elevated relative to levels that they saw as consistent with the Committee’s mandate over the longer run. Available data indicated some slowing in the pace of economic growth in Europe and in some emerging market economies, pointing to reduced growth of U.S. exports going forward. With the economy facing continuing headwinds from the recent financial crisis and with growth slowing in a number of U.S. export markets, members generally expected a modest pace of economic growth over coming quarters, with the unemployment rate declining only gradually. Strains in global financial markets continued to pose significant downside risks to economic activity. Inflation had been subdued in recent months, and longer-term inflation expectations remained stable. Members generally anticipated that inflation over coming quarters would run at or below the 2 percent level that the Committee judges most consistent with its mandate.

In their discussion of monetary policy for the period ahead, members agreed that it would be appropriate to maintain the existing highly accommodative stance of monetary policy. In particular, they agreed to keep the target range for the federal funds rate at 0 to 1/4 percent, to continue the program of extending the average maturity of the Federal Reserve’s holdings of securities as announced in September, and to retain the existing policies regarding the reinvestment of principal payments from Federal Reserve holdings of securities.

With respect to the statement to be released following the meeting, members agreed that only relatively small modifications to the first two paragraphs were needed to reflect the incoming information and the modest changes to the economic outlook implied by the recent data. In light of the economic outlook, almost all members agreed to indicate that the Committee expects to maintain a highly accommodative stance for monetary policy and currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014, longer than had been indicated in recent FOMC statements. In particular, several members said they anticipated that unemployment would still be well above their estimates of its longer-term normal rate, and inflation would be at or below the Committee’s longer-run objective, in late 2014. It was noted that extending the horizon of the Committee’s forward guidance would help provide more accommodative financial conditions by shifting downward investors’ expectations regarding the future path of the target federal funds rate. Some members underscored the conditional nature of the Committee’s forward guidance and noted that it would be subject to revision in response to significant changes in the economic outlook.

The Committee also stated that it is prepared to adjust the size and composition of its securities holdings as appropriate to promote a stronger economic recovery in a context of price stability. A few members observed that, in their judgment, current and prospective economic conditions–including elevated unemployment and inflation at or below the Committee’s objective–could warrant the initiation of additional securities purchases before long. Other members indicated that such policy action could become necessary if the economy lost momentum or if inflation seemed likely to remain below its mandate-consistent rate of 2 percent over the medium run. In contrast, one member judged that maintaining the current degree of policy accommodation beyond the near term would likely be inappropriate; that member anticipated that a preemptive tightening of monetary policy would be necessary before the end of 2014 to keep inflation close to 2 percent.

At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until it was instructed otherwise, to execute transactions in the System Account in accordance with the following domestic policy directive:

“The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output. To further its long-run objectives, the Committee seeks conditions in reserve markets consistent with federal funds trading in a range from 0 to 1/4 percent. The Committee directs the Desk to continue the maturity extension program it began in September to purchase, by the end of June 2012, Treasury securities with remaining maturities of approximately 6 years to 30 years with a total face value of $400 billion, and to sell Treasury securities with remaining maturities of 3 years or less with a total face value of $400 billion. The Committee also directs the Desk to maintain its existing policies of rolling over maturing Treasury securities into new issues and of reinvesting principal payments on all agency debt and agency mortgage-backed securities in the System Open Market Account in agency mortgage-backed securities in order to maintain the total face value of domestic securities at approximately $2.6 trillion. The Committee directs the Desk to engage in dollar roll transactions as necessary to facilitate settlement of the Federal Reserve’s agency MBS transactions. The System Open Market Account Manager and the Secretary will keep the Committee informed of ongoing developments regarding the System’s balance sheet that could affect the attainment over time of the Committee’s objectives of maximum employment and price stability.”

The vote encompassed approval of the statement below to be released at 12:30 p.m.:

“Information received since the Federal Open Market Committee met in December suggests that the economy has been expanding moderately, notwithstanding some slowing in global growth. While indicators point to some further improvement in overall labor market conditions, the unemployment rate remains elevated. Household spending has continued to advance, but growth in business fixed investment has slowed, and the housing sector remains depressed. Inflation has been subdued in recent months, and longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects economic growth over coming quarters to be modest and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that over coming quarters, inflation will run at levels at or below those consistent with the Committee’s dual mandate.

To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.

The Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability.”

Voting for this action: Ben Bernanke, William C. Dudley, Elizabeth Duke, Dennis P. Lockhart, Sandra Pianalto, Sarah Bloom Raskin, Daniel K. Tarullo, John C. Williams, and Janet L. Yellen.

Voting against this action: Jeffrey M. Lacker.

Mr. Lacker dissented because he preferred to omit the description of the time period over which economic conditions were likely to warrant exceptionally low levels of the federal funds rate. He expected that a preemptive tightening of monetary policy would be necessary to prevent an increase in inflation projections or inflation expectations prior to the end of 2014. More broadly, given the inclusion of FOMC participants’ projections for the federal funds rate target in the Summary of Economic Projections, he saw no need to provide additional forward guidance in the Committee statement.